War in Ukraine expected to keep wheat, canola, corn prices high until end of 2022

Australian grain growers are primed to capitalise on a rare run of good seasons driven by Russia’s war on Ukraine and tight stocks.

The war in Ukraine is a key factor driving up world grain prices.

Australian grain growers are primed to capitalise on a rare run of good seasons, with strong prices and tight world stocks putting them in pole position to meet a surge in global demand for most grains.

Experts predict grain prices are likely to remain high until 2023, driven by Russia’s war on Ukraine, unfavourable weather in some grain growing countries and tight stocks.

Prices for wheat, barley, canola and lentils were already at high levels prior to Russia’s invasion of Ukraine but with the war entering its second month, analysts expect values to rise as fears grow of a global shortage of grain.

Russia and Ukraine are known as the bread basket of Europe, accounting for 25-32 per cent of global wheat exports in the past five years.

Rabobank said this week about 15 million tonnes of grain remained trapped in the Black Sea region.

“Black Sea exports appear very unlikely to return to pre-war levels given ongoing tensions between Russia and the West,” the bank said in its Agri Commodity Markets Research report.

Wheat prices have hit high levels as a result of Russia’s invasion of Ukraine.

Chicago Board of Trade May wheat futures were sitting at more than $US11 a bushel ($A540 a tonne) this week, well above the Australian Securities Exchange’s July futures price of $A410 a tonne.

But grain industry figures in Australia said recent CBOT futures prices had become decoupled from actual wheat prices in the US.

“The (futures) prices in Chicago are not reflective of wheat prices,” said one grain market observer, who did not wish to be named.

US Department of Agriculture estimates showed global wheat stocks at 278 million tonnes — their lowest level in five years but still at historic highs.

But China accounts for 142 million tonnes of stocks, with India holding about 25.4 million tonnes.

Emerald Grain chief executive David Johnson said China was likely to hold on to its stocks, particularly given adverse weather reports, and India was taking advantage of high global prices to reduce its stockpile.

“There’s talk of Chinese wheat conditions being the worst on record,” Mr Johnson said.

“So China will keep its stocks.”

Mr Johnson said India had begun selling its stocks to fill the void left by Ukraine’s lower quality wheat, capitalising on current high prices.

“India looks like heading to 10-12 million tonnes in wheat exports this year,” he said.

Mr Johnson said if the war continued to affect Black Sea exports, markets would look to US stocks for relief, pushing up global prices.

Australia was unable to extract extra sales at the moment and was fulfilling existing contracts.

Despite plenty of available ships, he said there were rail and road logistic issues getting grain to port.

“We just can’t get any more out the door at the moment,” he said.

While many grain analysts expect the Black Sea region to go from bread basket to basket case, Ukraine is still expecting to produce a sizeable crop.

Ukrainian Deputy Agriculture Minister Taras Vysotsky said the country’s grain area might decrease by 30 per cent but that would be enough to affect the food security of some countries.

According to Lexton farmer Lawrence Richmond, who currently managed farms in Ukraine and Romania, Ukrainian farmers would begin sowing their spring corn crops in two weeks.

Mr Richmond, who was currently in Romania, said one impact of the war affecting Ukrainian farmers was the Russian military stealing farmers’ fuel.

He said if the war in Ukraine ended today, it would be September at the earliest before grain exports would resume.

The Russian military had surrounded Ukraine’s biggest grain port of Nikolaev (Mykloaiv) but Ukrainian forces had this week pushed them back to Kherson, about 40km away.

He said only one of Nikolaev’s four or five grain terminals had been damaged by the war and only suffered minor damage.

The Ukrainian Government said it had $US7.5 billion worth of grain from last season, which was waiting to be exported.

Ukraine is also a major producer of canola, sunflower and corn, and for the past few years, has accounted for about 20 per cent of the global canola trade, half the sunflower market and 15-16 per cent of world corn exports.

Australian Oilseeds Federation executive director Nick Goddard said any disruption to Ukraine’s canola and sunflower trade meant the global supply of vegetable oils would remain tight for some time.

Mr Goddard said drought hitting the Malaysian palm oil crop and South American oilseed production had already affected the vegetable oil complex.

“If there is any gap in Canada’s canola production this season, that’s just going to add to that global tightness,” he said.

Emerald Grain’s Mr Johnson said the war had damaged world supplies of grain, and he expected prices to remain high.

“It’s a very good place for Australian growers to be in,” he said.

Grain Growers Limited chairman Brett Hosking said if the war stopped tomorrow, he was confident the world’s sanctions against Russia would not be lifted.

“I would be relatively confident grain prices will remain strong to the end of the year, but anything can happen between now and then,” Mr Hosking said.