Entering the middle of March, the next few weeks will be a very critical spring ploughing season in the northern hemisphere. What are the prospects of spring ploughing in Russia and Ukraine, which are big agricultural countries? Will it have an impact on future global food prices?
Wang Na, research director of agricultural products of Everbright Futures, told the First Financial Reporter that the factors to be considered in spring ploughing are fertilizer and manpower. "For Russia, it is rich in resources, and it is a major exporter of chemical fertilizers in the international market, which is less affected." She said that for Ukraine, sowing in the new season is not so optimistic. "On the one hand, the shortage of chemical fertilizers has led to a decline in the use of chemical fertilizers in spring ploughing. On the other hand, the local area is affected by the situation in Ukraine and the evacuation of refugees is expected to affect the spring sowing caused by land sowing and manpower shortage. "
Fertilizer costs soar.
According to public information, Russia is an important producer and exporter of potash fertilizer in the world. In 2020, Russia will produce about 13.5 million tons of potash fertilizer, accounting for about 20% of global potash fertilizer production, and export about 10.84 million tons of potash fertilizer, accounting for about 19% of global potash fertilizer trade.
Recently, affected by the situation in Ukraine, the price of potash fertilizer fluctuated. Wang Na said that considering that Russian and Belarusian potash exports account for 40% of the global potash exports, and Brazil and India are the main demanders of fertilizers, the impact of the situation in Russia and Ukraine on the rising cost of fertilizers can not be ignored.
On 14th local time, Russian billionaire Andrei Melnichenko, who runs fertilizer and coal business, said that unless the current situation can be stopped, the global food crisis is imminent, because the price of fertilizer has soared so fast that many farmers can no longer afford it.
Melnicenko founded Eurochem, whose product line covers nitrogen fertilizer, phosphate fertilizer, compound fertilizer, organic chemicals and iron ore business. It is one of the largest fertilizer enterprises in Russia and one of the top five fertilizer enterprises in the world.
Earlier, on March 10th, the Russian Ministry of Industry said that it decided to ban the export of chemical fertilizers to "unfriendly" countries and regions. Then the global fertilizer price started a new round of rising.
According to the latest data of the Food and Agriculture Organization of the United Nations (FAO), as an important nitrogen fertilizer, the price of urea has more than tripled in the past 12 months.
Holst, president of chemical fertilizer giant Yara, also said recently that the current record high natural gas prices forced the group to cut its ammonia and urea production in Europe to 45% of its original capacity.
Holst also said that the global food supply will feel a chain reaction due to the reduced supply of these two basic fertilizers.
In a recent article on the situation in Ukraine, FAO said that more than 50% of fertilizer supply in some countries in Europe and Central Asia comes from Russia, and the supply shortage may continue until next year.
Wang Na, for example, told the First Financial Reporter that the rising cost of chemical fertilizer has been reflected in the process of sowing the second crop of corn in Brazil, so the Brazilian authorities indicated to reduce the use of chemical fertilizer.
Global food prices hit record highs.
Before the situation in Ukraine appeared, global food prices were already high. According to FAO data, in February, global food prices hit a record high. The FAO food price index tracks the monthly changes in the international prices of food commodities with the largest trade volume in the world. The index averaged 140.7 points in February, up nearly 4% from January. But it is also 24.1% higher than that of a year ago.
Among them, the greater driving force of rising food prices comes from outside food production, especially in the energy, fertilizer and feed sectors. Moreover, since the food price index measures the average price of the whole month, the reading in February only included part of the market impact brought by the situation in Ukraine.
FAO said that in the past two years, the epidemic has brought many challenges to global food security, and the current situation has added a serious challenge to this.
According to FAO data, Russia is the largest wheat exporter in the world, and Ukraine ranks fifth. Together, the two countries account for 19% of global barley supply, 14% of global wheat supply and 4% of global corn supply, accounting for more than one third of global grain exports. The two countries are also major suppliers of rapeseed, accounting for 52% of the world sunflower oil export market.
According to FAO, the interruption of supply chain and logistics of grain and oilseed production in Ukraine and Russia and the restrictions on Russian exports will have a major impact on food security. At present, about 50 countries rely on imports from Russia and Ukraine to ensure 30% or more of their wheat supply, most of which are the least developed countries or low-income food-deficit countries in North Africa, Asia and the Near East. For these countries, the food security situation is particularly grim.
FAO pointed out that, in view of the fact that the agricultural activities of Russia and Ukraine, two major commodity exporters, may be forced to be interrupted, the global food insecurity will be seriously aggravated when the international food and agricultural materials prices are already at a high level and fluctuating. The conflict may also limit Ukraine’s agricultural production and purchasing power, leading to increased local food insecurity.
The grain harvest season will come in June, but it is uncertain whether Ukrainian farmers can harvest crops and transport them to the market. Specifically, FAO said that the Black Sea port in Ukraine has been closed. Even if the inland transportation infrastructure is intact, if the railway system fails to operate, it will hinder the transportation of food by railway. Ships can still pass through the Turkish Strait, and a lot of wheat and corn have to be transported through this important trade pass. The rising insurance costs in the Black Sea region will push up the already high shipping costs and further affect the cost of food imports. In addition, it is not clear whether the storage and processing facilities can be kept intact and whether the manpower can be in place.
On the Russian side, Russia’s Black Sea port is still open, and it is not expected to have a significant impact on agricultural production in the short term. However, FAO pointed out that the financial sanctions against Russia have caused a sharp depreciation. If the sanctions continue to be implemented, productivity and growth will be destroyed, and eventually the agricultural production cost will be further increased.
FAO also said that more than 35% of the world’s population is mainly based on wheat, and the current conflict may lead to a sharp drop in wheat exports from Russia and Ukraine. It is not clear whether other exporting countries can fill this gap. Canada’s wheat stocks are already at a low level, and the governments of the United States, Argentina and other countries are expected to make efforts to ensure domestic wheat supply, so exports may be limited.
At the same time, the export prospect of sunflower oil and other kinds of vegetable oil is still unclear. India, the European Union, Iran and Turkey and other major importers of sunflower oil must find other sources of supply or switch to other kinds of vegetable oil, or it will have spillover effects on palm oil, soybean oil and rapeseed oil.
According to the data of the United States Department of Agriculture (USDA), in 2021/22, the sunflower seed production of Ukraine and Russia reached 33 million tons, accounting for about 60% of the global sunflower seed production, among which the sunflower seed production of Ukraine accounted for 28.6% of the global production.
Xie Wen, a senior analyst of Zhongda Futures, said that in the long run, due to the situation in Ukraine, the sown area of sunflower seeds in the new season in Ukraine may be greatly reduced, and due to the high fertilizer price and supply concerns, the yield of sunflower seeds in the new season in Ukraine has decreased, and the yield of sunflower seeds in the new season has decreased significantly; The new season sunflower seeds in Russia are planted normally, and the planting area and yield may increase; Other countries may increase production of sunflower seeds, but it is estimated that it is difficult to make up for the decrease of sunflower seed production in Ukraine as a whole. In 2022/23, the global sunflower seed production is likely to decrease month on month.
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