Russia invaded Ukraine overnight Wednesday night, bringing even more volatility to an already volatile market.
Arlan Suderman, Chief Commodities Economist with StoneX, says there’s so much risk in the market right now because that area of the world has become a major exporter of commodities, including crude oil, natural gas, wheat, corn, and fertilizer.
“So, if you shut all that down at a time when we’re already facing inflation because demand is elevated above what the levels of supply are, you make it that much tighter, that much worse.”
Ukraine’s military shut down commercial shipping operations at the country’s ports after Russia invaded Ukraine. Reuters said the announcement comes from an adviser to the Ukrainian president’s chief of staff and stoked fears of supply disruptions from one of the world’s top grain and oilseeds exporters.
For corn in particular, Suderman explains that world supplies outside of the U.S. and China are at 20-year lows, so there’s not a lot of margin for error. Rising fertilizer costs were already a factor in reducing corn acres. If exports out of that region are shut down, that will dramatically tighten up the available supply of fertilizer. He says it’s one thing to have high fertilizer prices, it’s another thing to not even be able to get it at any price.
“We saw urea prices at New Orleans jump by more than 30 percent [Thursday] on tightening global supplies of fertilizer. Natural gas prices are surging to $45 in Europe, so that starts to shut down fertilizer production there. That could further reduce global production this year at a time when demand is continuing to move higher for corn. So, there are some long-term implications in just how far this could go. And then if you throw in weather risks there as well, I don’t think we can really say what the potential ceilings might be for this market.”
So, what does this mean for you, the farmer? Suderman encourages you to manage your risk exposure.
“If you’re a producer and you’re looking at some of these prices and you think maybe I should price grain for the next year or two on this, remember what’s happening to input prices as well. See what you can do to lock in both. At the same time, many producers may not be big enough to be able to do that with derivatives. So, talk to your suppliers, maybe they can combine positions and help prevent some protection positions to protect input costs going forward at the same time you’re locking in prices.”
Suderman dives much deeper into this issue in the full HAT interview below.