Economists: 'We're not going to run out of wheat'

WASHINGTON, D.C. — Grain and input prices were high even before the Russian invasion of Ukraine, but the uncertainty it adds will likely keep prices high until at least the summer of 2023, and it may be 2024 until they go to pre-invasion levels, a prominent agricultural economist and trade expert says.

"Here we are again," said Joe Glauber, speaking April 25, 2022, in Washington, D.C., to the North American Agricultural Journalists annual meeting, regarding wheat and other grain market shocks, including the Russian invasion of Ukraine.

Glauber and David Laborde, economists with the International Food Policy Research Institute, doing work in reporting international food security issues. The group coordinates with the Food and Agriculture Organization.

Glauber recalled the fall of 2007 and 2008 when spring wheat went even higher, hitting $20 a bushel. Australia had gone through two years of consecutive drought. A large winter wheat harvest in the U.S. and the European Union in 2008 led to a collapse of prices in late 2008.

"There are countries that depend a lot on imports from the Black Sea — Ukraine and Russia — that are now trying to source wheat from a variety of different places around the world, new suppliers," Glauber said.

Laborde said the rate of fertilizer price increases have been surprising, but have been increasing over the past year.

As policy responses for food security, IFPRI is urging the U.S. to remove biofuel subsidies and mandates, target social safety nets to the most needy, boost funding to WFP and other humanitarian programs, and allow markets to guide producer and consumer decisions.

Meanwhile, they advise against: 1) imposing sanctions that obstruct food and fertilizer trade, or implementing export restrictions, 2) panic buying or targeting subsidizes to specific crops to “engineer” production outcomes, and 3) canceling environmental initiatives without weighing long-term costs, and against promoting self-sufficiency policy and “autarky strategy,” which means states that are economically independent.

Glauber, a former chief economist for the U.S. Department of Agriculture, and former top ag economist with the U.S. Trade Representative's office, is senior research fellow for IFPRI's markets, trade and institutions division.

The countries looking for wheat will find it somewhere, Glauber said. But 60% of what’s traded in the world comes from the Northern Hemisphere.

There are signs that Russia is beginning could normalize trade, but is imposing heavy export taxes. Considering sanctions, it is getting risky, financially, to do business with Russia. He said the wheat that Russia will trade was planted last fall, when farmers thought prices would begin to moderate. The U.S. winter wheat crop is affected by a long-term drought, but it is early to “discount a wheat crop” because of drought. The next five weeks are going to be critical.

U.S. spring wheat plantings intentions last March indicated farmers weren’t planning to increase acreage, because other crop prices area quite high, and fertilizer costs for soybeans are lower. Kazakhstan is not showing an increase in wheat plantings.

Glauber sees more wheat acres coming from the Southern Hemisphere, and Europe and the U.S. may increase acres next fall.

"What we forget is that 20 years ago, Russia and Ukraine, were net importers of wheat," Glauber said. "Egypt and other countries that depend on them will find other suppliers. We're not going to run out of wheat."

But the impacts are higher than they've been since 2012 and 2007 and 2008.

Glauber noted that prior to the Russian invasion of Ukraine commodity prices were climbing. There were wheat production problems in the northern Plains and Canada and the Mideast has had production problems. There was a rapidly deteriorating soybean crop problem in South America, which drug up corn prices as well. Palm oil and the vegetable market was going crazy because of production issues in Indonesia.

And then the Ukrainian invasion pushed wheat prices 25% higher than they were prior to the invasion — "still below what we have seen in 2007 and 2008, accounting for inflation."

The question is how long will Ukraine be out of the market.

"A lot of that will depend on how much damage there is in those ports along the Black Sea," Glauber said.

Mariupol, Ukraine, is being destroyed by an assault by the Russians, but it is still uncertain what the impact will be on the Odessa port.

"Right now it's blockaded, they can't move any wheat out of there," he said.

It isn't known how much will be harvested in July and a bigger question is how much of that will be harvested because that region is occupied by Russia.

Ukraine doesn’t have real, viable alternatives for shipping out grain other than Odessa, he said. It is difficult to ship out of Romania and shipping through Poland is impractical because ports aren’t deep enough to accommodate Panamax with the depth of the port waters. This adds costs to shipping, if it can be accomplished.

It isn’t clear how much of Ukrainian port facilities and storage have already been damaged.

“That’s a lot of wheat, because wheat is grown primarily in the east and south (of Ukraine). Corn is grown in the north," Glauber said.

He said the Ukrainian Ministry of Agriculture makes updated reports every week and indicates that 40% of the plantings could be lost, and the harvest is in question.

In the oil markets, palm oil is one of the largest oils traded in the world.

"We tend to think about sunflower, canola and the oil we eat, and the vegetable oil we buy in the grocery store, but palm oil is very important for commercial food preparations and industrial uses ... and those prices," Glauber said.

Sunflower accounts for 13% to 15% of what's traded for vegetable oil, worldwide, and Ukraine traditionally supplies half of that. Russia supplies 20% of world exports in exports, and Ukraine supplies 10%. Countries in sub-Saharan Africa receive the bulk of their imported calories from the region. Forty percent of the wheat in the European Union goes to feed production,

Meanwhile, last year's meat prices were very high, due in part to supply chain and COVID issues, so now there will be high feed costs as well. Glauber expected some meat price moderation, but they're still relatively high.