Wheat growers in Australia could experience a lift in prices if Black Sea supplies become unavailable due to the Ukraine crisis, but experts warn the country’s ability to meet increased demand will depend on shifting an export bottleneck.
According to Rabobank, the Black Sea region accounts for 34% of global wheat exports, which have been interrupted by Russia’s invasion of Ukraine.
At least one cargo vessel carrying food supplies was hit by a missile in Ukrainian waters on Thursday.
An agricultural analyst for Rabobank, Dennis Voznesenski, said exports from the region had “ground to a halt” in the short term due to shipping blockages and the high cost or scarcity of insurance for vessels.
Long-term structural changes to wheat flows could also occur if sanctions were implemented on Russian wheat exports.
Assuming a full-scale conflict, Rabobank has predicted that Australian wheat prices could rise from the current $367 a tonne to $425 a tonne in the near term.
Brett Hosking, the chair of Grain Growers Australia, told Guardian Australia: “First and foremost, when we talk about Ukraine, our hearts and thoughts and prayers go out to the Ukrainian people, and in particular the Ukrainian farmers who at the end of the day are family farmers exactly like we have here in Australia.
“To see that happen to our colleagues is quite devastating, but we do have the opportunity to make sure those markets are still supplied with grain should any disruptions occur,” he said.
According to Hosking, the biggest limiting factor was Australia’s supply chain.
“We physically have the grain in Australia on the back of a really good harvest, but making sure we can execute it out of the country is the next challenge.”
‘It’s a catch-22’
An agricultural market analyst with Thomas Elder Markets, Andrew Whitelaw, agreed the main issue was logistics, as there were “only so many trains and trucks to load to get grain to port”.
He said there were “opportunities for more export markets but it’s a catch-22, so we have to be able to get it out”.
According to Whitelaw, Australia’s exporting facilities were already at capacity.
He said constrained capacity to export huge volumes – as well as the large crop itself – had seen Australia’s wheat market unable to keep up with the “huge rise” the global wheat market had experienced.
Whitelaw said global grain prices were strong at the start of the year, but since 18 February they had jumped from A$408 a tonne to A$475 a tonne.
He was concerned the high rate resulting from one humanitarian crisis could lead to another.
Countries in the Middle East and Africa were already experiencing rampant food inflation, he said, which could be exacerbated by the flow-on effects of conflict in Ukraine and the driving up of grain prices.
“Places like Egypt and Algeria rely on bread as primary foodstuffs,” he said.
“It’s going to be tough for them because food price is directly correlated with price of wheat.”
He said the impact on the grain market would depend on the length and severity of the Ukraine crisis.
“Everything takes second fiddle to what’s happening in Russia,” Whitelaw said.
Whitelaw, like Hosking, was also concerned for his Ukrainian colleagues in the grains industry, two of whom he interviewed live as part of his Ag Watchers podcast.
Agricultural production will go on
Ben Lyons, the director of the Rural Economies Centre of Excellence at the University of Southern Queensland, believes there has been a short-term response to the situation in Ukraine but that the medium to longer term effect on global wheat markets will not be as significant.
According to Lyons, even in the worst case scenario for Ukraine – that a Russian takeover occurs – agricultural production will go on.
“It doesn’t stop things growing,” he said.
Recent crop failures in the US and the Black Sea region had been more severe in terms of disruption to the grain market, he said. This had driven customers to find markets elsewhere, like Australia.
“You can overstate the impacts,” Lyons said.
“There’s definitely short-term behavioural [reactions from] everyone in the grain trading game.”
