The Black Sea region accounts for 34 per cent of global wheat exports, so if the conflict between Russia and Ukraine escalates and exports out of the region grind to a halt, Rabobank analyst Dennis Voznesenski said — with a couple of caveats — Australia’s grain export prices could jump 60 per cent.
Global wheat prices have already risen 21 per cent since February 1.
Mr Voznesenski said while Australian farm gate prices would benefit, they might not see the full upward impact of the global price rise due to Australia’s recent large harvest, limits on export capacity and the positive grains outlook for the coming 2022 Australian season.
“Assuming a full-scale conflict, with a virtual halt to Black Sea exports — and that basis (the difference between Australian and US wheat prices) remains constant — local Kwinana Free-In-Store Australian premium white prices could rise from $367/tonne currently to $425/tonne in the near term,” he said.
“And, if Black Sea wheat is unavailable by July, whether due to continued conflict or sanctions on Russian wheat exports, prices could rise significantly higher.
“In order for Australian wheat prices to more closely follow higher global prices, Australia would need to increase our export capacity.”
China announced on February 25 it would remove all restrictions on Russian wheat imports, a move Prime Minister Scott Morrison described as giving an unacceptable “lifeline to Russia in the middle of a period when they are invading another country”.
Mr Voznesenski said in the short term, this would not prevent the expected high pricing, but could fundamentally change global wheat flows into the future.
“China’s hunger for 50 million to 60 million metric tonnes of grain imports annually, largely for feed, could potentially shift from its current origins of South and North America and instead be supplied by Russia’s 45 million to 50 million metric tonnes of grain export surplus.”
Not just wheat
The Russia-Ukraine conflict could also see disruptions to canola and feed markets, including barley, Mr Voznesenski said.
Ukraine is the third-largest exporter of canola in the world after Australia and Canada.
Russia and Ukraine are the largest producers and exporters of sunflower seeds and sunflower oil.
“On the feed side, the Ukraine crisis is also adding upward pressure to corn prices, with 15 million metric tonnes of Ukrainian corn (seven per cent of world trade) still left un-exported this season — a season when Ukraine was meant to account for 17 per cent of global corn exports,” Mr Voznesenski said.
“And if those supplies are unavailable, they will support Australian feed barley prices.”
WHAT HISTORY SHOWS
The last time the world lost access to all Black Sea wheat exports was in October 1914, during World War I, when the Ottoman empire blockaded wheat supplies from Russia reaching allies, the UK and France.
The Chicago wholesale wheat price rose 45 per cent from October 1914 to February 1915.
There are two main differences now that indicate the impacts on wheat markets could be more severe this time around.
Firstly, the world’s reliance on Black Sea wheat is now higher, and secondly, wheat stocks in other (non-Black Sea) export regions are far lower compared with the average coming into this crisis than they were in October 1914.
Rabobank’s Dennis Voznesenski
