Economic Tidbits

The Bear Backs Out and Bares Its Claws

Russia announced last week it was withdrawing from the Black Sea deal brokered by the United Nations (UN) one year ago allowing Ukraine to export grain through its Black Sea ports following Russia’s invasion of Ukraine. After the withdrawal, Russia attacked grain export facilities in Odessa and Chornomorsk, damaging both facilities and stored grain. Reports said 60,000 tons of grain at Chornomorsk were damaged and it would take a year for facilities to be repaired. 

Reuters reported that under the UN deal Ukraine had exported 33 tons of agricultural products, including 17 million tons of corn and 9 million tons of wheat. For context, Ukraine exported 25-30 million tons of corn and 16-21 million tons of wheat prior to Russia’s invasion. The Wall Street Journal reported that 8 million tons of grain exported by Ukraine under the deal was shipped to China. Russia’s withdrawal and bombing of ports means Ukraine will need to find other more costly, time-consuming, and less efficient land or river routes to export grain. 

What are the implications for Nebraska producers of Russia’s withdrawal and bombing? As of this writing, futures prices for corn and wheat had spiked higher in response to the news as one would expect. Because China was the destination for nearly one-third of Ukraine’s grain exports under the deal, it could provide market opportunities for U.S. corn and wheat. Chinese imports of U.S. corn between October and May are off 40 percent compared to the prior year while imports of U.S. wheat are up 244 percent. Both the spile in prices and export market opportunities could benefit Nebraska crop producers. However, higher grain prices mean higher feed costs for Nebraska’s livestock producers. And uncertainties in world energy markets could increase costs for both crop and livestock producers.

Events in the Black Sea can affect Nebraska producers. For some, the events could be beneficial. For others, it might increase costs. The events have also revived worries over global food costs, especially for impoverished nations which import much of their food. Food costs spiked to record levels following Russia’s invasion of Ukraine last year. The UN deal helped reduce these costs. Once again, the Black Sea region bears close monitoring.

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