Jeremy's Blog 11th March 2022: Early Market Effects of Ukraine War
This article by Jeremy Moody first appeared in the CAAV e-Briefing of 10th March 2022
The immediate effect in produce markets of Russia’s barbaric aggression in Ukraine is the removal of large stocks of grain and oilseeds, Ukrainian and Russian, from already tight markets with 160 carriers stuck in the Black Sea. Rising prices are then increased as buyers pay dearly to replace the supplies they thought they had, some with exposed market positions – a phenomenon also seen in oil and metals markets. The consequences will reverberate around the world.
From the 2021 harvest, the direct consequences are shorter grain and vegetable oil supplies for the Middle East, risking political turbulence, higher prices across the world and increased input costs for livestock farmers, especially pigs and poultry.
For the 2022 harvest, gas prices making nitrogen expensive or unavailable challenge farming while other fertiliser prices rise in constrained markets. Red diesel closed last night at 141ppl, perhaps really a comment on unavailability. A webnote reviews issues for stocktaking and end of tenancy, with other concerns from contract farming to maize supply contracts. Building materials are under further pressure.
Ukraine might not now have a significant harvest. With limited possibilities for increasing this year’s northern hemisphere harvest, the simple need is to ensure its yield with overall expectations in November’s prices.
The larger issue may be winter fodder with happiness being a full clamp after this winter. Do others take more grass, improve nutrient management, change the mix in new swards, sell stores now or find other answers? Arable farming then faces the unknowns for autumn establishment, starting to shape the 2023 harvest. Indeed, the coming autumn and winter may be no less challenging for the wider economy, society and the living standards of many.
Those agricultural effects may take time to become clear. While lack of evidence may give little active steer for rent reviews – 2007/8 saw similar tensions between increased produce prices and increased costs – landlords and tenants should still talk. With interest rate increases perhaps deferred, the larger uncertainties now unleashed could see UK agricultural land as a haven asset in a more precarious world.
Escalating sanctions on Russia now bearing on energy might stimulate further development of renewable energy, answering energy independence and climate change – all subject to grid connections.
The outcome may not be a change in the balance between policy objectives for food, climate and environment, rather to make improving productivity and tackling climate change all more important at the same time. Wars drive change; this could drive a more vigorous policy for change, not remake the case for past policies.