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MARION, Iowa – As tensions between Russia and Ukraine continue to flare, the ultimate effect it may have on U.S. corn prices remains unclear.
On a map, Ukraine sits north of the Black Sea, an inland sea that connects on its southwestern side to the Meditarranean Sea by way of Istanbul, Turkey and the Turkish Straits. The setting for much of the ongoing Ukrainian crisis is Crimea, a peninsula on Ukraine’s southeastern border, jutting into northeast edge of the Black Sea toward Russia.
In the 2013/2014 marketing year, Ukraine was the 3rd largest producer and exporter of corn in the world, unseating the traditional tertiary producer and exporter: Argentina. This year, AMS Commodities Market Analyst Rich Balvanz says Ukraine was projected to surpass Argentina again for the number three spot in corn production. Now, it’s unclear if Ukrainian output will reach those levels. A failure to do so could be to the benefit of U.S. corn; since the Ukrainian crisis began in late February, corn futures here in the U.S. have risen to levels not seen since September of last year.
“If you start knocking out a portion of the 3rd-largest corn exporter in the world, that’s certainly going to have an impact on global trade, and most certainly will have an impact on price,” says Balvanz. However he also points out that the Ukrainian currency has been devalued recently as part of the ongoing crisis there.
“That means that the price of corn in Ukraine for the global buyer has gotten cheaper,” Balvanz says. “If we don’t see any further escalation in tensions, there will come a time potentially when they are much more competitive in terms of overall price than what they have been just recently, and we could actually see quite a shift back toward Ukraine once the global importer is convinced that he does not have a lot of political risk or shipping risk by buying from Ukraine.”
But on adopting a broader perspective, Balvanz says corn isn’t necessarily the commodity to be concerned about.
“The inter-relationship that exists between Russia, Ukraine, and Western Europe in the shipping or the movement of energy derived from Russia and transported through Ukraine to other parts of Europe, is the big issue,” he says. That sensitivity precludes any military response to the Ukrainian crisis. Instead, Balvanz thinks an economic response is more likely, and may explain what happens to Ukraine’s corn crop.
“If we should see a Western move to try and limit energy movement from Russia, for instance, and in terms of sanctions,” Balvanz says, “then we’ll see some shifts in the global energy market; some shifts that could have some potential positive impacts on ethanol, for instance, since we’re talking about grains and energy at the same time.”
However Balvanz points out that Europe’s dependence on Russian energy may keep a lid on the crisis.
“Because Europe is so dependent on Russian energy that flows through Ukraine, I guess I would probably think it’s unlikely that we’ll see significant sanctions placed against Russia for its activities up to this point, and this whole thing may just turn out to be a small event, when it’s all looked at historically.”
