OMAHA (DTN) -- Leaders at USDA on Thursday sought to hold a rational, focused discussion on agricultural commodities, trade and farm conditions as commodity prices spiked, equity markets fell, and the world watched in shock as smoke bellowed from the outskirts of Ukrainian cities with both Russian helicopters and tanks moving into the country.
USDA Chief Economist Seth Meyer's speech at the USDA Ag Outlook Forum -- held entirely online -- reflected the inability overnight to properly factor in the immediate disruption and uncertainty created in the previous 12 hours. Meyer pointed that out as he began his presentation looking at grains, oilseeds, protein outlooks and price projections.
"This doesn't include any of those events last night, obviously," Meyer said. "I think it's quite too early to understand what the first-order effects are on the grain trade, what the secondary effects on energy and on the economy might be. So, we'll talk about those things in a very general sense to kind of provide some background."
Meyer later added in his presentation, "We have an unknown impact of conditions going on in eastern Europe right now."
As Meyer spoke, the Dow Jones Industrial Average fell 800 points quickly in trading before showing some recovery. Crude oil prices topped $100 overnight before dialing back to just under $99 a barrel in front-month trading. Meanwhile, grain prices took off as well. March corn was up 35 cents to over $7.18 a bushel, March and May soybeans each topped $17 a bushel with March going above $17.18 a bushel, and March and May wheat prices were up 50 cents to $9.26-$9.34 a bushel.
As DTN's morning analysis noted on commodities, "The focus appears to be squarely on the Russian invasion of Ukraine, with commodity prices sharply higher, equities sharply lower. Corn and wheat remain limit higher on the prospect that exports from the Black Sea will be interrupted. Crude oil rose above $100 per barrel early on Thursday, impacting world veg oil prices."
Pointing to the challenges of war between Russia and Ukraine, DTN Lead Analyst Todd Hultman offered this perspective: "As far as the market is concerned, the dramatic rise in prices we are seeing is largely a fleeing of the short side of the market, trying to get out of expensive, losing positions in a stressful environment," Hultman said. "That initial reaction is emotional, and it will take time to sort out how this actually changes the flow of commodities in the world."
Hultman noted Ukraine is the world's fourth leading exporter of both corn and wheat. Ukraine is also the world's largest exporter of sunflower-seed oil, an important component of the world's vegetable oil supply. This late in the season and given the two-month warning of possible conflict, much of Ukraine's grain for export has likely shipped, so supplies at risk should be minimal by now.
Hultman added, "We are not far away, however, from spring and the emergence of a new winter wheat crop, which may be difficult to harvest in eastern Ukraine this year, depending on how events unfold.
In a slide capping off his Outlook presentation, Meyer said the agricultural outlook is positive, but uncertainties remain. The last bullet point was the "Russian incursions in Ukraine's Luhansk and Donetsk Oblasts, or beyond, remains a key uncertainty," which Meyer noted was now "somewhat dated, as of this morning."
Meyer added, "I think the word incursion seems quite soft when it comes to Russia's action in the Ukraine right now, and we'll continue to keep an eye on that. And again, I'll remind you that when we put this into context, we'll talk about global grain markets, and the impact for producers. The impact for Ukrainians at a local level is obviously much more significant."
Agriculture Secretary Tom Vilsack, following Meyer, only mentioned the "tragic and unsettling Ukrainian situation" in passing during his speech on the outlook for American agriculture. After his speech, he pivoted to a pre-recorded conversation with an analyst talking instead about China, its government's moves and motives, and market outlook.
Turning to Russia, Hultman added that Russia is a major producer of nitrogen, phosphorous and potash. It is not clear if the West would hit Russia's fertilizer industry with sanctions, but it is possible. Ukraine's neighbor Belarus is the world's second-largest exporter of potash fertilizer and was hit with sanctions from Europe and the U.S. in 2021. Because of ethanol and biodiesel, crop prices are also influenced by swings in energy prices. Crude oil prices have surged to their highest levels in seven years as Russian troops threaten Ukraine. The main concern is Russia may hold back oil production as a lever against any punitive response from the West.
USDA's 2022-23 Grain and Oilseed Outlook: https://www.dtnpf.com/…
Chris Clayton can be reached at Chris.Clayton@dtn.com
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