Ukraine turmoil hasn't finished with agriculture markets

by Agrimoney.com

Is that it for the Ukraine crisis?

There is hope of containment, at least, with talks between Moscow and Washington over Russia's deployment of troops to Crimea in southern Ukraine.

But that does not mean that the turmoil should be forgotten by agricultural investors, producers and policy makers, even if negotiation can put a lid on the Crimea pressure cooker.

Hryvnia's hard time

After all, Ukraine represented a worry to markets before any balaclava-wearing pro-Russia militia were seen around Balaclava, as protests forced Viktor Yanukovych, the country's president, to flee.

While fears that instability would interrupt logistics and exports have not, so far been fulfilled, with Ukraine's main grain ports such as Odessa a distance from Crimea, that is not the only threat to crop supplies.

Ukraine's farmers, like peers in Argentina, may decide to withhold sales of crops, denominated in dollars, if the local currency, the hryvnia, takes a new lurch lower.

Even if it doesn't, the currency's fall of some 18% this year means farmers already face paying more, in hryvnia terms, for imported needs such as many fertilizers and agrichemicals, which looks like curtailing harvest prospects this year.

Russian trade

Farmers may have to do so with minimal state support too. Although the European Union on Wednesday backed an E11bn aid package to Ukraine, much of that is tied to longer-term programmes, and there are many calls beyond farming on what cash is available immediately.

And all this is before bringing Russia into the equation, and considering what a weakened rouble means for a country already renowned for its keen rivalry in grain export markets.

Russia's dominance in last week's wheat order by Egypt's Gasc authority underlined the even sharper edge to its competitiveness honed by a soft rouble.

Conversely, the rouble retreat bodes ill for Western livestock producers, albeit at a time when meat prices are extraordinarily high, with Russia the top beef importer, ranked second in pork, and a substantial poultry buyer too.

Message to policymakers

But if those are factors for grain producers and traders to consider, there is one for policymakers too.

The flexing of Russian muscles issued a timely reminder of the reliance of many Western nations for energy on countries with somewhat unpredictable, or plain unsavoury, regimes.

Russia, for instance, supplies Europe with more than 30% of its natural gas (about half of which comes through Ukraine).

This kind of dynamic should make authorities in importing countries think twice before going in too hard on the biofuels industry in an attempt to depress food prices. Gaining energy independence, with technologies as carbon neutral as possible, is a strategic benefit.

Sure, food is the priority. But soaring fuel prices can bring nations low too.

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