As Western leaders fear an imminent Russian invasion of Ukraine and a return to “Cold War” diplomacy, agricultural analysts are warning of the severe impact that war and economic sanctions could have on the global food market.

Grain production and export in particular is now under serious threat, with much of the world relying on crops grown and exported in and from areas bordering the Black Sea – a region contested by the Kremlin, with much of it (like the Crimean Peninsula) already annexed by Russian troops in 2014.

FoodIngredientsFirst speaks with Vito Martielli, a senior analyst for grains and oilseeds at Rabobank’s RaboResearch Food & Agribusiness, about the possible consequences of conflict escalation for the global grain trade, which could severely impact the multi billion dollar market and prevent the flow of hundreds of millions of metric tons of essential products worldwide. 

“In a worst case scenario, crops like wheat could double in price,” he says. “This would put heavy pressure on other global production regions and impact the capacity to grow other essential crops.” A crisis would add to already inflating food prices, which has seen costs rise in some cases to the highest point in 30 years. 

Major grain traders are preparing for potential volatility and danger, with Jackie Anderson, director of external communications at ADM, telling FoodIngredientsFirst: “We are actively monitoring the situation, and continually keep the safety of our colleagues as our top priority wherver we operate.”

The US administration says Russia is preparing a false flag operation as a pretext for war with Ukraine.Dark prospects for the Black Sea 
Ukrainian and Russian territories bordering the Black Sea are currently some of the world’s premier production sites for many essential grains – in particular wheat, barley, corn and oil crops like sunflower and rapeseed. 

The land is perfect for a number of reasons, explains Martielli. “Good infrastructure and fertile land make for a very high yield potential. Moreover, the region’s geolocation, with ports around the Black Sea granting easy access for global shipping, mean many countries rely on these territories for their supply.” 

Presently, Ukraine and Russia together account for global exports of roughly 30% of wheat, 30% of barley, 20% of corn and over 70% of the sun flower oils and products. 

A disruption caused by war or sanctions could have an “extraordinary impact,” says Martielli, especially given “inelastic consumer demand.” 

Wheat in crisis 
The biggest grain commodity under threat from the crisis is the wheat market, with over 200 million metric tons exported annually globally. If this was disrupted, or if export from Black Sea ports was blocked altogether, the food industry would be forced to turn to other regions in search of crops. 

Other major producers like the EU and North America would then be put under pressure as regions like the Middle East and NorthWheat rose 21% in 2021 on an estimated 8.8mmt market deficit, says Rabobank. Africa rush to secure their supplies. Egypt, for example, is the world’s biggest importer of wheat, followed closely by Turkey. 

Areas of the EU, such as France, would be forced to begin ramping up wheat production in place of other crops like barley and rapeseed. In North America, corn and soy crops would be threatened by increased demand for its wheat produce, causing further market turbulence and rising prices. 

However, not all grain producers are yet feeling serious concern over future volatility. JB Daughenbaugh, general manager of Alliance Grain Co. – a top cooperative in the US state of Illinois – tells FoodIngredientsFirst that they feel insulated from the crisis as much of the coop’s grain business is primarily domestic and in the gulf region. 

“We sit in the middle of the US corn belt, and a lot will go to the gulf – a viable market. We have seen no breakdown there and we sell a lot domestically for poultry and ethanol. Our main concern is for the futures market,” he says. 

“When we hedge our grain on the futures trade, and when there are crazy swings in the market, thats when we get margin calls.”  

Disruption in the grain trade would place heavy pressure on other global regions and crop production.The Chinese “wild card” 
The most unpredictable aspect of a grain crisis caused by war or sanctions between Russia and the West implicates China, explains Martielli. “This is because China is sitting on huge reserve stocks of wheat and it is difficult to tell exactly how much they own.” 

The United States Department of Agriculture (USDA) estimates that China has roughly 140 million metric tons of wheat stocks preserved for consumption, which would account for around half of the global total. 

“However, despite the general reliability and accuracy of USDA estimates, it is impossible to know exactly how much China really owns,” continues Martielli. 

“Were a conflagration to occur, these stocks would likely not be available for export. They would be kept for the 1.4 billion Chinese citizens relying on food supplies. If, however, these estimates are inaccurate, then it could mean China could require foreign imports, bringing further volatility to the market.” 

Countries like China could also likely bypass Western sanctions and buy cheap wheat from Russia, creating a sharply bifurcated market. 

In contrast, it is possible that China has more than the USDA estimates, meaning more grain could be exported into the global market, having other important impacts. 

It is simply too hard to know at this point what will or could happen, concludes Martielli.