Market Check - Farming in the Black Sea in 2022

Farming in the Black Sea in 2022

In March this year, I sat in a farm meeting in Moldova discussing how we would continue to operate if Russia invaded. The war broke out and I remember thinking I must have missed that class at university. Our business, Green Square Agro Consulting, specialises in Black Sea crop intelligence, particularly forecasting crop yields in Russia and Ukraine, but in one of my additional roles, I help support a farm in Moldova. Usually, at that time of year, I would be finalising spring planting logistics with the local team. However, Russia had just invaded Ukraine, and there was a real possibility that Moldova, a small landlocked country situated between Ukraine and Romania, would be next. Meanwhile, just across the border in Ukraine, farmers were having to deal with the reality that war had arrived.

“The missing hectares were either destroyed, unsafe to combine or located in Russian-occupied territories.

Martial law was quickly established; able-bodied men from 18 to 60 were not allowed to leave the country, and reserve forces were mobilised. Initially, tractor drivers were exempt from joining up, but that didn’t stop many from doing so. On the farms, fuel supplies quickly became an issue. Ukraine imported most of its diesel from Belarus, which was now allowing Russia to launch attacks from its territory; consequently, fuel supplies from Belarus stopped. It took a while for alternative supplies from Romania, Hungary, and Poland to start flowing, but by the start of spring planting, fuel was generally available, although at double the price and cash on delivery. Around 60% to 70% of seed, fertiliser and agrochemicals had already been delivered to farms before the invasion, which meant that some farms could start planting.

Ukraine imposed a curfew and blackout, which meant farm operations couldn’t work around the clock as they usually would. Even if they could, no one wanted to be sitting in a tractor lit up like a Christmas tree. Despite all these difficulties, direct attacks on farms and machinery, land mines, missiles, and general danger, Ukraine’s farmers planted around 70% of the main spring crops – corn, sunflower, soya, and barley. Most of Ukraine’s wheat was planted in October, so that was already in the ground before the Russian invasion, and farmers managed to apply some spring fertiliser and pesticides.

Front lines shifted throughout the season, but by harvest, Ukraine farmers combined around 70% of the wheat crop producing 19 million tonnes at a respectable 4.10 tonnes per hectare (the five-year average is 4.03 tonnes per hectare). The missing hectares were either destroyed, unsafe to combine or located in Russian-occupied territories. Some of Ukraine’s wheat in the occupied territories has been exported as Russian wheat or transported to Russia, and while it’s difficult to say how much, there is circumstantial evidence to suggest it is significant. At the outbreak of war, Ukraine’s Black Sea ports closed. Prior to the invasion, Ukraine exported around five million tonnes of grain each month through the Black Sea ports, mainly Odesa and Mykolaiv; this dropped to zero with grain and loaded ships trapped in silos and ports. Traders and governments quickly looked for alternative export routes across Ukraine’s western borders, but bottlenecks, such as different rail gauges between Ukraine and Europe, meant capacity was limited. With the ports closed, exports struggled to reach 20% of pre-war levels.

“If the war does stop tomorrow, it will take years before Ukraine’s agriculture and grain exports get back to pre-war levels.”

In July, Turkey brokered an agreement between Ukraine and Russia allowing for the safe passage of grain ships, and August exports immediately increased to 40% of the pre-war level. Ukraine’s Ministry of Agrarian Policy expect this to rise further, but the agreement was only until November, and Russia said they wouldn’t negotiate another deal. Delayed exports mean farm storage has started to fill up as the backlog of old crops is still in the system and new crops are being harvested. Farmers and Ukraine’s Ministry of Agrarian Policy are actively sourcing temporary storage options such as ag bags.

Reduced sales and low farm gate prices, as traders factor in risk, are putting farm cashflows under further pressure. New season wheat crop plantings will be down significantly this October. At the time of writing, Ukraine’s counter-offensive appears to be gaining traction, but the conflict will likely continue for some time. However, if the war does stop tomorrow, it will take years before Ukraine’s agriculture and grain exports get back to pre-war levels.

Editor: Mike Lee, Director, Green Square Agro Consulting

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