Grain Market Update Updated Slated for September 15 at 7:30 a.m.

OSU Extension invites Ohio corn and soybean producers to grab a cup of coffee this friday morning, September 15,  and tune in for Coffee and Grain Marketing with Dr. Seungki Lee from 7:30 to 8:00 via Zoom

The latest World Agricultural Supply and Demand Estimates (WASDE) crop reports was released this week. Tune in to see what this month’s report might mean for producers and their marketing strategies as we enter in to harvest season.

Learn more about the factors impacting the corn, soybean, and wheat markets. Producers are encouraged to bring their questions to this early morning conversation.

There is no fee to attend any of these webinar sessions.

Pre-register at: go.osu.edu/coffeewithDrLee

Click here for registration flyer

The sponsors of this event include: OSU Extension, the  Ohio Soybean Council, Farm Financial Management & Policy Institute (FFMPI), and the Department of Agricultural, Environmental and Development Economics (AEDE)

Ask The Experts take the stage at FSR

By: Wm. Bruce Clevenger, OSU Extension Field Specialist, Farm Management

Agriculture is information driven and growers and industry always have great questions.  Who should you ask for trusted answers?  Ask The Experts at Farm Science Review!  Three days of Experts have been scheduled to take center stage again this year at the 2023 Farm Science Review.  This conversational dive explores hot/current topics between the moderator, Experts, and the audience.  The 30-minute sessions give 15-20 minutes of information from the Experts and 5-10 minutes of Q&A with the audience.  It is the best place to stop and take a sit-down break at FSR.  Grab some food and enjoy.  Experts include ag economists, weather scientists, Women in Ag leaders, veterinarians, agricultural attorneys, agronomists.

Topics include: weather whiplash, empowering Women in Agriculture, USDA Farm Bill, farm property insurance gaps, grain markets, beginning farmer education course, ticks on pasture effecting people and livestock, mold and feed, mental health, carbon markets, an average farm may not be profitable, farm labor, death’s impact on the family business, financial health of Ohio farms, and agronomy vs. economics.

Plan you day(s) at Farm Science Review at:

https://fsr.osu.edu/ , click Visitor Information, click Mobile App/Digital Directory.

 

2023 Ask The Expert Schedule

Date Time Speaker Topic
9/19/2023 10:00 Aaron Wilson Weather Whiplash – Dealing with Weather Extremes
10:30 Gigi Neal & Linda Vernon Celebrating 20 Years of Empowering Women in Agriculture – Annie’s Project
11:00 AEDE Dept The Farm Bill and Beyond
12:00 Barry Ward Economic View From The Farmgate
12:30 Robert Moore & Jeff Lewis Farm Insurance – Covering Your Assets
1:00 Seungki Lee How Is The Market Doing?
1:30 Eric Richer What is OSU’s Farm On Course?
2:00 Tim McDermott Managing Asian Longhorned Ticks on Pasture
2:30 Scott Kenney Is Hepatitis E Virus a Risk to Ohioans?
9/20/2023 10:00 Gustavo Schuenemann Molds and Mycotoxins in Cattle
10:30 Mike Estadt How Smart Are Your Commodities?  Carbon Intensity Scores and More
11:00 Clint Schroeder Utilizing Benchmarking Data: It Doesn’t Pay to be Average
11:30 Aaron Wilson Weather Whiplash – Dealing with Weather Extremes
12:00 Barry Ward Economic View From The Farmgate
12:30 Robert Moore & Jeff Lewis Farm Insurance – Covering Your Assets
1:00 Seungki Lee How Is The Market Doing?
1:30 Margaret Jodlowski Who is Working (or Will Work) Ohio’s Farms?
2:00 David Marrison Is Your Farm Business Ready for Your Death?
2:30 Margaret Jodlowski The Farm Bill and Beyond
9/21/2023 10:00 Luciana da Costa One Health and Livestock Farming
10:30 Ani Katchova How Are Ohio Farms Doing Financially?
11:00 Bridget Britton Sit down, Take a load off, and Let’s have a Chat. Life can be Stressful.
11:30 Aaron Wilson Weather Whiplash – Dealing with Weather Extremes
12:00 Barry Ward Economic View From The Farmgate
12:30 Robert Moore & Jeff Lewis Farm Insurance – Covering Your Assets
1:00 David Marrison Is Your Farm Business Ready for Your Death?
1:30 Lindsey, Ortez, Ward Agronomy + Economics = Agronomics. What Comes First in the Equation?

 

Ask The Experts is located at the corner of Kottman and Friday Avenues, Exhibit Area 425, across from the Firebaugh building.  Seating is available under the tent.

In addition to the Ask The Expert sessions, Review goers can explore OSU Extension Farm Management Resources in the Firebaugh building across from Ask The Expert area all-day, each day of the Review.  OSU Extension Farm Management resources can also be found online at: https://farmoffice.osu.edu/

 

What are the Implications of the Black Sea Grain Deal Breaking Down?  

By: Ian Sheldon, Professor and Andersons Chair of Agricultural Marketing, Trade, and Policy, Agricultural, Environmental, and Development Economics, Ohio State University and Chris Zoller, Associate Professor and Extension Educator, Agriculture & Natural Resources, Ohio State University Extension – Tuscarawas County

Click Here to Access a PDF Version of Article

The Black Sea Grain Deal So Far

The Black Sea grain export deal signed by Ukraine, Turkey, Russia, and the United Nations (UN) on July 22, 2022 (USDA, Foreign Agricultural Service, Grain: World Markets and Trade, August 2022), was originally extended for four additional months in November 2022, followed by further extensions in March and May 2023 respectively, the most recent being for only two months up to July 17, 2023.  During that time-period, 32.7 million metric tons of grains and oilseeds have been shipped to 45 countries from the Ukrainian ports of Chornomorsk, Odesa and Pivdennyi (Yuzhny), the percentage breakdown of the cargo totals being corn (51%), wheat (27%), sunflower meal (6%) and sunflower oil (5%), and other (11%) (Black Sea Grain Initiative Joint Coordination Center, July 2023).

Resumption of Ukrainian sea exports over this time-period has helped in reversing the spike in global food prices that occurred after the Russian invasion of Ukraine, the FAO Food Price Index dropping by almost 39% since March 2022 (World Food Situation, FAO/UN, July 7, 2023).  However, as of July 17, 2023, Russia has ended its participation in the deal, which brings with it increased uncertainty about available global grain and oilseed supplies as well as the potential for greater price volatility and/or increased food prices (New York Times, July 17, 2023).

Even before Russia pulled out of the grain deal, the rate of exports from the three Ukrainian ports was already declining (see Figure 1), the latest export tonnage being just over 0.2 million metric tons as of July 7, 2023 (UN Black Sea Grain Initiative Joint Coordination Center).  This slowdown in exports also shows up in the average number of ships being cleared under the deal falling from a peak of 11 in October 2022 to 3 in May 2023 UN Black Sea Grain Initiative Joint Coordination Center).  At this point, the Black Sea Corridor is no longer the dominant route for exports, with more crops being shipped through ports on the Danube, as well as by rail and road (Bloomberg News, July 6, 2023).  Essentially, the deal allowed Ukraine to export the grain stockpiles that it had accumulated with the closing of its ports post-invasion, but in the view of some observers, the deal was already essentially “defunct” (Bloomberg News, July 6, 2023).

  Figure 1:

What are Russia’s Concerns with the Deal?

Russia’s unwillingness to renew the grain deal has been brewing for some time, Ukraine previously accusing it of trying to undermine the deal by dragging out and even preventing the required restrictions of Black Sea shipments before two previous renewals of the deal (Financial Times, March 19, 2023; New York Times, May 18, 2023).  Even though U.S. and European Union (EU) economic sanctions against Russia exclude trade in agricultural commodities such as grain fertilizers (Congressional Research Service, December 13, 2022), Russia has repeatedly complained about the Black Sea grain export deal since its inception (New York Times, July 17, 2023).  Even though the UN struck a deal with Russia in July 2022 to help it overcome obstacles to grain and fertilizer shipments, Moscow claims that restrictions on payments, logistics and insurance have been a major barrier to its agricultural exports (Reuters, June 16, 2023).

However, since the grain deal was last renewed in May, Russia’s concerns seem to have intensified, Moscow expressing two main demands as a pre-condition for renewing the grain deal (Reuters, June 16, 2023).  The first relates to reconnection of the Russian agricultural bank Rosselkhozbank to the SWIFT international payment network (Reuters, July 12, 2023).  Following the Russian invasion of Ukraine, the EU cut off Russia from the SWIFT network in June 2022, placing a major constraint on the processing of grain export payments to Russia (Reuters, July 13, 2023).  It has been reported that the EU has been considering allowing a subsidiary of Rosselkhozbank to connect to SWIFT, UN Secretary-General Antonio Guterres asking President Putin to extend the grain deal, thereby giving the EU time to make the connection (Reuters, July 12, 2023).

The other Russian demand relates to the ammonia pipeline from Tolyatti to the Ukrainian port of Pivdennyi (Yuzhny) (IFPRI, June 13, 2023).  The pipeline has been closed since the Russian invasion and has reportedly suffered war damage.  Given the significant impact of the closure on Russia’s exports of anhydrous ammonia, it is perhaps not surprising Russia has tied recent restrictions on the registration of grain shipping at Pivdennyi to reopening of the pipeline (IFPRI, June 13, 2023).

Breakdown of the Deal

Despite the best efforts of the UN Secretary-General Guterres and Turkey’s President Erdogan, Russia has not renewed the grain deal, its Foreign Ministry issuing a statement that, “…Only upon receipt of concrete results, and not promises and assurances, will Russia be ready to consider restoring the deal…” (New York Times, July 17, 2023).  Not surprisingly, the markets reacted to the deal not being extended, wheat futures rising 4.2% on the Chicago Board of Trade (Bloomberg News, July 17, 2023), but what are the longer-term implications of the breakdown?

Even though the grain deal has been critical to relieving pressure in the world market over the past year, Ukrainian grain and oilseed production are expected to decline in 2023/24 due to the ongoing impact of the war, with disruption of ongoing planting and harvest of multiple crops including wheat, barleycorn, rapeseed and sunflowers.  The latest estimates for Ukraine’s major crops indicate significant reductions are expected in harvested acreage in 2023 compared to 2021 – wheat (-42%), sunflower seeds (-20%), corn (-38%), and barley (-33%) (USDA, Foreign Agricultural Service, June 2023). It should be noted these data do not include those parts of Ukraine either in the war zone or occupied by Russian Forces (UC-Davis ARE Update, May/June, 2023).  In terms of the potential impact on world food prices, Ukrainian grain shipments are forecast to decline by about 36% in the 2023/24 marketing year (Bloomberg News, July 6, 2023).

With expected declines in Ukrainian grain production, and the closing of the Black Sea Corridor, two price effects can be expected: world grain prices will increase with the reduction in Ukrainian exports, but at the same time Ukrainian domestic grain prices will likely fall.  This is precisely what happened after the Russian invasion:  in the case of wheat, when Ukrainian ports were blockaded, a wedge was driven between other comparable and Ukrainian prices, the wedge declining after the grain deal was struck in July 2022 (see Figure 2).  Since then, Ukrainian wheat prices have tracked other wheat prices, although a gap was starting to open-up again recently, and it can be expected to widen, reducing Ukrainian farmers’ incentives.

Figure 2:

It is also likely grain price volatility will be exacerbated, markets already being very sensitive to regional shocks even before the deal ended.  When the Nova Kakhova dam in southern Ukraine was destroyed in early June, wheat futures prices immediately rose 2%, raising concerns of an escalation in the war between Russia and Ukraine (Reuters, June 6, 2023), which was followed by a second market shock in late-June after the armed uprising in Russia, wheat futures prices increasing by 3% (Bloomberg, June 23, 2023). (For a detailed discussion of price volatility see the companion article to this one on Ohio Ag Manager: “What factors are driving the current grain market volatility?” by Seungki Lee).

There is a sense that it may be very difficult to revive the Black Sea deal at this point, with the likelihood grain and oilseed prices will rise, which will then impact the number of undernourished people globally (The Guardian, July 17, 2023).  At the same time, even though grain continues to be exported westwards from Ukraine through Poland, Hungary, Bulgaria, Romania, and Slovakia, this has created political tensions in those countries, farmers facing lower prices and reduced revenues. (Bloomberg News, April 1, 2023).  Even though the EU suspended its tariffs and quotas on imports from Ukraine after the Russian invasion, Poland and Hungary blocked imports from Ukraine in April in a response to farmer protests (New York Times, April 20, 2023).  This was followed on May 2 by the EU introducing a temporary ban on grain imports by these countries from Ukraine until June 5, while maintaining transit routes into the rest of the EU, the restrictions being subsequently extended until September 15 of this year (Reuters, June 5, 2023).

 

What Factors are Driving the Current Grain Market Volatility?

By: Seungki Lee, Assistant Professor, Agricultural, Environmental, and Development Economics, The Ohio State University

Click here to access PDF version of the articles

During the last few weeks, grain futures markets have showed significant swings in response to several events: the expanding drought, USDA’s June Acreage Report, and the looming Black Sea Grain deal. The heightened uncertainty in the commodity market is causing concern among US growers about market prospects. Given the current influence of multiple variables on prices, relying solely on price indices may lead to a misinterpretation of the market outlook. Therefore, in this article, we will look into three primary factors individually that have the potential to impact the market in the upcoming months.

  1. Expanding Drought Conditions and USDA’s July WASDE Report

The first and very perceivable force that raises uncertainty is the domestic growing condition – the expanding drought in the Midwest. A striking example is that 98% of Minnesota’s crop land are currently experiencing drought (Brown, 2023). USDA’s July WASDE report adjusted down corn yield to 177.5 bushels per acre, 4 bushels down from last month, whereas soybean yield forecast was not changed. However, a substantial change in the acreage projection (corn up and soybean down) in the June USDA’s Acreage Report mainly determined the overall production estimates. This indicates that the market has not fully accounted for the potential yield reduction caused by the drought. Despite the undeniable impact of the drought, the exact extent of harvest reduction remains uncertain, further contributing to market unpredictability. Even though commodity prices hold steady, growers can be largely worse off (Probert et al., 2023). Table 1 provides a quick summary of July WASDE updates for new crop corn, soybean, and wheat.

Table 1. Summary of July WASDE Estimates

  Corn Soybean Wheat
Marketing Year 23/24F ∆Jun ∆22/23 23/24F ∆Jun ∆22/23 23/24F ∆Jun ∆22/23
Yield (bu/acre) 177.5 -4.0 +4.1 52.0 ** +2.5 46.1 +1.2 -0.4
Production 15,320 +55 +1,590 4,300 -210 +24 1,739 +74 89
Total Supply 16,747 +5 +1,615 4,575 -185 0 2,449 +51 -21
Feed & Residual 5,650 +225            
Ethanol 5,300 +75            
Crush       2,300 -10 +80      
Domestic Use 12,385 +305 2,426 -10 +85 1,132 +20 +1
Exports 2,100 +450 1,850 -125 -130 725 -34
Total Use 14,485 +755 4,276 -135 -45 1,857 +20 -33
Ending Stocks 2,262 +5 +860 300 -50 +44 592 +31 +12
Price ($/bu) 4.80 -1.80 12.40 +0.30 -1.80 7.50 -0.20 +1.33

Note: The default unit is a million bushels if not specified.

  1. An Official Termination of Black Sea Grain Deal

On July 17, Kremlin spokesman Dmitry Peskov announced that Russia is pulling out of the Black Sea Grain Deal agreement, yet leaving the door open for resuming the deal if Russia’s demands were fulfilled. Since the agreement was established in July last year, this is the first time that we have seen an official stop of the deal. As we have witnessed the international connectivity in the commodity market, what’s happening in Black Sea will likely fluctuate US grain markets.

Due to the war situation and Russia’s political instability, the new deal is likely to fall into a labyrinth. Even putting the recent political turmoil in Russia aside, both sides have been complaining about the deal for months. Russia claimed that its own agricultural products and fertilizers also should be allowed to be shipped to the global market through the Black Seas (i.e., lifting the sanction on Russian crops). Ukraine claimed that Russia is using the inspection for sabotage (Malsin, 2023). The current situation is a sort of “Chicken Games,” because the negotiation time will be costly to both countries. The Black Sea Grain Initiative can possibly resume in months, but, Ukraine has already been attempting to mitigate risks by exploring alternative export channels. This development has created political tensions within the European Union, resulting in a temporary ban on grain imports from Ukraine (Sheldon and Zoller, 2023). All of these factors contribute to increased market uncertainty. As illustrated in Figure 1, China and EU countries have been major recipients of Ukraine crops through the Black Sea. The partnership and friendship of these countries will potentially play a key role in reviving the Black Sea Corridor.

Figure 1. Black Sea Grain Initiative exports to Top 5 partners and ROW

Note: the numbers in brackets indicate the rank of each country based on the total crop delivered.
Source: United Nations, as of July 17, 2023

 

  1. El Niño and Uneven Impacts Worldwide

El Niño is having an increasingly pronounced influence on global crop production (Witze, 2023), and this impact is being actively reflected in commodity markets (Currie, 2023). It is noteworthy that the effects of El Niño are expected to vary significantly across different regions. For example, Australia is currently experiencing drier weather patterns attributed to El Niño, leading to anticipated reductions in wheat production (Jackson, 2023). On the other hand, Argentina is likely to benefit from El Niño as it brings increased rainfall, replenishing soil moisture during the current growing season. This divergence in the impact of El Niño on crop production among countries will further contribute to market fluctuations. Over the past three years, Latin American countries have suffered from agricultural production setbacks caused by La Niña-induced droughts. This suggests that the transition to El Niño conditions can work favorably for countries such as Brazil and Argentina, posing an additional challenge to US exports in the future.

 

 

References

Brown, K. (2023, July 13). All of Minnesota now in some stage of drought. KSTP.com 5 Eyewitness News. https://kstp.com/kstp-news/top-news/all-of-minnesota-now-in-some-stage-of-drought/

Currie, A. (2023, July 3). Breakingviews: El Nino will brew up potent new economic storm. REUTERS. https://www.reuters.com/breakingviews/el-nino-will-brew-up-potent-new-economic-storm-2023-07-04/

Jackson, L. (2023, July 5). El Nino threshold not yet passed, Australia weather bureau says. REUTERS. https://www.reuters.com/business/environment/el-nino-threshold-not-yet-passed-australia-weather-bureau-2023-07-05/

Malsin, J. (2023, July 17). Russia Says It Is Pulling Out of Ukraine Grain Deal. The Wall Street Journal. https://www.wsj.com/articles/russia-says-it-is-pulling-out-of-ukraine-grain-deal-68190d1

Probert, A., McCorvey, J.J., and Bush, E. (2023, July 13). Drought and extreme heat burn through farmers’ margin for error – and it’s only July. NBC News. https://www.nbcnews.com/business/drought-extreme-heat-burn-farmers-margin-error-only-july-rcna93862

Sheldon, I. and Zoller, C. (2023, July 18). What are the Implications of the Black Sea Grain Deal Breaking Down?. Ohio Ag Manager.

Witze, A. (2023, June 29). El Niño is here-how bad will it be?. Nature. https://www.nature.com/articles/d41586-023-02122-6

 

OSU Agronomic Crops Team and the State Climate Office of Ohio to Host “Climate Smart: Farming with Weather Extremes”

Weather is almost always a challenge for agriculture, from too little or too much rain, late season freeze conditions, and severe weather impacts. Yet, having good management strategies for dealing with water, weeds, pests, diseases, and stress is all part of being climate smart.

After a short hiatus, the Climate Smart Conference is back! This year’s conference brings Ohio State and Central State Extension specialists and local producers together to discuss these important interactions between weather, climate, and agriculture. The event will occur on July 20, 2023, at the Der Dutchman located at 445 S. Jefferson Ave in Plain City, Ohio. The event will open at 8:30 AM and run until 3:30 PM with both a continental breakfast and lunch provided.

Speakers and topics include:

  • Weather and Climate Update – Aaron Wilson
  • Federal Climate Smart Funding Landscape with NRCS –
  • Extreme Weather and Crop Insurance – Margaret Jodlowski
  • Ag Water Management – Vinayak Shedekar
  • CSU Applied Research in Climate-Focused Areas – TBA
  • Panel – Local Producers, CSU Specialist, Glen Arnold (Manure), Bridget Britton (Farm Stress), Elizabeth Hawkins (Precision Ag)
  • Insect Pest Management – Andy Michel and Maggie Lewis
  • Economics and Grain Market Considerations – Seungki Lee

The event is free thanks to the following sponsors: Platinum – Ag Resource Management; Carbon by Indigo; Gold – AgCredit, Leist Mercantile, Ohio Corn & Wheat, and Ohio Soybean Council. Registration is required. Please register by Tuesday, July 18, 2023, at go.osu.edu/reg-climate-smart23 or by using the QR code.

OSU Extension Podcast bolsters Farm Management with new Co-Hosts

By Wm. Bruce Clevenger, OSU Ext Field Specialist, Farm Management

OSU Extension has surpassed 100 Episodes on the Agronomy and Farm Management Podcast with the leadership of Amanda Douridas and Elizabeth Hawkins.  Amanda Douridas is the OSU Extension Agriculture and Natural Resources Extension Educator in Madison County and Elizabeth Hawkins is an OSU Extension Field Specialist, Agronomic Systems.

On Episode 118, two new co-hosts began to alternate episodes between Agronomy and Farm Management.  Your new farm management co-hosts are Bruce Clevenger, OSU Extension Field Specialist, Farm Management and Josh Winters, OSU Extension Agriculture and Natural Resources Extension Educator, Jackson County.

Bruce Clevenger and Josh Winters will host Farm Management and Amanda and Elizabeth will continue with Agronomy.  “Farm management is important to your farming operations and Elizabeth and I are excited to partner with Bruce and Josh to enhance the farm management piece of the podcast,” says Amanda.

Episode 118 investigates Farm Insurance Policies with guest Robert Moore, J.D., Attorney, OSU Extension Agricultural and Resource Law Program.  “I would challenge you to find a more important component of farm management, that receives less attention than the farm insurance policy,” Robert Moore.

OSU Extension has many ag law resources available at https://farmoffice.osu.edu click on Law Library and Farm Office Blog.  Robert and Peggy Hall author weekly posts and write law bulletins are a wide range of topics from Agritourism to Zoning.

Visit https://go.osu.edu/afm to listen, subscribe, and suggest a topic for future episodes.  Listeners can also search their smart device app for Agronomy and Farm Management to listen and subscribe.

Farm Office Live Webinar Slated for April 21 at 10:00 a.m.

In this month’s webinar, the Farm Office Team will present the following topics:

Legislative and Case Law Update​ (Peggy Hall)

  • Farm Insurance Issues​ (Robert Moore)
  • “What is a ‘Taxable Gross Receipt’ under Ohio’s Commercial Activity Tax?”​ (Jeff Lewis)
  • Inflation and Interest Rates: An Update Including a Closer ​Look at Agricultural Machinery and Equipment​ (Barry Ward)
  • Crop Budgets/Income Outlook for ‘23​ (Barry Ward)
  • Avoid Chance by making 2023 Record Keeping Goals (Bruce Clevenger)

There is no fee to attend this webinar.  However, registration is required at go.osu.edu/farmofficelive

Check out farmoffice.osu.edu for all your farm management and ag & resource law needs.

Quarterly Grain Conversation Slated for April 14 at 7:30 a.m.

OSU Extension invites Ohio grain producers to grab a cup of coffee and join the next edition of a quarterly grain market conversation with Dr. Seungki Lee, Assistant Professor in the Department of Agricultural, Environmental and Development Economics (AEDE) from 7:30 to 8:00 a.m. on Friday, April 14, 2023.

During this webinar held via Zoom, Dr. Lee will provide his insights on the World Agricultural Supply and Demand Estimates (WASDE) crop report. “These early morning webinars will be a great way for Ohio farmers to learn more about the factors impacting the corn, soybean, and wheat markets” said David Marrison, Interim Director for OSU Extension’s Farm Financial Management and Policy Institute.  Producers are encouraged to bring their questions to this early morning conversation.

Click here for the program flyer 

There is no fee to attend this quarterly webinar session. Pre-registration can be made at go.osu.edu/coffeewithDrLee.

Additional sessions will be held on September 15, and November 17, 2023.

These webinars are sponsored by: OSU Extension, Farm Financial Management & Policy Institute (FFMPI), and the Department of Agricultural, Environmental and Development Economics (AEDE) all located in The Ohio State University College of Food, Agricultural, and Environmental Sciences (CFAES).

Will Price Volatility Continue in the World Wheat Market?  

By: Ian Sheldon, Professor and Andersons Chair of Agricultural Marketing, Trade, and Policy, Agricultural, Environmental, and Development Economics, Ohio State University and Chris Zoller, Associate Professor and Extension Educator, Agriculture & Natural Resources, Ohio State University Extension – Tuscarawas County

Wheat Price Volatility and Global Stocks

In a recent blog from the International Food Policy Research Institute (IFPRI), former USDA Chief Economist Joseph Glauber detailed the disruption that Russia’s invasion of Ukraine has had on the world wheat market over the past year (https://www.ifpri.org/blog/assessing-tight-global-wheat-stocks-and-their-role-price-volatility).  Compared to the recorded price spikes of 2007/08, 2010/11, and 2012/13, wheat futures prices remained relatively stable until Russia invaded Ukraine in February 2022 (see figure).

 

While world food prices have retreated significantly over the past 11 months (Bloomberg News, March 19, 2023), price volatility in the wheat market is likely to continue with tight global stocks.  When global supplies are negatively affected by an armed conflict such as Russia’s invasion of Ukraine, the availability of stocks should aid in moderating any impact on prices. However, if stocks are tight, their price-smoothing effect is limited, and volatility tends to be exacerbated.

 

 

Typically, market analysts measure the tightness of global stocks through the stock-to-use ratio (SUR), defined by ending stocks as a percentage of consumption, which is then multiplied by 365 days to give stocks as days of use.  The SUR for wheat can be measured in several ways: total global stocks, total global stocks minus China, and stocks held by the major exporters (US, EU, Argentina, Australia, Canada, Kazakhstan, Russia, and Ukraine).  If China is excluded from the calculation, projected stock levels for 2022/23 range from 58 to 26 days of use, the lowest level since 2007/08 (see figure).  Not surprisingly, the combination of low stocks, continued uncertainty about the war, and the potential for future supply shocks, means that concerns about global food security have not dissipated (World Bank Food Security Update, March 23, 2023).

Uncertainty Over Continuation of The Black Sea Grain Export Deal and Russian Exports

Key to reducing price volatility is continuation of the grain export deal signed by Ukraine, Turkey, Russia, and the United Nations (UN) on July 22, 2022 (USDA, Foreign Agricultural Service, Grain: World Markets and Trade, August 2022), which was then renewed last November for 120 days (Reuters, March 14, 2023).  Despite the UN and the Ukrainian and Turkish governments stating the deal had been extended for a further 120 days on March 18, 2023, the Russian foreign ministry indicated it had only agreed to a 60-day extension, and that it wanted to see an expansion of its own grain exports to the world market (Financial Times, March 18, 2023).

Not surprisingly, conflicting signals over the timeline of the deal’s extension affected the market, wheat futures rising by 2 percent before March 18 (Bloomberg News, March 14, 2023), falling back the week after the deal was announced, although market analysts expect a risk premium (Bloomberg News, March 20, 2023).  A similar pattern of price volatility occurred prior to and after the deal was renewed in November 2022 (Bloomberg News, November 2, 2022), and no doubt will happen again when the deal next comes up for renewal.

Despite the Ukrainian focus of the grain export deal, the sticking point for the Russians is how to increase their own grain exports.  Russia is now the world’s leading wheat exporter (Bloomberg News, March 31, 2023) (see figure), its strong harvest last year helping to reduce wheat futures prices (Bloomberg News, March 29, 2023).  While Russian crops are not subject to any explicit trade sanctions, companies that trade wheat and other grains must deal with restrictions on both Russian banks and state companies (Bloomberg News, March 29, 2023).  A recent development has been the announcement by major commodity traders Cargill and Viterra that they will stop exporting Russian grain as of July 1, 2023, with Archer-Daniels-Midland also considering exiting its Russian operations (Bloomberg News, March 31, 2023).  How this affects Russian exports to the world market remains to be seen, although some observers think little will change as local traders replace global traders, the Russian government continuing to collect grain export taxes (Bloomberg News, March 30, 2023).

Outlook for Wheat Price Volatility

Low global wheat stocks along with Russia’s repeated procrastination over the Black Sea grain export deal, suggest price volatility will continue for the foreseeable future.  At the same time, grain exports by Ukraine to central European states has affected farm revenues in Poland, Romania, Slovakia, Hungary and Bulgaria, eroding political goodwill (Bloomberg News, April 2, 2023), placing pressure on the European Union (EU) for tariffs to be restored on imports from Ukraine (Reuters, March 31, 2023), which would likely push down wheat and other grain prices.

Wheat on the Chicago Mercantile Exchange (CME) is currently hovering around $7.00 per bushel, in line with the estimate used in the OSU Extension Wheat Production Budget for 2023.  As of April 5, 2023, CME prices are $6.94/bushel for July 2023, $7.25/bushel for July 2024, and $7.26/bushel for July 2025.  The OSU Extension wheat budget estimates $7.00/bushel and evaluates four yield scenarios (59 bushels/acre, 74 bushels/acre, 89 bushels/acre, and 92 bushels/acre).  Estimated returns at each yield level more than cover the variable costs, but the numbers are negative when evaluating returns above total costs.  Straw sales can improve the returns, but there is the additional concern of the value of nutrients removed.

We encourage you to keep informed of market movements and projections, and utilize OSU Extension enterprise budgets (https://farmoffice.osu.edu/farm-management/enterprise-budgets) when making farm management decisions.

 

Farm On financial management course offers farmers, ranchers training to meet new program requirements

COLUMBUS, Ohio—A new online farm management course offered by The Ohio State University College of Food, Agricultural, and Environmental Sciences (CFAES) will help Ohio’s beginning farmers qualify for the requirements of the Ohio Department of Agriculture’s Beginning Farmer Tax Credit program.

Called Farm On, the self-paced, on-demand farm financial management course was created by Ohio State University Extension professionals and is offered through OSU Extension’s new Farm Financial Management and Policy Institute (FFMPI), said Eric Richer, assistant professor and OSU Extension field specialist in farm management.

OSU Extension is the outreach arm of CFAES.

“The Farm On financial management course was created to address the needs of Ohio’s new and beginning farmers who want to better prepare themselves to operate a commercial farm in Ohio and do that with a high level of economic stability while remaining profitable and responsible at every step along the way,” said Richer, who is the lead instructor for the Farm On course. “We believe Farm On will be a great deliverable to Ohio’s agriculture industry because it is on-demand, self-paced, and taught by Ohio State’s expert farm management instructor.”

What’s unique about the Farm On course is that, not only does it comply with the regulations of the new Ohio House Bill 95 Beginning Farmer Tax Credit program, it also meets the borrower training requirements for the U.S. Department of Agriculture Farm Service Agency’s Beginning Farmer and Rancher Loan Program, Richer said.

The Farm On course includes multiple video lessons, 10 quizzes, 10 exercises, individual and group consultations, and a 10-module course that covers the following topics:

  • Farm Business Planning
  • Balance Sheets
  • Income Statements
  • Cash Flow Projections
  • Calculating Cost of Production
  • Farm Record Keeping
  • Farm Taxes
  • Farm Financing
  • Risk Management
  • Farm Business Analysis

The Farm On course allows CFAES to serve the needs of farmers through OSU Extension and our FFMPI, said Cathann A. Kress, Ohio State vice president for agricultural administration and dean of CFAES.

“We are excited to partner with ODA and USDA-FSA to address the farm financial training that is required for running a farm business,” Kress said. “Currently, we are the only educational institution in Ohio with a course like ‘Farm On’ that qualifies for ODA’s Beginning Farmer Tax Credit program and FSA’s Borrower Training Requirements.

“As part of our land-grant mission, CFAES educates not just college students but over 2 million individuals across the lifespan.”

The Ohio House Bill 95 Beginning Farmer Tax Credit program went into effect in July 2022 and grants a 3.99% tax credit to landowners who sell or lease assets to a certified Ohio beginning farmer. The new law also allows an Ohio tax credit to the certified beginning farmer equal to the cost of the financial management course completed, Richer said. The Farm On course costs $300 per person.

“Ohio State’s Farm On course is a great way to help Ohio farmers qualify for ODA’s new Beginning Farmer Tax Credit program, which is an important tool to help current, beginning farmers and potential, future farmers do what they do best,” said ODA Director Brian Baldridge. “We are thankful for this partnership that is helping to keep Ohio’s hard-working farmers at the forefront.”

Ohio State’s Farm On course is now 1 of 5 approved vendors for borrowers in Ohio, said Darren Metzger, Ohio Farm Service Agency loan chief.

“The course is in-depth financial management training that can assist our borrowers to obtain and/or improve their knowledge in this critical area of farm management,” Metzger said.

The Farm On program is part of CFAES’ new FFMPI, which was created last year with the goal of sharing resource-based knowledge and best practices to help Ohio farmers manage their businesses as the agricultural industry changes and evolves. Housed within OSU Extension, the goal of FFMPI is for the integration, translation, and communication of CFAES’ farm management and ag policy presence that addresses critical farm management and policy issues affecting Ohioans.

“Farm On is meeting a need of today’s modern crop farmers, and it’s packaged in a way that respects the busy schedules of family farmers,” said Tadd Nicholson, executive director of Ohio Corn and Wheat. “It’s this type of tangible benefit that earns the support of Ohio’s corn and small grains checkoff funds. We are proud to partner with OSU Extension on this important new institute.”

Farm On, which is just one of the programs offered through the new FFMPI, isn’t just for new and beginning farmers, said Peggy Hall, CFAES agricultural and resource law specialist and a Farm On instructor.

“This course provides an opportunity for any farmer in Ohio, whether you’re a new farmer, a seasoned farmer, a small farmer, or a large farmer,” Hall said. “For a long time, we’ve needed to have this course in Ohio because farm management is so critical to ensuring the future of our farms.”

To sign up for Farm On, go to go.osu.edu/farmon.

 

Writer(s):

Tracy Turner
turner.490@osu.edu
614-688-1067

Source(s):

Eric Richer
richer.5@osu.edu

Peggy Hall
hall.673@osu.edu

Darren Metzger
darren.metzger@usda.gov

Sarah Huffman
BeginningFarmer@agri.ohio.gov

Tadd Nicholson
tnicholson@ohiocornandwheat.org