Keeping an Eye on Ukraine, Other Black Sea Countries’ Wheat Markets

The growing importance of wheat production from Black Sea-area countries Ukraine, Russia and Kazakhstan on the world market has Daniel O’Brien keeping a close watch on geopolitical events there – and he’s encouraging U.S. wheat producers to do the same.

Wheat and feed grain exports from those three countries have been growing since the mid-1990s, said O’Brien, an agricultural economist with Kansas State University. Speaking at K-State’s recent Risk and Profit Conference in Manhattan, O’Brien said world wheat prices initially seemed mostly unaffected in the conflict between Russia and Ukraine which developed early this year. But the wheat market in recent months has been put on edge by developments of the conflict.

O’Brien and North Dakota State University agricultural economist, Frayne Olson have been tracking world hard red winter and hard red spring wheat markets, trying to determine the inter-relationships of Black Sea region country wheat export prices, both within the Black Sea region and with major world wheat exporters, including U.S. wheat.

What they found was that changes in U.S. hard red winter wheat prices most closely associated with prices in Russia, but to a lesser degree with wheat prices in Ukraine, Australia, Germany, and with the prices of other major U.S. wheat classes.

“Daily and weekly prices on world wheat markets typically work or move together, but the closeness or co-integrated nature of their co-movements vary among classes and export supplying countries,” O’Brien said. He noted that the Black Sea-area countries’ advantage in world wheat trade is their geographic proximity to buyers in North Africa and Middle Eastern countries, which translates to lower shipping costs. Some of those countries, including Egypt and Nigeria, are also significant potential buyers of U.S wheat.

He noted that the main Ukrainian port for wheat export shipments is Odessa: “If Ukraine lost control (of that port) it could be devastating for that country’s wheat market.”

Physical differences in wheat-by-class are often reflected in U.S. and world cash wheat prices, he said, noting that different types of wheat lend themselves to use in different products – for example durum wheat is best for making pasta and hard red winter is best for certain bread products – but there is only so much blending you can do.

In their analysis, O’Brien and Olson found that:

  • Black Sea region wheat prices display some degree of price interrelatedness for milling quality wheat, but not complete uniformity.
  • Ukraine milling wheat export prices show evidence of being co-integrated with German milling wheat export prices, but less so with those of Russia.
  • Russian milling wheat export prices appear to be co-integrated with both U.S. hard red winter and soft red winter wheat export prices, but less so with those of Ukraine.
  • Kazakhstan milling wheat export prices show evidence of being somewhat associated with Russian milling wheat export prices, but not so close with those of Ukraine.

O’Brien noted that a major difficulty in attempting to thoroughly analyze the wheat market in Black Sea-area countries stems from gaps in price and other grain market information for countries in that region.

O’Brien’s presentation and others from the 2014 Risk and Profit Conference are available at http://www.agmanager.info/events/risk_profit/2014/Papers.asp.

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K‑State Research and Extension is a short name for the Kansas State University Agricultural Experiment Station and Cooperative Extension Service, a program designed to generate and distribute useful knowledge for the well‑being of Kansans. Supported by county, state, federal and private funds, the program has county Extension offices, experiment fields, area Extension offices and regional research centers statewide. Its headquarters is on the K‑State campus in Manhattan.

Story by:
Mary Lou Peter
mlpeter@ksu.edu
K-State Research and Extension
http://www.ksre.ksu.edu/

For more information:
Daniel O’Brien – 785-462-6281 or dobrien@ksu.edu

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