LINCOLN, Neb. (DTN) -- While the agriculture world continues to get a grip on the ripple effects of Russia's invasion of Ukraine, a livestock and meat consultant for the National Pork Board said Wednesday he believes the biggest agriculture story will center on livestock feed.
Rupert Claxton, the livestock and meat director for Gira, a consultant company based in Geneva, Switzerland, said during a National Pork Board webinar this week that coming into 2022, there already was concern about a tight feed outlook.
Then came the Russian invasion of Ukraine, and that tight situation is expected to become even tighter.
"We know it's very dry in North America," Claxton said. "China's reporting that they've got some concerns about conditions there as well. Feed prices will really push up. Clearly, the outbreak of war pushes speculation, prices go higher.
"And now we're really concerned about supply in the world market. A transfer of buyers is inevitable. We are not going to lose Russian exports to the world market as a result of this, but they're going to flow to different places. There are some countries that just can't afford not to buy from Russia. It's not about geopolitics. It's just about food."
Claxton said farmers and consumers in the countries of the European Union already are experiencing a challenging situation because of the war.
"The European consumers, the market is taking it badly," he said. "And this feels like war in Europe. That's reflected in what we're seeing in consumer confidence and the way that the markets are thinking, but also there are some real knock-on effects that you won't see in the U.S. that we are definitely experiencing."
With the start of the war, he said, the moves in currency exchange rates have had "a massive impact on the cost of product" going in and out of these markets.
Ukraine is unable to move things in or out very easily at the moment, he said, although some Ukrainian products continue some movement into the EU. Claxton said the exchange rate against the Ukrainian currency hasn't changed much.
"If we look at (the exchange rate) against the ruble, that's a very different story," he said. "The ruble had lost 60% against the dollar at that stage (two weeks ago). That means that agricultural inputs and chemicals, feed additives, genetics going into Russia had got seriously expensive."
Ag companies in Russia were looking at whether they could afford to import ag inputs, Claxton said, even if they could get around various trade embargoes and restrictions.
"But the reality is that they're (Russia) in a very weak position," he said.
The Russians continue to export chicken meat, oil and gas into China. India also continues to buy oil from Russia.
The rise in oil and gasoline prices, Claxton said, is being passed on to EU consumers at the pump and to farmers buying ag inputs.
"The oil price fell back under $100 a barrel, and it's gone up to about $106," he said. "It's fluctuating and the world is finding a way to balance it. The reality is some countries cannot afford not to buy Russian oil. They need cheap oil in the moment. Not only has the oil price gone up 14% now (from) where it was pre-war, but the ruble's weaker by 24%."
The soaring prices of gas and oil in Europe are having a "huge impact" on fertilizer costs because gas is important to fertilizer production, Claxton said.
"So, we're seeing across the system, fertilizer, feed, energy transportation, nearly everything is bearing this oil price at the moment," he said.
Fertilizer already was expensive before the Russian invasion of Ukraine, he said, but has continued to rise. Long before the war, however, European farmers locked in lower fertilizer prices.
"So, the fertilizer going on the ground now in Europe was bought last year," Claxton said.
Next growing season, however, fertilizer prices are expected to be higher for those producers.
"Now to replace that fertilizer for next growing season, we're talking about upwards of $900 for some products," he said. "That's really serious for the European growth, and I think we've seen that globally."
Claxton said it means farms are going to buy less fertilizer because "they're not convinced the grain price will hold up, and farmers are naturally conservative."
European farmers have been reducing fertilizer application rates and are adjusting the way they use the products.
"What it means is that we're going to see lower yields going into the year ahead, so there's going to be less grain as we come out of this growing season, and therefore high grain prices going over into 2023," Claxton said.
Russia is a big supplier of ammonia worldwide, accounting for about 23% of the world's production, 21% of potash and 14% of urea.
Claxton said Russia is trying to restrict the amount of fertilizer that goes out on the world market. China, at the end of last year, restrained fertilizer exports to protect its domestic supplies, leading to higher prices.
All these factors exacerbate an already-tight feed outlook across the world, he said.
UKRAINE PRODUCTION LOSSES
Crop production in Ukraine this year could be down anywhere from 20% to 80%, Claxton said.
"And the longer the war drags on, the more inclined I am to go towards 80% not 20% decline in production; that's significant," he said.
Along with the continued rise of commodity prices, the war in Ukraine has caught the attention of the world when it comes to food.
"The world is suddenly acutely aware of food security," Claxton said. "I'm less concerned about Russia, because, as I said, they'll just go elsewhere."
Russia is not a major ag commodity exporter, he said, but the loss of Ukrainian production in the EU and on the world market could be significant.
Ukraine has banned exports of wheat, oats, millet, buckwheat, sugar, salt, meat, "because they're really concerned about food security at home," Claxton said.
Claxton said Ukrainian farmers face a dangerous situation in getting crops in the ground.
"They're struggling to get tractors in the fields," he said. "They can't drill at night when they normally would fall out at night, because they're worried about drone attacks. They haven't got diesel because (on) either side, the military is taking the diesel because they need it for tanks. They're having products stolen, or their farmworkers have gone to fight."
Claxton said he has been corresponding with one farm in Ukraine that is struggling to keep workers -- out of 2,200 workers employed with the farm just 200 remain on site.
Though Ukrainian ag exports will be missed in the EU to some degree, he said the loss of those exports will be "much more significant" in poor African countries. Africa's search for ag commodities to replace Ukrainian exports could tighten the feed situation even more, Claxton said.
"They need to look elsewhere for product, notably in the Asian markets and also in the Middle East," Claxton said about Africa.
"If these guys have to look elsewhere for feed, they're going to come to North America and Brazil, which means they're going to take some of your supply and lift prices."
RUSSIAN AG DIFFICULTIES
Agriculture exports are not part of the Russian system, by and large, Claxton said, and the falling value of the ruble makes that even less likely.
Russian farmers, he said, also are facing higher feed costs despite export restrictions on feed that persist today.
"They have a labor challenge like the rest of Europe," Claxton said.
In addition, Russian farmers will have a hard time finding ag equipment parts because of embargoes in place from the likes of John Deere and Case IH.
"So, I'm really concerned about where the Russian market is for the Russian producers," he said. "But, at a global standpoint, it's not going to be the thing that causes us sleepless nights."
Todd Neeley can be reached at email@example.com
Follow him on Twitter @DTNeeley
(c) Copyright 2022 DTN, LLC. All rights reserved.