Dan Piller: A prolonged war that disrupts Ukraine's grain production could reverse Iowa's decline in world export markets.
“Nobody is qualified to become a statesman who is entirely ignorant of the problem of wheat” --Socrates
The longstanding boast of Iowa farmers that they “feed the world” has been made increasingly hollow in recent years as emerging grain export powers Brazil, Russia, and Ukraine have grabbed significant shares of the world’s markets from the long-dominant United States.
The Russian invasion of Ukraine and the attacks on Black Sea ports of Kherson, Mariupol, and eventually, Odessa will likely shut off Ukraine from its sea shipping lifeline. A lengthy war would bring into question the ability of Ukrainian farmers to prepare their fields and plant the spring crop.
The possible elimination of Ukraine as a major corn and wheat producer and exporter, even for a short period, could reverse Iowa farmers' decline in world export markets.
UKRAINE'S GROWTH AS A GRAIN EXPORTER
Ukraine can be thought of as the Iowa of Europe and Central Asia. Its thick black soil is comparable in fertility to Iowa, and so is the April-to-October growing season and its moderate (at least compared to Siberia) climate. In recent years Ukraine, like an upstart Cinderella in the NCAA basketball tournament, has scored some significant wins against the grain export blue bloods.
Among grain exporters, the U.S. is the bluest of bloods. But its hegemony has dwindled. Through the 1980s the U.S. supplied more than 80 percent of the world’s corn exports and 40 percent of exported wheat. By 2020 those figures had been whittled down to 33 percent of the world’s export share for corn and 13 percent for wheat.
It is important to note to Iowans, accustomed to the joys of corn-fed beef and pork, that most of the rest of the world feeds wheat to its livestock.
The prime reason for the fall of the U.S. from near-total dominance in world grain export markets is the emergence of Russia and Ukraine in corn and wheat and Brazil in soybeans.
Since 2000, Russia has advanced from being a beggar importer of wheat to leading the world’s export market at 18 percent. The U.S. is number two at 13 percent, and Ukraine is a close third. While the U.S. is still the world’s largest corn exporter, with 33 percent, Ukraine has emerged as runner-up at 15 percent. Russia now ranks third in corn exports.
PROS AND CONS OF HIGH GRAIN PRICES
Iowa isn’t a factor in wheat production, but after several years of depressed markets its corn and soybean growers have enjoyed higher prices due to giant purchases by China, which needs feed to rebuild is disease-struck hog herd for a nation that regards pork as a dietary staple. But nobody expects China’s record purchases to continue indefinitely, which is why Iowa farmers and their representatives in Washington have fought so tenaciously for continuation of subsidies and mandates for grain-fed ethanol and biodiesel.
As a result of China’s largesse and a drought in Brazil, the world’s largest soybean producer, corn and soybean prices have almost doubled in the last two years to $7.60 for corn and $15 for soybeans. What’s not to like about that?
Well, while cash corn farmers revel in the higher prices, they face fertilizer prices that have quadrupled in the face of white-hot demand and sanctions put on Russia, a major supplier of the natural gas that is the basis for nitrogen-based fertilizer. Livestock producers, whose inventories of cattle and hogs have remained constant or declined in the last 40 years despite a one-third increase in the U.S. population, will think twice about increasing their herds in the face of higher feed costs.
The U.S. Department of Agriculture is warning consumers, already beset by increases in beef prices of 20-30 percent and 15-18 percent for pork, to be ready for more increased prices this year. Politicians, including President Joe Biden and Iowa Senator Chuck Grassley, have shrieked about the market consolidation of meat processors, but their verbal poundings on meatpackers are unlikely to relieve meat prices in time for America’s summer grilling season.
Ethanol producers will be in for a tough year if they have to pay prices north of $7 per bushel for their corn feedstock. If they can’t sell their product to gasoline refiners at profitable discounts, we can expect those refiners to make haste to Washington in search of exemptions from biofuels blending requirements.
PAST IOWA AGRICULTURAL BOOMS AND BUSTS
The presence of sky-high grain prices and an attendant 80-year record for Iowa farmland prices harkens back to some uncomfortable history. Iowa agriculture has proved to be far better at riding speculative market booms up than guiding itself back to a soft landing when prices turn down, as they inevitably do.
Corn prices reached an inflation-adjusted $20 per bushel in 1918 and again in 1946 in the aftermath of World Wars I and II. Those golden years didn’t last, and American farmers found themselves either losing land through sales or foreclosure or sticking it out by existing largely on government subsidies.
In 1973 some relief came from an unlikely source; the Soviet Union, unable to feed itself, bought massive amounts of corn and wheat. Again, prices for grain and farmland shot up and the good times rolled until President Jimmy Carter embargoed grain sales to the USSR in 1980 to punish the Soviets’ invasion of Afghanistan.
There followed the miserable 1980s, when one-third of Iowa farms were lost. American farmers responded with another wave of consolidations and, when markets improved, with renewed exports. Not until the end of the first decade of the 21st century could U.S. agriculture be considered to have recovered from the 80s trough.
So as Iowa farmers dangle on the hinge of their own history, they find themselves bound involuntarily to the even longer history of Russia and Ukraine.
FROM RUSSIAN GRAIN EXPORTS TO SOVIET IMPORTS
The legendary Russian strongman Peter the Great, for all his glory, never solved Russia’s persistent problem of lacking warm weather seaports to complement the ice-bound outlets at St. Petersburg, Murmansk, and Vladivostok. On his deathbed in 1725, Peter warned his subjects that if Russia was ever to emerge from the shadow of Europe and become a great power, it needed a warm weather port. Sixty-four years later Catherine the Great achieved Peter’s goal when she annexed Ukraine, and built the vital port of Sevastopol on the Crimean peninsula in the Black Sea.
Sevastopol and its Black Sea neighbor Odessa played key roles in making Russia the world’s preeminent world wheat exporter. In the last quarter of the 19th century, emerging American agriculture frequently was stymied in export markets by huge flows of Russian wheat from the Black Sea.
That Romanoff agrarian heyday ended with the Russian Revolution of 1917. For the next 70 years, the Marxist-Leninists proved conclusively that while communism could perform passably well producing military equipment and some heavy industry, it was abominably poor at agriculture. Stalin had to resort to starvation to get collectivization set up in Ukraine, and the Soviet Union’s struggle for superpower status after World War II was foiled consistently by the food shortages which played a role in the collapse of the USSR in 1991.
Vladimir Putin, for all his Marxist/KGB breeding, recognized that Russia could achieve economic dominance letting Russia’s energy and agriculture roam in the world’s free markets. Russian agriculture was loosened from collectivist chains. The privatized Russian agriculture achieved breathtaking gains in the first two decades of the 21st century, tripling its wheat production and achieving records for world grain exports.
Russia's new self-sufficiency in food production freed Putin from having to repeat the humiliating process of its Soviet predecessors and beg for grain. That has made Putin more likely to flip Washington the bird whenever he feels like it.
BLACK SEA PORTS KEY TO UKRAINE'S GROWING EXPORTS
Ukraine, which became an independent nation in 1991, was no slouch, either. The same privatization deployed by Moscow worked in Kyiv, coming from nowhere in the 1990s to become the world’s second largest corn producer and exporter. American farmers and grain traders have learned to watch the Black Sea markets closely, as did their 19th century forbearers.
The Black Sea ports are the key to continuation of this post-communist agricultural success for Russia as it reaches for markets in Europe, Africa, and Asia. It was thus little surprise that while the Russian army seemingly has dallied near Kyiv, it has moved with dispatch to the south along the Black Sea coast and made Kherson its first major conquest.
Putin has said little about agriculture, focusing his anti-Ukrainian ire on Kyiv’s desire to join the European Union and NATO. But a strategic thinker like Putin has to be painfully aware that an independent Ukraine on the north side of the Black Sea, along with an equally-independent Georgia on the east coast of the Black Sea, threatens to restore the landlocked status for Russia that was the despair of Peter the Great.
So as Russian bombs and artillery pound Ukrainian cities, Iowa farmers watch and wait to see what kind of new world agricultural order emerges.
UPDATE: Ukraine's government has banned exports of wheat, oats, "millet, buckwheat, sugar, live cattle, and meat and other 'byproducts' from cattle," the Associated Press reported on March 9.
Dan Piller was a business reporter for more than four decades, working for the Des Moines Register and the Fort Worth Star-Telegram. He covered the oil and gas industry while in Texas and was the Register’s agriculture reporter before his retirement in 2013. He lives in Ankeny.
Top photo: March 1, 2021. Commercial dry cargo ship arrives at the port of Odessa in Ukraine to load grain. Photo by Sergei Diordiev available via Shutterstock.
Another point of view
Brazil has "emerged" in soybeans by obliterating more and more of the Amazon and Cerrado landscapes and their high-level biodiversity. Brazil hasn't matched Iowa, which has obliterated about 98% of its original landscape, with severe consequences for soil and water. But Brazilian losses are large and mounting.
Meanwhile, the Ukraine has "runaway land degradation" that "threatens national food and water supplies," as pointed out in a 2018 United Nations report. "Ukraine’s agricultural sector is estimated to cause 35 to 40 percent of all environmental degradation in the country." Ukraine soil erosion is horrendous.
The "new world agricultural order," as it continues to change, will have a huge impact on how much of our global life-support-system biodiversity will survive and how quickly our planet will continue to heat up, as well as how fast some of the world's most fertile soils will continue to degrade. Iowa's farm sector is of course very concerned about near-term impacts on grain prices. But far more is at stake.