On five Sundays since protests began in Ukraine, Viktor Skochko made the 600-kilometer (372-mile) round trip from his farm east of Kiev to join demonstrations in the capital that ultimately toppled the government. By each Monday, he was back preparing to sow spring crops.
“There are few smiling faces these days, and everyone is worried,” Skochko, 54, the director of Astarta Holding NV’s Dovzhenko unit in the Poltava region, said by telephone from Yareski village. “But there has been no impact so far on our operations,” said Skochko, who manages 2,900 workers on 43,000 hectares (106,000 acres). “By March 15, we will be 100 percent ready to start the planting campaign, weather permitting.”
Ukraine, once known as the granary of the former Soviet Union, is poised to be the world’s third-largest corn exporter and the sixth-biggest supplier of wheat this year. While grain prices have rallied since the overthrow of Viktor Yanukovych as president increased risk of an escalating conflict with Russia, there is little evidence that farmers will be unable to plant crops or get supplies to export markets.
Odessa and four other Black Sea ports, which handle 87 percent of Ukrainian grain exports, are a long way from Crimea and shipments are unlikely to be disrupted, Morgan Stanley said in a March 4 report. Western Bulk ASA, which operates more than 120 ships hauling commodities including grain, said cargo movements were unaffected. Ports are working normally with the exception of Sevastopol, which requires “special permission” to enter and exit, according to Gulf Agency Co., a port agent.
Ukraine already has exported most of what was grown in 2013. The amount of wheat left to ship is less than 1 percent of world stockpiles expected before the 2014 harvest starts, and corn inventories equal about 3.8 percent of forecasted inventories, according to data from Kiev-based researcher UkrAgroConsult and the U.S. Department of Agriculture.
Grain exports since July 1 totaled 24.7 million metric tons, up 36 percent from the same period a year earlier, the Agriculture Ministry said March 4. February shipments were 2.8 million tons, and 340,000 tons were sent in the first three days of March. The ministry forecast exports will slow before this year’s harvest, as inventories decline, reaching 8.7 million tons in the four months through the end of June.
AAA, a Kiev-based agricultural consultant, raised its forecast yesterday for Ukraine grain production to 57.9 million tons, compared with a February forecast of 56.8 million. Yields will be higher because of “excellent soil moisture in most regions, plus optimal temperatures,” Sergey Nalyvka, director of AAA, said by e-mail.
Concern over supplies escalated after Yanukovych rejected closer trade ties with Europe, sparking protests that led to deadly street conflicts and the president’s ouster Feb. 22.
Skochko said the change in local government was orderly. Statues of Vladimir Lenin in the villages of Shishaki and Yareski were removed by cranes without incident, rather than crushed in public outrage, he said. Local officials plan to re-name the streets named after the communist leader for heroes of the Maidan, the iconic square in Kiev where most of the anti-government demonstrations were held, he said. Maidan also was the epicenter of the country’s 2004 Orange Revolution.
Events in Ukraine prompted Russia to seize control of the country’s Black Sea region of Crimea, home to its largest overseas naval base. Russian President Vladimir Putin said March 4 that he has no immediate need to invade eastern Ukraine, while he reserved the right to use force to defend ethnic Russians who live there.
Kiev-based Astarta Holding saw its Warsaw-traded shares plummet 13 percent on March 3, the biggest one-day decline since April. Trigon Agri A/S, a Copenhagen-based farm and dairy owner with 50,000 hectares of crops in Ukraine, plunged 11 percent on the same day, the most in 15 months. The shares pared losses over the next two days.
There was more investor concern than actual disruptions to business, with little field work being done at this time of year, said Ulo Adamson, 35, the chief executive officer of Trigon, which has operated in Ukraine since 2006.
“The last couple of days have been challenging because it was very unclear what might happen and what Russia would do next,” Adamson said, adding that he has been spending more time reassuring investors than on the company’s farm operations. “On the ground, so far, we have not been influenced.”
Corn futures surged to a six-month high of $4.88 a bushel yesterday on the Chicago Board of Trade, up 14 percent this year. Wheat futures surged on March 3 by the most since September 2012 and have gained 5.6 percent since the end of December to $6.3925 a bushel. Grains rebounded from slumps in 2013, when global output rose to a record.
Hedge funds, which started 2014 the most bearish on wheat ever, have trimmed their bets on lower prices for four straight weeks and by 72 percent since Jan. 7, U.S. Commodity Futures Trading Commission data show. As of Feb. 25, speculators held their most-bullish wager on corn prices since June, after seven straight months of bearish bets, the CFTC data show.
Instability also may draw farmers out of their fields if the government mobilizes its army reserves, Vladimir Klimenko, the president of the Ukrainian Grain Association, said at a conference in Hong Kong on March 4. Domestic corn prices are rising as farmers slow sales, holding grain as a hedge against a depreciating currency, which may mean more sales for U.S. producers, the U.S. Grains Council said yesterday.
“Production is unlikely to be impacted as long as Russian troops remain in Crimea,” said Daniel Basse, the president of AgResource in Chicago. “We don’t think that Russia intends to push west into Ukraine. Unless civil war breaks out in Crimea, concerns about ag-trade disruptions may be over in a few days.”
With Ukraine’s economy already ailing, the standoff with Russia sent the hryvnia tumbling 10 percent against the dollar last week, and the currency is down 12 percent this year.
While that will increase the cost of buying dollar-priced crop inputs, including seeds, fertilizer or fuel, most growers have purchased what they need by mid-February, according to Nikolay Vernitsky, director of Kiev-based agricultural researcher ProAgro. Trigon Agri, which is preparing to plant spring crops, had most of the seed and fertilizer it will need after purchases made in December, Adamson said.
A weaker currency also will encourage Ukraine to increase shipments overseas, Basse said. Most exporters have 90 days to convert dollar-denominated export sales, he said. Ukraine’s insurance-risk rating wasn’t changed by the Joint War Committee, which declined to add the country to the list of areas where there’s a risk of damage to ships or where vessels may be confiscated, according to Lloyds Market Association.
Ukraine has 1.8 million tons of wheat and 6 million tons of corn left to ship from the 2013 crop, UkrAgroConsult said. World wheat inventories before this year’s harvest will total 183.7 million tons, up 4.5 percent from a year earlier, the USDA estimates. Global corn stockpiles will reach 157.3 million tons by July 1, up 17 percent from a year earlier and the most since 2001, the USDA said.
Farming accounted for about 16 percent of employment and 8.2 percent of gross domestic product in Ukraine during 2010, based on a briefing by the United Nations’ Food & Agriculture Organization.
When Ukraine was part of the Soviet Union in 1989 and supplying about 32 percent of its wheat, farmers harvested 27.4 million tons of the grain, USDA data show. After dissolution of the bloc in 1991, output slid, reaching a low of 3.6 million in 2003 after ice destroyed two-thirds of the crop.
The country is known for fertile black soils and its climate is similar to Kansas, the largest winter-wheat-growing state in the U.S. About 8 percent of Ukraine’s arable land was removed from agricultural production after the 1986 meltdown of the Chernobyl nuclear plant because of radiation contamination, according to the World Bank.
Over the past two decades, farmers have shifted away from barley to grow more corn, harvesting a record 30.9 million tons of the grain last year compared with 3.79 million in 1993, USDA data show. Barley output slipped to 7.56 million tons last year from 13.6 million 20 years ago, the data show. Only the U.S. and Brazil export more corn than Ukraine.
“Despite the weakness in other parts of the economy, the agriculture sector has been a success story,” Deutsche Bank AG said in a March 3 report.
Barley usually is sown in April while corn is planted in April and May, according to World Data Center Ukraine. Most of the wheat is a winter variety that is sown in October, goes dormant in cold-weather months and is harvested in May and June.
Farmers in some southern areas have started planting crops early, which may mean more land devoted to barley, according to UkrAgroConsult. Barley is cheaper to grow than corn or wheat, AAA’s Nalyvka said.
The escalating tensions with Russia are heightening concerns for rural Poltava, where police patrols guard the neighboring villages against any raids, according to Astarta’s Skochko. He gathered his farmers for a meeting last week to help keep them focused on work and remind them why their efforts are so important to Ukraine.
“We told them that we should get ready for the planting season, because if we fail the planting campaign, this would be an irrevocable catastrophe,” said Skochko, who has been working in agriculture since 1983. “We are farmers, and our duty is to produce foods. That’s how we calmed the people, it was important for them to hear this.”