Invasion of Ukraine ripples through the agricultural economy
The Russian invasion of Ukraine affects Howard Dahls’ business. It’s also hurting his friends.
The small farm equipment manufacturing company he runs in Fargo, N.D., with 75 employees has been operating in Ukraine and Russia since 1991.
"So 93 trips later and roughly $350 million of machinery (sold) into that market, I've gotten to know a lot of people very well, ”said Dahl. “I get teary eyed when I read texts from friends there."
Many of Dahl's friends and business associates live in Kyiv. He also chairs the board of the nation’s largest sugar company, Astarta, which manages more than half a million acres of Ukrainian farmland. The company is based in the Ukrainian capital and Dahl has been in constant contact with friends there.
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"There's still food in the supermarkets, but once this city is circled by Russian troops, and they try to prevent food from getting in, and it's a long siege, it could be very, very difficult," he said.
Dahls’ company, Amity Technology currently sells sugarbeet equipment in Ukraine and Russia. He has one employee in Ukraine and a handful in Russia.
Several containers of farm equipment his company recently shipped to the region have been returned, and more orders sit at the Fargo company, waiting a now uncertain delivery date.
‘It affects us right here’
Ukraine produces and exports a lot of wheat, corn and sunflowers. Agricultural production has increased significantly in the past 20 years. Ukraine and Russia together export about a third of the world’s wheat.
Minnesota-based Cargill is among the companies that move that grain around the globe. But ports are now closed and those exports stalled. Cargill declined an interview request. The company has infrastructure in Ukraine and a cargo ship it owns was reportedly damaged early in the conflict.
The closed Ukrainian ports forced many ships headed there to pick up grain to turn back. That has disrupted the balance in international markets.
"If I've purchased wheat from Ukraine, for delivery in six weeks, what does that mean? It means that load — that volume of grain that I thought I would be receiving in six weeks — is not going to show up,” said North Dakota State University crop economist Frayne Olson. “So now all of a sudden I'm panicking, looking around, how do I try and rearrange that?"
Those traders need to find grain elsewhere to fill orders, and that's caused extreme market volatility, especially for wheat.
"We cannot minimize how important both Ukraine and Russia are in the world wheat market, that's a basic food stuff, that's a basic staple," said Edward Usset, a grain market economist at the University of Minnesota.
While Usset said much of the Ukrainian grain goes to Europe and the Middle East, the effects will still be felt in the Midwest.
“You might think ‘Ukraine sells a lot of wheat. Well, they don't sell to us, that doesn't impact us,’” said Usset. “Well, it does impact us. Of course it does. These commodity markets are worldwide. If you upset the wheat market halfway across the world, it affects us right here.”
Ag economists are trying to understand how those effects will play out amidst the still escalating war and global sanctions on Russia.
“For every action, there's a reaction. The hard part of economics is trying to figure out what that reaction is going to be,” said Olson. “How are we going to adjust, whether it's a short-term adjustment or a longer-term adjustment to compensate for these disruptions or these changes in the flow of products? And to try and think all of those through ahead of time gets to be really, really tricky.”
Agriculture is a global system that's always adjusting as weather and political conditions change around the world. It now has to deal with a new level of risk.
"We spend a lot of time measuring risk because risk is so important in agriculture. And right now, the amount of risk in the commodity marketplace is about five times as big as normal,” said William Wilson, distinguished professor at North Dakota State University and CHS chair in risk management and trading.
"I don't believe anybody would have in their crop planning budget a probability that there's going to be an invasion and all of the ports in Ukraine are going to be shut down, and they risk not planting in the spring,” said Wilson. “I doubt anybody had that in their planning horizon."
As the situation in Ukraine plays out, there likely will be winners and losers in the international ag markets. A volatile market is usually good for traders who buy and sell grain, and Wilson said they are likely to profit from this global disruption.
Food companies and consumers will be hit with higher costs.
Farmers will reap profits from higher prices for their crops as markets that were already higher because of droughts and a push for more renewable fuels respond to the war, said Wilson. But the conflict also means spiking costs for the fuel and fertilizer farmers need to plant crops this spring.
And higher grain prices drive up feed costs for livestock farmers.
Crop farmers here aren't likely to make any big changes in what they plant this year, as they wait to see what happens in Ukraine said Usset, but there could be long-term changes if the global disruption persists.
North Dakota ranked second among states in wheat production last year and Minnesota ranked ninth. Billions of dollars worth of crops are exported from the region each year.
Farmers in Ukraine plant their spring crops at about the same time as farmers here, and the ag industry is watching to see whether crops the world market depends on will get planted.
“You’ve got to settle a war. You’ve got to put the roads back together. You’ve got to get ag inputs to the farms. You’ve got to get the farmers back on the farms working. They have to plant the crop. That’s a lot to happen,” said Wilson.
Whatever happens to Ukraine in the short term, Dahl sees spring planting as an inflection point with potential ripples far beyond the fighting.
A crippled Ukrainian farm industry would hurt Dahls' business in Fargo. But for now, he's more concerned about his friends fighting for survival in Kyiv.