Texas markets

CoBank Quarterly: War in Europe’s Breadbasket Shakes Grain and Energy Markets, But Will Not Undo Globalization

DENVER — The war between Ukraine and Russia has reignited speculation that globalization is coming to an end and markets should prepare to turn inward to deal with supply line disruptions and challenges. geopolitics. The war will undoubtedly have lasting implications. However, according to a new quarterly report from CoBank’s Knowledge Exchange, an unraveling of global supply chains and global markets is unlikely to be part of it.

Economic sanctions create dividing lines between countries. But the war will not diminish the need for global trade, which set a new record in 2021 at $28.5 trillion. A complete reversal of long-established global interdependencies is very unlikely, especially in the commodities sectors.

The report notes that U.S. economic fundamentals remain strong: the unemployment rate has essentially returned to pre-pandemic levels, consumers are spending and wages are rising. But consumer money isn’t going as far as it did last year, and the Federal Reserve is determined to get inflation under control, whatever the cost.

“Cooling demand will likely require more action from the Fed than most currently expect,” said Dan Kowalski, vice president of Knowledge Exchange at CoBank. “Although interest rates are rising, financial conditions are still quite loose relative to the level of inflation. Real, or inflation-adjusted, rates remain deeply negative, maintaining a stimulating effect on the economy. In total, we expect the Fed to raise rates by 250 basis points in 2022. But we won’t be surprised if it has to do more.

Whether or not inflation has peaked, it should start to decline by this summer. Base effects will play an increasing role in the coming months and the rise in commodity prices since the start of the Ukraine-Russia war should ease. Trucking rates have peaked and some transportation bottlenecks have eased. All of these are positive signs and likely indicate that inflation is close to its top.


Russia’s invasion of Ukraine rocked global grain trade and contributed to unprecedented volatility in wheat, corn and soybean prices in the first quarter. Grain markets could remain volatile for two years or more due to disruptions in planting, harvesting, input application and transportation. The latest USDA report on prospective plantings had bullish implications for corn and wheat, and a bearish surprise for soybeans. For only the third time in history, American farmers are expected to plant more acres of soybeans than corn.

Prices for major fertilizers rose between 8% and 13% in the first quarter, with the largest spikes occurring after Russia invaded Ukraine. While most U.S. agri-retailers have ample supplies of nutrients this spring, that may not be the case this fall and spring of 2023. Russia, Ukraine, and Belarus are generally large exporters of nitrogen, phosphate and potassium fertilizers, as well as natural gas, the key feedstock for nitrogen fertilizers. These supplies will remain threatened by production shutdowns and export restrictions and fertilizer prices will be high throughout 2022.

Ethanol producers have maintained positive margins since the start of the war, but the situation could reverse in the 2nd quarter. Ethanol prices rose 8% between the day of the invasion (February 24) and March 31, outpacing the 5% increase in corn feedstock costs. However, ethanol refineries fuel their boilers with natural gas, so producer margins will suffer if US natural gas prices remain at unusually high levels.


Escalating feed costs continue to stifle growth in US animal protein sectors. Feed supply problems have been exacerbated by the risk to global grain stocks from the war in Ukraine. Rising energy prices and continued labor shortages are additional headwinds for the protein sector. However, livestock, meat and poultry prices continued to rise, prompting cautious optimism among producers.

Demand from the restaurant industry appears to be finding consistency as the omicron wave of COVID-19 has subsided. With the start of the grilling season, strong demand is expected to continue to put pressure on supply despite rising retail prices for meat and poultry.

After minimal impact over the past five years, highly pathogenic avian influenza (HPAI) has again been reported in US commercial poultry flocks this year, claiming more than 20 million head so far, the largest total since 2015. Losses have mainly been for turkey and table egg producers.

Milk supplies tightened further in the last quarter as rising production costs continued to weigh on US dairy farmers. Strong international dairy demand coupled with lower global supply continues to support US exports, signaling strong dairy price support in the months ahead. Chinese demand will be front and center in the second quarter as policymakers in the world’s biggest importer of commodities struggle to contain rising food prices. Efforts to stockpile products could translate into new demand for U.S. dairy products.


Cotton prices were initially slow to react to the invasion of Ukraine, but nearby futures prices eventually climbed to $1.40 a pound, the highest since 2011. Rainfall levels in West Texas will be the main driver of US cotton prices in 2022. for about 35% of total US production. The difference between poorly timed rains in 2020 and adequate rains in 2021 in West Texas resulted in a 3 million bale increase in cotton production, equivalent to 6.5% of all global exports. The United States provides more than 40% of world cotton exports.

The USDA’s Prospective Plantings report predicts the 2022 long-grain rice planted acreage in the United States will drop to 1.94 million acres, particularly in the major rice-producing state of Arkansas. For the first time since 2007, the area sown to long-grain rice is expected to decline for two consecutive years, as world rice prices remain low relative to other crops. The USDA also predicted acreage planted to medium- and short-grain rice will fall for the third straight year to 509,000 acres — the lowest on record — as California growers face another year of continued drought.

Western US specialty crop growers are bracing for a third year of drought and a lack of water for irrigation. The California Department of Water Resources reports snowpack at 38% of average at the end of the rainy season. Freezing temperatures in February further reduced prospects for California’s 2022 almond crop. Early estimates put frost damage at around 10%. Nut prices have been hit as transportation and logistics issues slow exports, raising the likelihood of a record postponement at the end of the marketing year on July 31.

The USDA estimated Florida’s orange harvest at a meager 41 million boxes – Florida’s smallest orange harvest since 1943 as the Orange State continues to battle citrus green disease. Imports of fresh packaged oranges, meanwhile, continue to climb.


Americans face a once-in-a-lifetime cost-of-living shock from an oil embargo coupled with rapid inflation, the combination of which has not occurred since the mid-1970s. energy has been the main driver of inflation for more than a year, accounting for about a third of the overall increase.

Recent sanctions aimed at curbing trade in Russian oil, natural gas and coal appear to perpetuate a longer cycle where high energy costs could keep inflationary pressures high. The coordinated global effort to lower oil prices could be futile without greater cooperation from the world’s largest exporters, including Russia. To combat rising energy prices, the Biden administration announced the largest drawdown in the country’s 45-year history from the strategic petroleum reserve.

US cable companies that offer wireless phone services are reporting impressive subscriber growth. Cable operators accounted for 29% of wireless industry phone network additions in Q4 2021, up from 21% in Q3. Charter’s and Comcast’s wireless businesses are now profitable as stand-alone businesses, which is an important milestone. Bundling cable and wireless service plans gives cable operators a competitive response to wireless carriers’ efforts to grab broadband through their wireless or fixed wireless offerings.