March 8, 2022

At a time when global grain and oil prices have reached 10-year highs, the outbreak of the Russian-Ukrainian crisis is disrupting the global grain market.

Russia and Ukraine are the world's major global grain producers and exporters, supplying mainly wheat, corn, sunflower oil and barley, especially wheat and corn, to the world.

The combined corn output of Russia and Ukraine accounts for 5% of the global total, but they account for 19% of the world's total corn exports. USDA's statistics estimated the global corn planting acreage in 2021/2022 at 200 million hectares, with a total output of 1.21 billion tonnes. Russia's corn output is projected at 15 million tonnes (1.2% of world output) while that of Ukraine is expected to be around 42 million tonnes (3.5%). Russia's corn exports will be 4.5 million tonnes (2.2% of world corn export); and Ukraine, the fourth largest corn exporter in the world, will export 80% of its corn production, which is around 33.5 million tonnes (16.4%).

It is therefore inevitable that the Russo-Ukrainian war will severely impact the global corn market. Since the war broke out in February 24, May futures contracts for wheat and corn have hit their highest since 2012. As the Russo-Ukrainian war started in eastern Ukraine, which is the main agricultural producing region of ​​the country, agricultural production is set to decrease from the USDA's projection.

Wheat exports from Ukraine are mainly between August and November each year while corn exports are between October and May of the following year. Therefore, the most immediate effect of the war is corn supply disruption. In 2021, Ukraine has overtaken the US to be China's biggest corn supplier, with imports at 8.24 million tonnes, accounting for 29% of its total corn imports. According to China customs statistics, in December 2021, 70% of corn import was from Ukraine.

Corn prices have been stagnant since late December 2021, moving in a very narrow range of RMB2,692-2,698/tonne. Chinese reports claim that corn supplies are ample but deliveries are hampered by adverse climates in the production regions. However, corn prices stood stable even as feed producers held back purchases of feed ingredients with the livestock markets underperforming despite pre-Chinese New Year stimulation in January. And with China's corn imports soaring 152% on-year to a new high of 29.4 million tonnes in 2021, which is over 11% of its declared corn output, it is likely that 2020 corn harvest is substantially below the government's figure of 261 million tonnes. Hence, China government's claim that 2021 corn production remained stable at 261 million tonnes should be taken with caution.

With China's hog population recovering steadily due to high number of sows and the inventories of poultries high despite the recent decline, the demand for animal feeds and subsequently corn is expected to be firm. If China is quietly facing severe corn shortages while global supplies shrink due to the Russo-Ukrainian war, corn prices will soar beyond expectations both in China and globally.

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