Interview: Trade restrictions, panic buying key concerns for agriculture markets: IFPRI's Glauber

Potential export restrictions and panic buying could push agriculture prices further higher as the market grapples with growing uncertainty owing to Russia's invasion of Ukraine, Joseph Glauber, senior research fellow at International Food Policy Research Institute said in an interview to S&P Global Commodity Insights.

Glauber, who was formerly the chief economist with the US Department of Agriculture, said that the biggest risk that he sees emerging from Russia's invasion of Ukraine is that countries will try to regulate exports to keep prices low internally.

"On the other side, you will also be concerned about panic buying--countries that want to buy a lot of months in advance and make sure they lock up supplies. You understand why they would do that, but what it does is it drives up prices, creating panic in the markets."

Russia and Ukraine are leading producers and exporters of various agricultural products and inputs including wheat, corn, sunflower oil, and fertilizers. Russia and Ukraine combined were estimated to account for around 26% of the global wheat trade in the marketing year 2021-22 (July-June), while Ukraine is expected to supply 13% of global corn outflows, according to the USDA data. The two countries also account for around 80% of the world's sunflower exports.

Prices of most agricultural commodities have shot up after Russia's invasion of Ukraine.

As shortage concerns loom, countries are trying to restrict exports to ensure domestic availability and control prices. Russia has an export tax on wheat and there are talks of the country banning exports altogether. Ukraine has restricted certain agricultural exports as well, along with Serbia, while some countries announced plans to expand grain reserves. Argentina has also decided to increase taxes on soybean meal and oil exports.

As Argentina is one of the leading wheat and corn exporters globally, any possible restriction on exports is worrisome, said Glauber.

"Argentina has put export bans on wheat many times in the past, and if that happens that would be very, very detrimental, particularly this time that they have a very large crop," Glauber said. "So, the fact that some of that comes to the market would be very important."

Prices to stay strong

Glauber also pointed out that the historically high prices of agricultural commodities are unlikely to ease this year. On the Chicago Board of Trade, wheat futures have climbed over 120% in the last year while corn and soybean prices have also jumped around 70% and 50% respectively.

"While looking at grain prices, of course, the big uncertainty is what happens to the war," said Glauber.

"Prior to the invasion, I would have said prices are really high and they will likely ease by the time harvest comes in the fall and then in 2023, we should see further weakening in prices," said Glauber. "Now, I think that they will come down next year but depending on how this year goes, prices still may remain very high this year and then start to come down, but at a higher level than they've been prior to the crisis," he said.

"I keep telling people, we're not going to run out of wheat. I think there's plenty of wheat to be consumed around the world, but it's going to be consumed at a very high price," said Glauber, adding that the same could be extended to corn and soybean as well.

"This is as bad a situation as I've seen in 40-45 years or so of watching agricultural markets," he said.

Glauber pointed out that this could all change tomorrow if there are no hostilities, but it will be even more difficult if, in an extreme scenario, Ukraine is not able to plant at all.

"If the Ukrainian crops are able to get harvested and marketed then I think prices will begin to see some moderation, but right now there's no sign that that's happening anytime soon," said Glauber.

Further push to fertilizer costs

The continually rising price of fertilizers may add fuel to fire in this situation, Glauber said, adding that this might keep farmers from planting extra acres and impact yields.

Owing to high input costs and certain supply issues, fertilizer prices have been at historical highs for the past few months and the Russian invasion of Ukraine is making the matter worse as Russia is the top exporter for fertilizers, along with its ally Belarus—both of which are facing or fearing trade sanctions.

"I think that the concern is if people use a lot less fertilizer, whether or not that can really affect productivity and if it does, I think that that would add a lot of more problems to what is already a very, very tight market," said Glauber.

Easing biofuel mandates to ease prices

Glauber pointed out that governments could ease biofuel blending mandates to stem the rise in grain and oilseed prices.

"I think right now, one of the actions governments could take is to suspend biofuel-blending mandates and subsidies for things like vegetable oil production into biodiesel to ease agricultural commodity prices," he said.

Various countries follow a mandatory biofuel blending into their fuel including the US, Brazil, China, India, the EU, Indonesia, among others.

"In the US, 42% of soybean oil goes to biodiesel production, that just drives vegetable oil prices for consumers," said Glauber. "Similarly, Indonesia has like a 30% mandate on diesel, which is almost all provided by palm oil," he said.

"And to me, it seems that getting rid of those mandates would at least let the market determine by relative prices, whether they should be blending biofuel," Glauber added.