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PURDUE ECONOMISTS ISSUE REPORT "UNDERSTANDING THE CORN MARKET'S RESPONSE TO WAR IN UKRAINE"
Blog by by James Mintert & Nathanael Thompson, Purdue University

Russia's invasion of Ukraine in late February disrupted world supplies of several key agricultural commodities, including corn. Some readers were likely surprised to learn that Ukraine is an important supplier of corn to the world. A bit of background is in order since it's only in recent years that corn production in Ukraine increased to the point where shifts in Ukrainian production and exports began to impact corn prices.

In the early 2000's corn acreage in Ukraine was quite small, ranging from about 3 million to just over 4 million acres. That started to change as the first decade of the 21st century came to a close and by 2010 corn Ukrainian corn producers were harvesting over 6 million acres of corn. Corn acreage continued to climb in recent years, approaching 8 million acres in 2021, more than doubling in two decades.

At the same time that corn acreage was increasing, Ukrainian corn yields began to increase. National average yields that ranged from a little less than 50 bushels per acre to the high 60's in the early 2000's first eclipsed the 100 bushels per acre barrier in 2011. USDA's Foreign Agricultural Service estimated 2021's average yield at 126 bushels per acre, 2.6 times the average yield in 2000, setting a new record.

The combination of larger acreage and higher yields pushed Ukrainian corn production up from just 151 million bushels in 2000 to an estimated 1.653 billion bushels in 2021.

Figure 1. Ukraine Corn Production


As corn production increased, Ukraine's exportable surplus increased rapidly, and the percentage of Ukraine's production exported rose from 10% in 2000 to over 80% in recent years. As a result, Ukraine changed from providing less than 1% of the world's corn exports in 2000 to nearly 17% in recent years. Losing access to Ukraine's corn exports significantly altered the world supply/demand balance. Not only has it tightened world corn supplies at a time when concerns have been arising regarding South American corn production because of adverse weather in Argentina and Brazil, but it also shifted the pattern of the world's corn trade.

With Ukraine's Black Sea ports closed for the foreseeable future, some export sales that were expected to originate from Black Sea ports needed to be filled from other sources. Exporters looking for corn to fill prior sales commitments have been shifting the origination from Black Sea ports to the U.S., resulting in exporters scrambling to fill barges on U.S. waterways. The result has been a shift in U.S. corn basis patterns as well as a strong inversion in Chicago Board of Trade corn futures prices.

Corn basis levels at river terminals rose sharply in recent days in response to exporters' needs. For example, nearby corn basis on the Mississippi at St. Louis, Missouri ranged from +$0.20 to +$0.24/bushel during January. Nearby basis started to strengthen in February ranging from +$0.32 to +$0.35/bushel before jumping to +$0.48/bushel the first week of March. Nearby corn basis at Evansville, Indiana on the Ohio river was relatively flat during January and the first half of February, ranging from +$0.02 to +$0.08/bushel before climbing to +$0.30/bushel in early March.

The strengthening corn basis at river terminals stands in sharp contrast to what's been taking place at inland terminals not well suited to help fill short-term export needs. For example, nearby corn basis at Beech Grove, Indiana near Indianapolis weakened, dipping $0.08 to -$0.15 in early March compared to -$0.07/bushel the last week of February.

Figure 2. Ukraine’s Share of World Corn Production and Exports


To view the complete report, click here.


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