Dr. Darren Hudson says Impacts of Russian/Ukraine War Not going Away Any Time SoonTue, 08 Mar 2022 12:41:16 CST
With all eyes on Russia and Ukraine, many consumers and producers are left wondering about the long-term effects. Farm Director KC Sheperd visited with Texas Tech Professor of Agriculture and applied economics, Dr. Darren Hudson, and he said the impact of the war isn't going away anytime soon.
Ukraine is a significant exporter of Wheat, Corn, Vegetable Oil, Barley, and Fertilizer. "Currently, it's planting season in that part of the world, so the supply disruptions are pretty substantial," said Hudson. The corn exports from Ukraine are about 14% of global trade, and Hudson says that just wreaks havoc on the markets, "The dynamics that are taking place here are shocking the markets and trying to find what is a realistic level of information. Traders react with anything that looks like it might change expectations, supply, cost of production, or anything. So, all these things are layered together."
Hudson said it doesn't help matters that we were already in the midst of a pretty substantial inflation run, "When we talk about $700, or $800 urea nitrogen fertilizer, we were at $600 before the invasion." Hudson said markets have to play out and ration the available supplies worldwide. Couple that with weather and drought concerns worldwide, and you get a lot of uncertainty. "There's not much moisture, so what's our wheat crop going to look like? I don't know that we'll end up at $10 wheat, but we may end up we may go $12 or $13 Before we go the other direction depending on what weather does up here."
No one can predict when "black Swan Events" like this will take place. Still, Hudson says his advice for producers would be to start thinking about their financial risk, "Not not just price risk, but, maintaining cash reserves, doing things that are strategies at minimizing household risk out into the future so that when we have this event, you've got something to fall back on. In terms of maintaining your household or your production process, without having to go back to the bank or dramatically alter the way you think about producing goods."
Hudson also said looking at the marketing side will also be necessary, "I hope one of the things is, producers start looking at the marketing side of things more seriously than they probably have been."
As far as lasting effects of this invasion, Hudson says we are already facing high cost and labor shortages and that the realism of thinking we can produce everything here in the US is somewhat of a pipe dream, "But that doesn't mean we can't realign supply chains in areas that have a less political risk for us."
Hudson says in part US Agriculture is slightly buffered from this event because we have a greater diversity of where we send products. While we aren't dependent on Russia as the primary consumer, we are dependent on China, "We may need to re-think about being overly dependent on one country, or a set of countries that are probably not strategically aligned with the US."
Hudson hopes moving forward that the US industry looks at trying to diversify consumers and suppliers for inputs and other products, "I don't know that we are going to be in the same kind of world after this is over, even if it manages to end fairly quickly." Hudson believes the views of US Consumers as well as US businesses is China is not likely to be as reliable of a partner in trade going forward as they were in the past.
To hear more from KC and Dr. Hudsons about Trade relations, the Relationship with the WTO, and the Transpacific Partnership, click or tap below.
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