Agricultural Commodity Markets Navigate Uncharted Waters Amidst Russia-Ukraine Conflict

Raghav Goyal, Ph.D., Agricultural Economics and Agribusiness, Louisiana State University

Sandro Steinbach, Dr. Sc., Agribusiness and Applied Economics, North Dakota State University

The ongoing conflict between Russia and Ukraine, which began in February 2022, has had substantial humanitarian and economic implications. Among these repercussions is the disruption of trade, especially in agricultural markets. Ukraine’s grain and oilseed exports contracted by around 80% at the onset of the conflict. This has led to notable price fluctuations, particularly for crops like wheat and corn. For instance, wheat futures prices increased by up to 35% in response to the armed conflict. Despite these market changes, the price increases have been less significant than initially anticipated. To facilitate the movement of agricultural products, the European Union established the EU Solidarity Lanes in May 2022. Additionally, the Black Sea Grain Initiative was established with the support of Turkey and the United Nations to alleviate the challenges of blocked Black Sea ports due to the conflict.

Research into market reactions to major events is extensive, but fewer studies have examined how conflicts impact crop prices. Some research on this conflict suggests that crop prices did rise, but not due to overreactions. Moreover, the initiatives to improve transportation and unblock ports had limited influence on traders’ perceptions of the market. The price of wheat was more affected than corn, indicating concerns about broader disruptions in Black Sea shipments. Interestingly, other crops like soybeans responded less to the conflict or the port unblocking initiative.

Figure 1 shows how the futures price index for select grains and oilseeds responded weeks after the invasion and when the Black Sea Grain Initiative was established. The results in panel (a) show that within the initial nine weeks of the conflict, future prices of agricultural crops were about 16% higher compared to a hypothetical scenario without the conflict. As seen in panel (b), after the introduction of alternative transportation routes, the futures price index experienced a gradual decline. This suggests that the transportation initiative had a positive impact by reducing market uncertainty. However, the broader market sentiment was not significantly altered by the Black Sea Grain Initiative, and prices did not decrease further. A similar pattern is seen for the grain deal renewal in the Fall of 2022. These findings hold significance for stakeholders involved in the decision-making and trading of these commodities, highlighting the complex dynamics of market responses to geopolitical events and mitigation efforts.

(a) Futures Price, Russian Invasion of Ukraine (Week 8).	(b) Futures Price, Black Sea Grain Initiative (Week 29).

Figure 1: Agricultural Commodity Futures Market Response to the Russia-Ukraine War and the Black Sea Grain Initiative.

Note. The figure shows the response of the agricultural commodity market to the Russia-Ukraine war and the Black Sea Grain Initiative. We constructed the price index with futures price series for barley, canola, corn, rapeseed meal, rapeseed, rice, soybeans, soybean oil, sunflowers, vegetable oil, and wheat. The statistical analysis measures the price response in weeks relative to the event of interest. The two events are the Russian invasion of Ukraine and the Black Sea Grain Initiative. The dots indicate point estimates, and the whiskers represent the 95% confidence intervals. Goyal & Steinbach (2023) provide a detailed methodological and data description.