The developments in Ukraine have intensified fiery hostilities between pro- and anti-European elements within the former state of the Soviet Union.

This may plunge the country into an economic quagmire, not to speak of the possibility of its disintegration, due to fissures within Ukraine’s own social, cultural and political factions.

Eastern Ukraine with a majority Russian origin population is unwilling to enter into an open alliance with the European Union, contrary to the sentiment of pro-European regions around Kyiv.

Riots and killings have followed. Ukraine’s currency has depreciated by 12 per cent since beginning of 2014.

Despite an abundance of grain, logistics and force majeure conditions can soon restrict its exports.

In a recent Egyptian wheat tender finalised on February 27, 2014, Ukraine wheat was not offered by any of the 10 multinational traders. This confirms that the market perceives operational bottlenecks —whether at the ports of Yuzhny, Odessa, or Illichevsky or movement of cargo from inland to portsFinding it difficult to obtain its maize shipments from Ukraine, Iran has put its agreements on hold and is now sourcing from Hungary.

The Chicago Board of Trade (CBOT) futures climbed 4 per cent and 2 per cent, respectively, for wheat and corn on March 3, on the likelihood of Russian aggression. Ukraine’s isolation will mean higher international prices of grains, including the consignments from Russia. This will expedite Indian wheat exports both from the FCI and the open market and accelerate the sluggish pace of corn exports.

Cheap wheat Ukraine sells the world’s cheapest wheat (from a maximum of $340-$355 fob/ tonne in 2011 and 2012 to a minimum of $240-250 fob in 2013). Its fertile land and good weather has upped its wheat output by 20 per cent and corn production by 40 per cent from last year, peaking to 24 mt and 30 mt, respectively. Estimates of exports under normal conditions are pegged at 11mt of wheat and 16 mt of corn which is 8 per cent and 16 per cent of the world trade of these two agro commodities.

But its plans to attain 27 mt (11+16) of exports are now uncertain. In the last eight months of the marketing year 2013-14, it has shipped out 7 mt of wheat and 14 mt of corn. Benefits to India

India’s wheat export contracts in 2013-14 from FCI/PSUs have been subdued. Buyers were bidding at $262-$270 fob.

But in the first week of March, sensing trend reversal owing to the Ukraine crisis, Glencore scooped 160,000 tonnes of Indian wheat at one shot at $275 — almost on par with Black Sea values — though the Cabinet nod is for a minimum export value of $260 fob. A stroke of good luck for Indian wheat!

Indian corn exports which peaked at about 4.6 mt in 2012-13 may not touch 3 mt this fiscal. Ukraine’s crisis and Brazil’s uncertain climate may stimulate some extra corn shipments from India.

Side effects Should the external conflict and civil strife continue, the following will happen in Ukraine: the outflow of grains will fall to a trickle, supply of gas from Russia may be hit, affecting availability of power, its currency may decline steeply, default on existing debt is a real possibility, old crop will be in storage, and the uncertainty over new crops will loom large. This will diminish world supplies of grains.

If peace is restored soon and Ukraine somehow restarts grain exports effectively with a bailout package organised by the US, EU and IMF, it could lead to another set of issues.

With a heavily depreciated currency, dollar values will be much lower and that will hurt India and other competing sources. The possibility of rouble depreciation cannot be ruled out, making Russian grains cheaper as well.

In all, a period of great price volatility is at hand.

(The writer is a grains trade analyst)

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