Monday, March 17, 2014
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Will Russia become a new world leader in agriculture?

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[March 17, 2014]  At the end of the harvest season for 2013, the United States is not the only country worldwide to see increases in corn production over 2012 yields. Globally, corn exports are expected to rise 21.11 percent as a result of the 2013 harvest.

In fact, two of the top three exporters of corn, the U.S. being No. 1 and third-ranking Ukraine, saw excellent yields at the end of the season. The No. 2 exporter, Brazil, saw yields fall by 13.58 percent, and another major player, Argentina, saw a decrease of 9.43 percent.

In seventh place worldwide in corn production is Russia. And again, this past year saw that country reporting high yields.

The question now is, if Russia succeeds in bringing Ukraine back into its fold, how the combined yields would affect its world standing in crop production. With Ukraine currently third and Russia making advances in agriculture, Brazil may be outranked in corn production within the next few years. The United States could even be in jeopardy of losing its No. 1 status in the longer term.

Would that affect corn prices? Probably. But the direction they take is still going to depend on what happens between Russia and Ukraine over the next few months.

Vladimir Putin has been accused of wanting to see his "Mother Russia" return to the expansive territory it once was when known as the Soviet Union. In recent days, Crimea has made the key decision to join with Russia in its stand against a new Ukrainian government.

This could be key to Ukraine's ability to export because Crimea is a peninsula on the Black Sea. Crimea lies strategically between Ukraine and its access to the rest of the world via sea vessels. Other recent events have included Ukrainian military units in Crimea and leaders surrendering to Russia. Combine the two components and it is well within reason to believe military control of Crimea will be completely in the hands of the Russian government. If so, even if Ukraine maintains its independence under the new government, Russia could effectively block seagoing exports from that country.

If the No. 3 exporter in the world is knocked out of the race even for a short time, this could drive up the price of corn in the U.S. as Ukrainian customers scurry to find other sources for commodities.

This unrest between Russia and Ukraine could also have a more direct effect on the coming season. If Ukrainians are bound up in war against Russia, they may not be concentrating on growing crops. As men go to war instead of to the fields, Ukraine could slip down the list in exporters and become less important to the world market.

Ultimately, this could drive the price of corn up for the rest of the world, though with production being high and stockpiles growing in the U.S. and other countries, the idea that supply will not meet demand is not all that likely. In the end, the battle of wills between Russia and Ukraine may spur temporary increases in the markets, but the vast stockpiles of corn worldwide will still keep us from seeing the highs of a year ago.

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On the other hand, if Putin is successful and brings Ukraine back into the fold, the primary result could be that instead of Ukraine being No. 3 in the world, Russia could assume that title and still even surpass the No. 2, Brazil. The effect that would have on prices is still sketchy and depends much on how the European Union threats of sanctions against Russia are received by Putin.

It took 18 years for Russia to be joined into the folds of the World Trade Organization. Prior to joining the WTO in 2012, Russia was sanctioned. One such sanction was the Jackson-Vanik amendment, signed by the United States in 1974. The amendment was meant to "hinder trade with countries originally labeled as the communist bloc that restricted freedom of emigration and other human rights." Russia responded to this amendment by implementing large tariffs on imported goods, effectively stopping trade between itself and the United States from both directions.

The bottom line then was simply, "If you don't want to play with us, we don't want to play with you," and both countries went about their business without the other.

In 1992, the United States began forgoing the Jackson-Vanik amendment with Russia, making it easier for Russia to export to the U.S. However, Russia refused to ease the tariffs on U.S. imports. By doing this, the Russian government effectively made the statement, "You need our goods more than we need yours."

Now, only two years into its membership in the WTO, is it not likely that Putin will decide that Russia once again doesn't need the rest of the world?



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