Even though it’s hard, the best thing farmers can do as we watch the events unfold in Ukraine is to remain calm. It’s a message Angie Setzer says she wants farmers to heed as market volatility continues.
“Today changed a lot of things,” Setzer says of yesterday’s invasion of Ukraine by Russia. “We have become a different world, and it’s impossible not to think of all the implications this is having and could have on our country. The global markets are already reflecting that.”
How do you keep a level head in all of this? “Farmers must keep reminding themselves that they are in business to make a profit. Don’t get too caught up in your emotions and let them drive your marketing decisions,” says Setzer, co-founder of Consus, LLC.
Involved in the grain industry for 18 years, Setzer began her career as a cash grain broker. In 2011, she transitioned into vice president of grain for Citizens Elevator in Charlotte, Michigan, where she managed five elevator locations and built a state-of-the-art direct ship program. Today, Setzer works directly with about 45 farmers as a grain marketing specialist.
She offers her insight on the situation in Ukraine and its short- and long-term impacts on agriculture.
SF: What can we expect in the short-term?
AS: In the short term, no matter what happens in the next week, we’re probably going to see some delays, disruptions, and questions over what we’re able to ship when it comes to the grain already in place in Russia and Ukraine, as well as what happens with Ukraine production as we go forward. Long story short, supply disruption is going to remain a concern, especially considering we are already worried about elevated food prices and food scarcity. Because there is so much uncertainty, the market likely will stay somewhat supported until we feel more comfortable in production potential out of other countries.
Ukraine is one of the world’s top four corn exporters, and it’s also a top exporter of wheat, as everyone knows. What happens if Russia takes over? The best-case scenario for Ukraine is Russia takes over and delivers what it said it would, which is Ukraine becomes a neutral territory. No weapons allowed. It never joins NATO and, basically, is a part of Russia. Worst-case scenario is you see a Cold War sort of approach or continued fighting that pulls the intention away from food production for both countries.
In the short term, the markets are going to stay volatile. They are also going to have some upside and maintain risk premium. You’re going to see days like this past Wednesday where March futures for soybeans were up 40¢ and corn went up 9¢, but we also traded down at one point.
From the farmer’s standpoint, you must ask yourself what these prices may mean for your operation and start to recognize that $6 futures are profitable. Yes, the market is probably going to go higher, but take 5% to 10% of your expected production and start there. Then you can target another 5% to 10%, at 35¢ to 40¢ higher, and get two to three orders stacked and see how long it takes to get them.
Let the market come to you, because no one is a good seller when this thing finally does collapse, which I’m expecting it to do at any time. The reality is the things that we’re facing geopolitically and from an economic standpoint, don’t have a soft landing. We’ve got to be prepared for that hard landing and be smart about opportunities when they present themselves, but I don’t think we have to panic.
Taking an incremental or conservative sales approach to make sure you’re still actively engaged in the markets is really the best way to approach these unprecedented times. I have no idea what that means for what happens tomorrow. I have no idea what that means for what happens in July. However, I do know, based on the numbers I’m running with my customers, that these prices provide an opportunity for decent profitability, and that’s what we’re choosing to focus on.
SF: What are your long-term concerns?
AS: Long term, I worry about what it may mean if we see a Chinese, Russian, and South American alliance. We’ve seen China, Brazil, and Argentina working closely together recently. China has agreed to basically help Argentina finance its debt and invest billions of dollars in its infrastructure, which of course is going to help export agricultural goods. Will we see China work hand in hand with one of the largest commodity producers in the world, Russia, to put the West under pressure? If we do see these global movement changes, what could they mean for the European Union and other countries in the world?
SF: Hindsight is always 20/20 and it can be difficult for farmers not to second guess their marketing decisions once the situation in Ukraine plays out. What is your advice to farmers?
AS: The hardest part for a farmer is going to be trying not to view any marketing decisions he made with hindsight bias in six months. You’re doing the best you can with the information you have. Continue to focus on your return and covering your costs. That’s easier said than done because it’s a scary situation. I was up much of last night thinking about the implications and which farmers do I need to do what with, and how do I play this? We’re all in the same situation.
SF: What are you hearing from farmers about fertilizer costs?
AS: Farmers are concerned. Luckily, one of the things we saw throughout most of December and into January was an exceptionally large Northern flowing program. We did see a lot of fertilizer move from the Gulf into interior places, but there is some concern.
I’ve heard of a couple different providers telling farmers they have until a certain date to book their fertilizer because they can’t guarantee they can even quote them later. Russia, China, and Belarus are responsible for a large amount of our fertilizer needs. If this invasion or the sanctions put in place boil long term, we’re likely not going to see a reprieve from higher fertilizer costs. If you can book your crop inputs ahead of time, it’s probably best to start looking at that simply because the situation in Ukraine isn’t going to make that any better.
SF: In your mind, do sanctions have an impact on Russia?
AS: The sanctions announced on Tuesday didn’t stop Putin. Russia provides around 35% of Europe’s energy needs. You can’t cut that off and Russia knows it. We’ve never been in a situation before where the world’s 11th largest economy is the aggressor. How do you even manage that?
Without China, there’s no teeth. Even worse, if China were to figure out a way to help Russia around some of these sanctions, in a way, it will also help China because it is a large energy consumer. And the two already have some trade connections.
What really concerns me is what happens if China uses the precedent Russia has just set to handle Taiwan? That risk has now been elevated.
If that happens, then the question of sanctions comes into play there as well. After the Trade War, it was like all was forgiven, and we didn’t care about anything that happened or was said two years prior. We were just excited China wanted to buy from us again.
How do we put a firm foot down in the face of all of that?
When it comes down to it, the only thing that is a guarantee right now is that you do have a certain amount of known costs. For the most part, you can protect those costs and do well. As I said earlier, I’m not saying sell a significant amount of your bushels. I’m saying start to trickle into it because I do think there are still some extreme volatile moves that will come.
I also think we really must get away from trying to guess where this market is going to go, because the professionals who spend their day looking at it and make billions on it are scratching their heads.