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Ukraine fight and its farm effects

The saber-rattling between Russia and Ukraine didn't take long to work its way into the ag market sector. Corn and wheat futures surged Monday as shipping companies announced they could see major disruptions of the movement of grain into and out of the troubled region."The Ukraine situation is playing out in front of us and moving all of our markets today. Russia is firmly in control of Crimea and our energy, agricultural, and metals markets are on fire," said Trean Group options specialist, trader, and analyst Scott Shellady on Monday morning before reports surfaced that indicated Russian government officials issued an ultimatum and threatened Ukraine with military invasion.

In the best-case scenario, Ukraine's farmers would be unimpeded by the consequences of conflict or war and able to prepare for the 2014 crops while the movement of grain into and out of the Black Sea region remains intact.

"Since the Ukrainian farmers practically are prepared for the new season with the necessary volumes of inputs (fertilizers, pesticides, seeds, and fuel), and the weather until now was highly favorable, the production of the main crops (wheat, barley, corn, sunflower, rapeseed, and soybeans) will be at least no less than in the previous year," says Iurii Mykhailov, ag economist, editor and correspondent in Kiev, Ukraine. "One of the biggest Ukrainian grain export terminals (throughput of up to 4 million tons a year, or about 10% of the total Ukrainian export throughput) is located in Sevastopol in Crimea. Obviously, this year it will not operate as well as some minor export terminals in the Azov sea. This may affect not only the grain export from Ukraine but also grain export from Russia since part of its grain Russia exports using Ukrainian ports."

The worst-case scenario -- all-out war -- will cause a wholesale disription in the movement of grain, Mykhailov says. "In this case Ukrainian Black seaports may be blocked by the Russian Navy or even grabbed by the Russian army. The grain trade may also be paralyzed because foreign buyers may consider the grain import from this region as highly risky. The outcome will be disastrous both for the Ukrainian and Russian grain export as well as for the next year grain production. Right now the scale of the disaster is impossible to assess," he adds.

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