In the immediate aftermath of the brutal invasion of Ukraine by the Russian Federation, exports of poultry meat by MHP and competitors and eggs and egg products from Avangard and Ovostar have ceased.  It is known that facilities operated by poultry producers have been extensively damaged, especially in the case of MHP, but the breakdown in logistics including power has also impacted production.  Avangard indicated earlier last week that it was unable to supply feed to as many as three million hens in the Kherson region in southeast Ukraine near the Crimean Peninsula occupied by Russia since 2014. Avangard actually donated as many birds as they could dispose of to citizens and the military.

Over the past decade both egg and broiler meat producers in Ukraine have supplied markets in western Europe and the Middle East.  This has now created opportunities for exports from Turkey, Poland, Brazil and the U.S.

The broader issues resulting from the invasion and resulting war relate to the supply of grains.  Ukraine is responsible for 13% of world trade in agricultural commodities most of which is loaded from Black Sea lowland ports. Extensive destruction has taken place in port cities including Odessa, Mykolaiv and now virtually destroyed Mariupol, all threatened by imminent encirclement. Recruitment of agricultural workers to resist the invasion and disruption of the transport infrastructure will affect the upcoming planting season for both sunflower and corn.  Limited availability of fertilizer, pesticides and diesel fuel are major obstacles for farmers and even if obtainable are offered at exorbitant prices.

Although not directly impacted by the war, production in Russia will be affected as banks will not extend loans and importers have ceased trading in Russian fertilizers and their ingredients including potash and natural gas. Financial sanctions against Russia have deprived that nation of export trade further creating artificial shortages in many nations reliant on both Russian and Ukranian commodities. Since 2021, sanctions have been imposed on Belarus, a major producer of potash, further restricting availability of fertilizer for world agriculture.

Interdiction of grain shipments from Black Sea ports will restrict the supply of wheat to major consumers, including Egypt, Saudi Arabia and Gulf states.  This is reflected in the volatility in the price of this commodity now approximately 50% above the 4-year average.  Since bread prepared from imported wheat is heavily subsidized in countries such as Egypt, escalation in price imposes financial challenges to autocratic governments that are also threatened with potential violent reactions by populations reliant on bread at low cost. The concept of available calories extends beyond the price of individual grains given the possibility of substitution under conditions of restricted supply.  Rabobank pedicts that even with the unlikely rapid resolution of hostilities, effects of the war will persist over an extended period as global food supply is impacted. 

The March 12th edition of The Economist notes the parallel between current restrictions on Black Sea shipping and the blockade of the Dardanelles Strait by the Ottoman Empire in the first months of World War I.  This action deprived Britain and France of wheat and was a major factor in the decision to invade Gallipoli by Anzac forces in February 1915 in an attempt to eliminate Turkey as a belligerent.

Kyiv and Moscow are thousands of miles from Chicago, but events in Eastern Europe are evident in trading at the CME and will directly affect the cost of U.S. production of eggs, pork and chicken during the current year.