Conflict between Russia, Ukraine could have ripple effects on farm economy in Washington, U.S.

Farm economy experts are monitoring how tensions and a potential conflict between Russia and Ukraine could affect the economic landscape for U.S. growers.

The two countries are major competitors with the United States as wheat exporters, said Randy Fortenbery, an agricultural economics professor at Washington State University.

As such, if they end up engaged in a conflict that affects their ability to export wheat, then U.S. wheat prices would probably go up “quite significantly,” Fortenbery said.

Any changes in Russia’s ability to serve as a major natural gas supplier in Europe, however, could make for increased costs since natural gas is a key ingredient in the process to make nitrogen-based fertilizers.

So for growers in Washington and across the country, the situation overseas could have both positive and negative economic impacts, Fortenbery predicted.

“It’s hard to say which one will dominate,” he said, “because in any kind of a conflict like that, even with sanctions, there’s always leakages. People find out ways to get around certain restrictions imposed on them. So how that plays out, I don’t know.

“I don’t think, in general, it’ll be a positive thing even if wheat prices go up,” he continued, “but it’s a little hard to see.”

The potential effects of the Ukraine crisis were among the topics Fortenberry discussed during a presentation Wednesday at the 2022 Spokane Ag Expo and Farm Forum.

Fortenberry said part of his goal with the presentation was to give people a sense of where Washington fits in with the larger U.S. and global agricultural economy.

“What ends up happening in the Ukraine, China (and) Vietnam ends up influencing our prices,” Fortenbery said. “It helps to have some understanding of what’s going on there and what is changing in their local economy that might affect their willingness to buy our products.”

Fortenbery’s presentation was attended by a few dozen people at the Spokane Convention Center. While masks were required, most attendees – along with many perusing the Ag Expo show floor – were not wearing masks.

The U.S. agricultural market saw overall net farm income increase for the third year in a row in 2021, Fortenbery said, citing Department of Agriculture forecasts.

Fortenbery said he expects that to dip in the coming year due, in part, to an expected decrease in the amount of direct government payments to farm producers.

“Things like (Paycheck Protection Program) payments … early on, we got transition payments for the trade disruptions in 2018 and 2019. Most of those are going to go away,” he said.

“So next year, there probably won’t be any pandemic payments. There certainly won’t be any trade compensation payments.”

Lower crop prices and rising input costs , such as those that are natural gas-based, also factored into Fortenbery’s projection.

“Russia is a large natural gas supplier to especially Germany, but much of Europe,” Fortenbery said, “and if they cut off either the supply or if Europe cuts off the purchases, the world price of natural gas is going to go up significantly and that’s going to have an increased impact on what we’re already experiencing in these markets for chemicals that are natural gas based.”

While farm income was up nationwide, the Pacific Northwest – and Washington, in particular – didn’t enjoy that growth as much, as the gains were largely driven by increases in corn, soybean, poultry and pig revenues, Fortenbery said.Wheat was the fourth-largest revenue source for Washington farmers last year, behind apples, dairy and cattle. Projected fruit revenues for 2021 were down nationwide, Fortenbery said.

“For all of our crops, especially in the Pacific Northwest, we are very much impacted by what’s happening in the international market,” he said.

“We don’t export everything we grow, but of all of the commodities we grow, some of it is exported, and for some commodities, that’s a very significant part of the total picture.”