Wells Fargo Chief Agricultural Economist Michael Swanson joins Yahoo Finance Live to discuss how inflation fueled by the Russia-Ukraine conflict could affect food prices and Russia's agricultural outputs.
ALEXIS CHRISTOFOROUS: And while we are seeing the broader market sell off amid the Russian invasion into Ukraine, we're also seeing agricultural commodities surge, as Jared was just pointing out. The two countries account for nearly 30% of global wheat exports alone. And with a look at what these tensions could mean for food prices globally, joining us now is Michael Swanson, Wells Fargo's chief agricultural economist. So Michael, we know we're already grappling with high food prices, in fact, inflation, we know, at a 40-year high. So what could these kinds of disruptions do to food prices for us here in the US?
MICHAEL SWANSON: You know, it's-- we're going to be competing with other markets. Typically, we're not focused on growing wheat in this country, but with these types of prices and the moves that we've seen, we'll see acreage go into wheat to support those markets that can't access Ukraine or Russia. And obviously, when you reduce the supply here or increase the exports out, it's definitely only going to add to the food inflation in that category, which is a pretty important one to us.
ALEXIS CHRISTOFOROUS: What in particular do you think we could see the biggest price spikes occur? I mean, is it-- you were just talking about wheat. Is that sort of the sweet spot? Because I know Ukraine has been referred to as sort of the breadbasket of the world.
MICHAEL SWANSON: Well, it's interesting because when you look at the numbers these days, Russia's kind crept up out of nowhere. In 2010, they were only about 6% of global production. Today, they're closer to 12%-- 11%, 12% in that range. And there's a lot of Middle Eastern, North African countries that are well aligned with them for logistics and trade patterns. And if they don't have access to that, either that or the Ukraine, they're going to have to shift. It's going to be Australia. It's going to be Canada. It's going to be the United States.
And that demand, like I said, it works its way through the farmers' planting decisions. And they're right in the heart of it right now. And so basically, if we devote more acres for those markets, there's less acreage for our markets. Right now, we see an incredible demand for edible oils from the biodiesel initiatives we're putting in place. We're seeing strong meat demand around the country and around the world as well. So something has to give to support that additional demand that's going to come from those markets.
KARINA MITCHELL: And Michael, what is the capacity of the USDA to step up production and maybe help out other countries if Russia does hold off on those wheat exports?
MICHAEL SWANSON: In the short-term, they don't have a lot of leverage to pull because we do a good job. I mean, everybody I work with who farms, farms as well as they can. And there's very few un-allocated acres in the United States. So now that the USDA does have access to the CRP, Crop Reserve Program, well, that would be a major step to say, hey, we're going to take it out of the CRP program with the environmental consequences and put it into the market. That would be a very strong response from the USDA and the federal government and around crops.
ALEXIS CHRISTOFOROUS: Outside of the US, what other parts of the world could really see disruptions here? Talk to me a little bit about the Mideast, maybe Africa. What would these food supply disruptions mean to people there?
MICHAEL SWANSON: You know, the one key country to think about would be Egypt. Egypt is a very large importer of wheat. And of course, their arable amount of land is fairly limited. But you have to really tip your hat to the Egyptians. They've initiated major programs recently in the last couple of years to increase irrigation in a very strong way. And it's under, actually, the Egyptian Air Force in charge of their newly irrigated ground as a strategic response to this security issue. So the Middle East countries like Egypt saw this coming, and they've been putting things in place to deal with it. So there's a lot of moving pieces in this picture right now.
KARINA MITCHELL: And how long could higher prices, commodity prices, take to sort of settle and become lower in your estimation?
MICHAEL SWANSON: It's kind of a two-step process going on here. One is Ukraine and Russia have stocks on hand tha they were going to export. And if those aren't available, then you have to resource to meet the needs right now. A bigger problem would be if both Russia or Ukraine, due to this conflict, are not able to plant as many acres as they typically do.
Then we see that extend from the current situation into multiple crop years as we try to make up for that loss. So it would be a big issue if the Ukrainian economy is frozen due to problems. And they don't plant, or Russia doesn't plant through the sanctions, you could see this become a multiple year issue around that lack of supply.
ALEXIS CHRISTOFOROUS: All right, we're going to have to leave it there, but thanks for that perspective, Michael Swanson, Wells Fargo's chief agricultural economist.