Facing a Wheat Crisis, Countries Race to Remake an Entire Market on the Fly

It was a small sign of the upheaval in world grain markets sparked by Russia’s invasion of Ukraine, threatening food supplies from one of the world’s most-productive farming regions to some of its poorest countries.

From India to Ireland, governments are moving to fill a void from the Black Sea region that could total tens of millions of tons of grain. They are paying farmers to sow more crops and are enlisting railcars and additional containers to move wheat.

Trading giants such as

Bunge Ltd.

and

Archer Daniels Midland Co.

are exploring alternate routes to move crops out of Ukraine, where the key port of Odessa is offline and fighting has turned fields into battlegrounds, casting uncertainty over farmers’ ability to plant and harvest their crops. Meanwhile, companies including ADM, Bayer AG and Cargill Inc. are continuing to operate in Russia for now.

In the near term, it will be hard for the rest of the world’s farmers to take up the slack, given that Russia and Ukraine combined typically account for more than a quarter of global wheat exports. Since the war began, the U.S. Department of Agriculture has cut its outlook for the world’s wheat trade in the current season by more than 6 million tons, or 3%, as expectations for lower Russian and Ukrainian exports outpace anticipated increases elsewhere.

If hostilities continue into the summer, agricultural executives and economists say, crop shortfalls will keep prices high, imperiling food security in places like the Middle East and North Africa, where surging food prices have contributed to political instability in recent decades. Global food prices already have reached record highs, and prices could jump another 22% as war in Ukraine leads to supply gaps, according to the United Nations Food and Agriculture Organization.

The world’s wheat trade has increased in recent decades as growing global populations and incomes have spurred more consumption, particularly in low- and middle-income countries. Farmers harvested wheat from nearly 550 million acres this season, according to a USDA projection, making it the world’s most widely grown crop. It is a staple food for over 35% of the world’s population, according to Qu Dongyu, the U.N. FAO’s director-general.

Already, consumers have shifted to using flour from cassava or corn to make pastries and bread. And higher prices could spur farmers to plant more wheat. But in the interim, some needy buyers are likely to be priced out of the market.

“It’s not a question of the world running out of grain, it’s a question of how high the price will be that people have to pay for it,” said

Joseph Glauber,

former USDA chief economist and senior research fellow at the International Food Policy Research Institute.

Dan Basse,

president of Chicago-based agricultural research firm AgResource Co., said if the war lasts through the end of the year, he expects combined wheat exports from Russia and Ukraine to fall by more than 60% next season.

Nearly 50 countries depend on Russia and Ukraine for more than 30% of their required wheat imports, according to the FAO. On average, Egypt, Turkey, Bangladesh and Iran source at least 60% of their imported wheat from the two countries.

Exporters in Russia have found workarounds after some Russian banks were removed from Swift, the financial-messaging infrastructure for the global financial system, according to analysts and commodity traders and brokers.

Non-Russian exporters including Cargill, Louis Dreyfus Co. and Viterra, the grain business of commodities giant

Glencore

PLC, have made nearly 40 shipments totaling roughly one million metric tons of milling wheat, corn, barley and flaxseed from the start of February to April 29 to a variety of different countries, according to shipping lineups from Logistic OS, which monitors commodity shipments from Russian ports.

A Cargill spokeswoman said the company is exporting essential goods where possible. Viterra and Louis Dreyfus had no comment.

As Ukraine struggled to bring grain to market, Russia gained ground. Egypt’s wheat imports from Russia grew 580% in March from a year ago, according to AgFlow SA, a Geneva, Switzerland-based crop data firm. Russian wheat exports to Iran, Turkey and Libya all more than doubled.

Still, high export taxes, rising shipping costs and a strengthening ruble are expected to limit Russian exports in coming months, especially of the country’s wheat harvest in the second half of the year, analysts said.

Exports from other grain-producing countries on the Black Sea, such as Bulgaria and Romania, also grew in March, according to AgFlow. Wheat shipments from South American countries including Brazil and Argentina more than doubled, and those from Australia rose nearly 75%, the firm said.

Grain sales from Ukraine have been slashed as terminals at the country’s Black Sea ports remain shuttered.

Exporters including ADM and Bunge have managed to ship small amounts of crops out of the country by rail and truck to Poland and Romania, though infrastructure constraints have limited quantities, according to company officials and agricultural traders. Rail tracks of differing widths require shippers to unload, and reload, grain at the Ukraine-Poland border or lift railcars onto different wheels, said Mike Lee, director of Green Square Agro Consulting, which specializes in the Black Sea region.

Governments around the world are working to make up for lost grain supplies. In March, Ireland launched a nearly $11 million program to encourage farmers to grow more crops such as wheat, oats and barley, hoping to reduce that country’s dependence on imported grain.

The European Commission has adopted measures aimed at bolstering global food security, such as temporarily allowing farmers to grow crops on land fallowed for conservation purposes. It is also supporting potential efforts to cut the proportion of crop-based biofuels blended into oil, saying its measures would allow farmers to devote more land to food production and increase sowing of crops such as corn and sunflowers.

The Biden administration last week asked Congress for $500 million to help boost U.S. crop production in an effort to make up for global shortfalls. The request, included as part of the administration’s bid for $33 billion to aid Ukraine, would go toward raising U.S. government loan rates for farmers growing crops such as wheat and soybeans, and offering incentive payments through crop insurance to entice farmers to double-crop wheat.

Many importers are turning to India, the world’s second-largest wheat producer, where government officials are working to scale up export capacity to meet surging demand for a crop that usually doesn’t leave its shores. Farmers this year are harvesting what likely will be one of India’s largest wheat crops ever and shipping record volumes of the grain, according to Indian agriculture consultants and executives.

Manish Kumar Gupta, managing director of

Gujarat Ambuja Exports Ltd.

, a major Indian grain processor and exporter, said he is fielding calls from importing countries he’s never dealt with before, and preparing to ship 50,000 tons of wheat to both Turkey and Indonesia for the first time.

Logistical challenges abound, however, Mr. Gupta said. Limited rail capacity at key ports means there is now a two-week wait for railcars to ferry wheat from fields in central India to ports on its western tip. There, laborers must empty individual bags of wheat onto warehouse floors before the grain can be loaded onto bulk cargo ships for export.

Twenty-three countries already have export restrictions in place, nearly the 28 that imposed limits during the height of the 2008 food-price crisis, according to data from the International Food Policy Research Institute.

Russia was a giant of world grain markets in the early 19th century. But as the Soviet Union’s collectivized farming system floundered, the country began importing huge quantities of wheat and other crops in the 1970s. Russian agriculture has rebounded since the turn of the century, with the country’s wheat output far surpassing that of American farms in recent years as U.S. growers shifted away from wheat and into more profitable commodities such as corn and soybeans.

At the same time, the world’s biggest agricultural trading firms have invested heavily in ports, grain elevators and processing plants in Ukraine. The country is the world’s biggest shipper of sunflower oil, and a major exporter of corn, wheat and barley.

In recent years, Ukraine’s sowing of its top six crops covered 59 million acres, roughly the size of planted acreage in Illinois, Indiana and Iowa, three of the U.S.’s biggest farm’s states, according to Scott Irwin, an agricultural economist at the University of Illinois. Russia, the world’s largest exporter of wheat, ships four times the grain grown in Kansas, typically the U.S.’s top wheat-producing state, Mr. Irwin said.

U.S. farmers aren’t expected to provide much of a buffer. The Northern Hemisphere’s current wheat crop was planted last fall, and is due to be harvested this summer. Drought has taken a toll on the U.S. winter wheat crop, according to the USDA.

U.S. farmers this year are expected to cut planting of spring wheat by 2% versus 2021, sowing record soybean acreage instead, according to a USDA forecast released last month. Total wheat acreage for 2022 is projected to increase just 1%, USDA said.

“It’s impossible to make up the shortfall this year,” said Kenneth Zuckerberg, a senior economist at agricultural lender

CoBank,

adding that acreage constraints, high prices for other crops and drought likely will constrain increases in U.S. wheat production longer-term.

Kansas farmer Lee Scheufler said he hasn’t decided yet whether he’ll plant more winter wheat across his 10,000 acre farm this fall. While wheat prices have soared around 40% since the start of the year, prices for other crops have climbed steadily too, and he said he’s reluctant to change the tried and true crop rotations that have worked on his farm for decades.

Mr. Scheufler said he and his farming partners considered shifting some soybean fields into sunflowers this spring, given high prices for that crop in the wake of shortfalls from Ukraine. But he’d already purchased soybean seeds for the season, and challenges including limited sunflower processing in central Kansas and expected problems with weed control ultimately dissuaded him from sowing sunflowers.

“We’re just going to do what we’ve done successfully in the past,” Mr. Scheufler said.

Write to Jesse Newman at jesse.newman@wsj.com and Patrick Thomas at Patrick.Thomas@wsj.com