PORTLAND, OREGON, US — In his 29 years in the grain industry, Kurt Haarmann, senior vice president of grain, for Portland, Oregon, US-based Columbia Grain, said he’d never used the phrase, “I’ve never seen this before,” until this spring, when war broke out between Russia and Ukraine, severely limiting grain shipments from the Black Sea region. Besides the war between two major grain exporters, the grain industry is dealing with ongoing supply chain issues stemming from the COVID-19 pandemic and drought-related crop shortfalls in the Americas and other important grain producing countries. This chaotic mix of circumstances has resulted in record-high grain prices and reduced global carryover stocks, particularly for wheat, to levels not seen for several decades.

Like its competitors, Columbia Grain, a vertically integrated company that purchases grain, oilseeds, pulses and organics from more than 8,000 farmers in the northern tier of the United States and operates assets including grain elevators, processing plants and agronomy centers, is operating in unchartered territory as it works to ship its products around the world, mainly to China and other Asian countries.

Haarmann recently spoke with World Grain about these developing crises, their short- and long-term impacts on global markets and the steps Columbia Grain has taken to remain profitable and provide solutions for its suppliers and customers in such a volatile business environment.

WG: What concerns you most about the current state of the grain markets?

Haarmann: My biggest concern right now is the unprecedented volatility in markets. It makes it incredibly difficult for producers, and it makes it difficult for our buyers. Right now, it is very difficult for traders and handlers of grain to manage basic risk positions. A number of things will have to occur to get us back to some sort of normalcy. First, we will need a resolution to the situation in the Black Sea — whatever that looks like — so the market has a feel or belief of what can consistently or safely be supplied there. If that doesn’t happen, we really need the other major grain-producing nations of the world to rebuild stocks over a series of crop years to the point where we get a comfortable cushion of stocks in the world again and we can readjust those trade flows. If you ask me which comes first, that’s a tough one. Russian objectives are driven by one man and I’m not sure anybody can get inside his head. Right now, the market is scared of its own shadow. It’s scared that it’s too high or scared that it’s not high enough. Until we are able to eliminate risk in the market or at least limit it, you cannot eliminate that volatility.

WG: If the war were to end tomorrow, how long would it take for the market to regain some equilibrium?
Haarmann: I imagine you’d see a big selloff to begin with. Still, though, it would depend on the physical reality of the situation. Say it starts with a Russian withdrawal. The market is still going take time to ascertain how much damage has been done to infrastructure. What is Ukraine’s actual export capabilities? Are the stocks still in a position of quality? Can they still be brought to market? What does the new crop look like? How much was it limited by fuel, fertilizer and manpower shortages? It will take a while even if the conflict ended tomorrow. It would take a while for the ripple to come back out of the world markets. We do have other stories impacting the market, whether it’s dry weather in the United States or unfavorable weather during the previous growing season in South America. You also still have strong Chinese demand for grains and oilseeds, so we have other parts of the story that were tightening balance tables before we removed so much product from the world supply.

WG: To what degree are supply chain inefficiencies contributing to the grain market volatility?

Haarmann: I’m not sure there’s a simple solution to the supply chain issue because when you get all people together from the different points involved, whether it’s shipping, warehousing, retailing, or production, you get a little bit different perspective from each person as to what exactly is wrong. What is clear is we had a massive change in consumer buying habits that started before the pandemic that really accelerated. No one goes to the store anymore. No one goes to the mall. The whole warehousing scheme has gone out window and is trying to be replaced by direct door-to-door delivery. It impacts truck driver shortages and fuel use, so costs are a big part of it. Also, you have a zero COVID policy in China that’s really a stumbling block for execution over there right now. And you have a post-pandemic surge in global container movements. I’ve heard experts from container lines and railroads say they just have too much product for the resources they have. You also have this impact of the “great resignation.” No one seems to be able hire anybody for anything.

WG: India recently announced plans to become a larger wheat exporter, only to turn around days later and announce a limit on wheat exports. Do you see India eventually being a significant importer of wheat?

Haarmann: I don’t see that happening, in part because as they pushed increasingly toward self-sufficiency and not being an importer, they managed to increase production and have net surpluses but only managed to do that with an incredibly high domestic procurement price. So, they’re always paying the farmer to grow above the world price. They can’t really export without subsidizing, which violates WTO obligations. They get this opportunity where the world wheat price is finally above the domestic procurement price. I’m sure they’re thrilled to have a chance to sell their surplus stocks, but then the double-edged sword comes back, and they can’t let the world price starve their own people because they need that procurement for their public distribution systems. Right now, seeing the global price above the procurement price, they’re obviously not getting the procurement from growers and the harvest they’d like to see. That’s where you see them come in and institute these controls, and I see it as more of a permit embargo than an absolute ban. They don’t want to be the government that dishonored contracts and creates force majeure events. They want contracts to be honored and they want food to go to nations in need, not as donation but in sales. But I don’t think they can allow that to strip out the core of their public distribution system.

WG: If that’s the case, are there any other countries or regions that are non-traditional wheat suppliers that could enter the market and help with the current shortfall?

Haarmann: There isn’t another country that has ample carryout stocks of that nature. The US, even when things are tight, has residual supplies. With the pure capitalist model, it just takes higher price to unlock those bushels. I think it’s more a process of gradually replacing the market share that the US, EU and Australia, to an extent, has given to Black Sea over time and replace that back with production in those areas. That’s done with price, which we are starting to see right now. Spring wheat becomes competitive with soybean pricing. Hard wheat pricing comes up to encourage more acreage. But that’s a multi-year function for markets to realign what has been a decades-long drop or realignment of supply. It can’t be resolved in a year or two.

WG: How is the shortage and high price of fertilizer and other crop inputs playing a role in the volatility?

Haarmann: That’s a challenge globally. The pure price metrics globally have impacted a lot of marginal acres in a lot of areas where we need them to be in full production to make up for some of this shortfall. On the most productive ground under the best conditions, these grain price increases still outweigh the input costs increases, so there’s still a net benefit from the higher grain prices. But as you get into marginal acres, that’s where you start to see a disincentive involving price. There are also fertilizer availability issues; there are certain places in the world where it is not available. It all impacts the ability to rebuild stocks because nothing happens on a spreadsheet — it comes down to the actual physical planting and harvesting of crops. You can dial it in a spreadsheet that way, but you still have to put the tractor in the field.

WG: How has this combination of challenges impacted Columbia Grain’s operations? What strategies have you employed to combat this unprecedented situation?

Haarmann: It’s a tremendous challenge. Columbia Grain is focused on cultivating growth. That’s our mantra. We have to be disciplined in our approach to markets. Both our customers and grower suppliers need us to be a consistent part of that supply chain. Our growers need us to be there for their offtake and provide risk management tools and our buyers need us for reliable delivery. The international market has seen ebbs and flows and problems with Black Sea delivery in the past, either related to a global supply shock, drought, et cetera, so they have some experience with it. But our buyers more consistently are able to rely on the US system for really solid supplies. I’d say it has probably impacted our processed product lines more than our bulk product lines. Certainly, pricing has been impacted in our bulk product lines. There have been some railroad service issues and much higher ocean freight costs. All of those things have impacted our bulk customers. But it’s been an order of magnitude higher for our processed product lines because that typically is going to happen in single car shipments, containers and truck load shipments when it comes to our domestic customers, and these really exaggerated freight rates in container shipping for our overseas customers. We have doubled down being disciplined in how we go about that and how to manage risks and that everything that we promise to our suppliers and customers we can deliver on.

WG: How have you overcome procurement and supply chain issues?

Haarmann: I think we have been successful. One of the things we did in the last year with a really pronounced drought in our footprint across the northern tier was we did lean on a lot more imports from Canada than we traditionally have. We were first to the fight with that game and led the market with that procurement. That allowed us to maintain our production at our processing facilities and still make shipments. There were certainly parts to the supply chain that fell outside our control when it got into container freight port congestion, and rail service. Those are probably the most frustrating because you feel like almost no amount of planning can fix those things. But what we do is we double down and refocus our efforts. We always start with plan A and have about five contingency plans in place. This year we’ve made sure to have as many as possible for the different outlets.

WG: How has the record inflation impacted profitability and what mitigation strategies have you used to deal with the rising cost of doing business?

Haarmann: It’s been a real challenge. There is definitive wage pressure throughout our industry, and I think all industries. That is probably the No. 1 increase in input costs for our business. Other input costs have gone up as well, energy in particular. Anything related to construction, repair and maintenance, anything you want to do in terms of new builds, are incredibly expensive. It has made it a bigger challenge to continue to invest and expand. But we have a very long-term perspective on business. We are not managing just for the next quarter. We are managing for the next 10 to 20 years. We are managing to make those investments, but it’s been challenging. I do think growers and consumers will see an impact for what we’re paying for inputs or handling charges on the consumer destination price and what they’re paying. The question is does that decrease demand because of inflation put us in a recession? I certainly hope not, but it is a major concern because the cost pressure is real.

WG: What percentage of your customer base is domestic versus international for your core products?
Haarmann: It varies tremendously by product line. Our soybeans are basically 100% exported. Our corn is probably about 90% Asian exports, with some going to domestic ethanol use. Canada was a big user of US corn this past year, too. Wheat is a little bit more balanced. Soft white wheat is primarily an export commodity. Spring wheat from our area is about 60% to 40% exports versus domestic, and our winter wheat is about 80% exports and 20% domestic. Our pulse business — our processed and more specialty commodities — are about a 50-50 mix. We are seeing growth in domestic demand for those products due to the increase in plant-based diets. Demand for those products is growing about 10% to 15% per year. It’s provided a good cushion for us with some of the supply chain disruptions. We’ve been able to replace some of that demand domestically. A lot of our pulse products along with organic product line are our fastest growing markets. We don’t see it as a fad but a long-term trend. We expect consistent double-digit growth in those products, at least in the near term.

WG: What challenges have you faced in terms of weather disruption in your crop procurement region?

Haarmann: It’s been a frustrating two-year event here. Last year was the broadest drought in my career in our production footprint, which extends from the Red River Valley in North Dakota/Minnesota to all the way across the northern tier (of the United States to the Pacific Ocean). We had drought from Fargo, North Dakota, to Portland, Oregon. Some areas were a little better than others, but we didn’t have one elevator that had a good or normal crop in the whole region. We had a 40% to 70% reduction in production year-on-year in those areas. This year, we have recovered in some of those areas but it’s still very dry in western Montana and in the far eastern part of our footprint we’re too wet.