Randy Fortenbery, small grains economist at Washington State University, delivers his annual economic outlook Feb. 2 during the Spokane Ag Show.

SPOKANE — Political conflict between Russia and Ukraine could have a small impact on the international wheat market but a “huge” impact on natural gas prices worldwide, a Washington State University economist says.

The conflict has two potential outcomes, Randy Fortenbery, small grains economist at WSU, told farmers Feb. 2 at the Spokane Ag Show.

The Russian military is currently occupying a large wheat-producing region for both Ukraine and Russia. If the conflict prevents that wheat from being exported, prices would be pushed upward in the short-term, he said.

Russia and Ukraine are major wheat producers.

“On the other hand, the natural gas impact could be really significant,” he continued. “If the Europeans, especially Germans, don’t buy natural gas from Russia, the effective world supply would be reduced and the price would explode, and the chemicals we’re already seeing rising to record prices would just continue to escalate.”

Initial input price increases of 5% to 7% won’t be sustainable, but Fortenbery predicts inflationary pressure will be about 4.5%.

“I don’t think it’s going to go away, I don’t think it’s just transitory,” he said.

In addition, Russia plans to limit wheat exports this year. That’s been known since November, Fortenbery said, and likely won’t push wheat prices higher unless it doesn’t export any wheat.

Fortenbery doesn’t see much room for wheat prices to trend much higher.

“Wheat is a bit of a paradox for me right now, for a couple of reasons,” he said. “USDA has actually been increasing ending stocks the last several months, decreasing the export expectation and simultaneously raising the ending price. That seems really counterintuitive to me.”

Soft white wheat ranges from $10.50 to $11 per bushel on the Portland market.

In the absence of any production problems, futures prices are likely to trade between $7 and $8 per bushel, Fortenbery said.

The price isn’t likely to hit $5.50 per bushel, so the Price Loss Coverage crop insurance program isn’t likely to pay farmers at this point, he said.

Higher input costs could reduce yields, which means higher prices, indicating the Agriculture Risk Coverage program is more likely to pay, Fortenbery said.

Fortenbery expects net farm income to be down in 2022, due to lower government payments, higher input costs and lower  commodity prices.

China has come nowhere near meeting its phase one trade deal commitments, and no one is seriously discussing phase two, Fortenbery said. But China has been an “aggressive” purchaser of U.S. feed grains, particularly corn and oilseeds.

China is not likely to purchase as much wheat from the U.S. this marketing year compared to the previous marketing year, Fortenbery said.