Political tensions and changed production patterns are making 2020-21 a year of changed trading patterns, with Australia producing a big wheat crop, South American producers wrestling with adverse weather, Europe needing to import and the Black Sea playing a bigger role than some were expecting, speakers at a recent virtual conference, hosted in Ukraine, explained.
The meeting, entitled “Black Sea Region: Price Driving Forces 2020-21,” held on Dec. 8 and organized by Kiev, Ukraine-based agricultural trade analysts UkrAgroConsult, started with a panel discussion moderated by Sergey Feofilov, director general of UkrAgroConsult.
James Foulsham, general manager, trading and marketing at AAAX in Australia, explained how the country’s production outlook has improved. Australia is doing a lot of business in competition with the Black Sea region and had not yet finished harvesting wheat.
Foulsham, noting that the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) had put the wheat crop at 31.2 million tonnes, said “my feeling is that it is higher than that. I wouldn’t be surprised if it got to 35 (million).”
Yields are significantly better than expected in Western Australia.
“It’s certainly going to be bigger rather than smaller than what people were expecting,” he said, noting that silo bags have become hard to obtain. “In New South Wales, the crop is so big they are filling up all the export and on-farm storage. Prices relative to historical flat prices are so high … because the Black Sea is so inflated at the moment.”
Dryness plaguing Argentina
Fabio Meneghin, an analyst and partner with Brazil-based Agroconsult, explained that Argentina has suffered from dry conditions.
“The wheat potential was around 22 million to 23 million tonnes, but Argentina will not have 17 (million),” he said, adding that some observers think the final number will be 16 million to 16.5 million. “This year, quality is not as stable. The quality of wheat in Brazil is a little bit better nowadays (than) many regions in Argentina. Even Brazilian and Argentinean farmers, they are making money with the wheat.”
Brazil is a consumer of almost 11 million tonnes of wheat, he said.
“It needs to import almost 100% from Argentina, a bit from Paraguay, a bit from Uruguay,” Meneghin said.
Meneghin wondered if Brazil might get exports from Russia, but Swithun Still, director of Swiss-based Solaris Commodities and an expert on the Russian market, said that “it doesn’t calculate.”
There was a possibility of some shipments from Kaliningrad in the Baltic, as traders are positioning vessels to bring back soybeans.
Feofilov told the group that Ukrainian wheat exports dropped quite impressively in November.
“The drop was about a million tonnes,” he said.
Nickolay Gorbachov, president of the Ukrainian Grain Association, said “at the moment our wheat is not competitive with French wheat.”
However, he added that Ukraine has grown a good crop.
“When people say we’re in trouble, it’s not true,” he said, explaining that the crop was just down on last year’s record. “We easily will export wheat until April. Logistically, we have no problem.”
Turning to corn, he said Ukraine’s main buyer will be Europe and the remainder of its exports will go to China.
Robert van der Kooy, market analyst with the Netherlands-based Cefetra Group, said “in Europe our plantings were fantastic. Conditions were great. We expect great crops from next year.”
Still evaluated Russia’s wheat crop.
“It’s too early to say, but we could have a crop in the high 70s, maybe 80 million,” he said.
Foulsham gave his view of the changing dynamics of the barley market.
“The next few years could be very good for Ukraine,” he said. “It is unlikely China will be buying Australian barley for a long time.”
Political tensions between the two countries mean that Australia is going to have to do a lot of business with Saudi Arabia, he said.
“You’re going to see a flip in global dynamics,” he said. “The Northern Hemisphere is going to start going into China in big volumes.”
Feofilov said Ukrainian exports of barley were now up to 3.7 million tonnes, including 2.5 million to China.
Meanwhile, Still pointed out that Russia does not have a phytosanitary agreement in place for barley to be shipped to China.
Black Sea increasing market share
In his formal presentation, Feofilov put the aggregate Black Sea wheat crop at 120 million tonnes, up 5% year-on-year, explaining that it was the second highest after 2017, giving an export potential of 62 million tonnes.
“Russia and Ukraine have increased their shares in the global market considerably,” he said, adding that Ukraine’s exports were 11.5 million tonnes from July to November.
“Sixty-six percent of the total Ukrainian wheat potential has already been exported,” he said. “This is in spite of a sharp drop in wheat exports in November.”
Feofilov put Russia’s wheat export potential, based on production of 82 million tonnes, at 38.5 million tonnes.
“Russia intends to issue a 17.5-million-tonne export quota,” he said, something that had supported a bullish trend on prices.
At the same time, Europe has lower wheat production.
“Most likely European wheat exports are going down,” Feofilov said. “Wheat prices are still under pressure (from) buyers’ intentions to increase their wheat stocks for reasons of food security. Wheat failed to climb as high as in 2014-15.”
In 2021, farmers in Ukraine and Russia have expanded their winter wheat areas.
“It seems to be a bearish factor, but crop conditions are record poor,” Feofilov said. “Winter wheat area has expanded in Ukraine, but the weather brings more risks to the winter crop. The country’s winter was relatively mild, but also dry. Most likely prices will go slightly down for the next three to five months.”
After that, the weather and global economy would start to affect prices, he said.
Regarding barley, Feofilov said that “again, farmers are quite happy” about the growing demand from China and Saudi Arabia. Ukraine has shifted its barley deliveries more to China.
“Russian and Europe exports focus more on Saudi Arabia,” he said.
“Corn is the most intriguing crop this season,” Feofilov said, describing it as having “the highest expectations and highest dissonance.”
In Ukraine, 200,000 hectares of corn were killed by drought.
“We put our corn production at 31 million tonnes,” he said. “Market estimates are very close to 30 million tonnes.”
The country’s corn exports were likely to be 24 million to 24.5 million tonnes, he said.
Shipments to China were high early in the 2020-21 season.
“Ukrainian corn exports are now close to a million tonnes a week,” he said. “In December-January, we expect larger exports from Ukraine.”
Shipments will then slow as stocks run low.
“Prices were skyrocketing in the early part of the season,” Feofilov said, noting that further rises were likely because of supportive factors, including delays to farm sales in almost all exporting countries. “By March, only US corn prices will be revised downwards because of an increase in Argentina, although Argentina is under pressure from the possibility of drought. There was also uncertainty over US ethanol production, as well is Chinese demand and European demand for corn from Ukraine.”
EU production problems
Feofilov said the European Commission had revised EU corn production lower repeatedly.
“The latest was about 10 million tonnes less than last year,” he said. “Currently, the EU imports a lot of corn from Serbia. Serbian export potential is not able to meet the whole demand of European countries.”
Van der Kooy said rapeseed plantings also will decline again.
“We had a very wet season, for example in the UK,” he said.
He said farmers have concerns about planting rapeseed because of “European legislation on chemicals,” a reference to the ban on neonicotinoids.
“It’s too early to say what the crop will be like,” he said. “It could be 17 million tonnes again. The rapeseed market is already tight. It could continue to be tight unless we import.”
As for corn, the EU produced a small crop this year at a time when China is looking to import an unprecedented amount.
“China is demanding more,” he said. “Exports of corn to China from all over the world are exploding. But the EU corn crop disappointed this year. EU corn feeding isn’t as great as before.”
He described the wheat supply situation as very tight with high prices.
“EU wheat carryout is extraordinarily low,” he said, putting it at 9.5 million tonnes, “a level we haven’t seen in a very, very long time.”
“(The EU) export pace is only about 2 million tonnes from last year’s pace, and last year was a record,” he said. “Global demand is very high. If you look at the price level, it is still competitive.”
China also is importing a lot of barley from France.
Chris Lyddon is World Grain’s European correspondent. He may be contacted at: email@example.com