LONDON, ENGLAND – The outlook for 2022-23 wheat production has deteriorated sharply in recent months and as Northern Hemisphere harvest gets closer, a nervous market is hanging on every bit of news, delegates said at the recent International Grains Council (IGC) Conference.
A discussion of the world wheat market during the two-day mixed virtual/IRL meeting was moderated by Alexander Karavaytsev, senior economist at the IGC.
In a presentation published on the conference website to set the scene for the meeting, Karavaytsev considered trends in the Council’s forecasts for the wheat market.
“Security has been making global headlines in recent weeks and months, and indeed surging prices for grains coupled with the broad inflationary pressure has prompted fears about shortages in many countries, particularly most vulnerable countries, and even raised some fears of unrest,” he said.
Export prices for wheat recently had reached records, although he noted that they had been at an “elevated level,” in February 2022, before the conflict in Ukraine started.
'Security has been making global headlines in recent weeks and months, and indeed surging prices for grains coupled with the broad inflationary pressure has prompted fears about shortages in many countries, particularly most vulnerable countries, and even raised some fears of unrest.' - Alexander Karavaytsev, senior economist, IGC
“The level was just slightly below the crisis level of 2008,” he said. “When we look at what has been driving the increase across the grains and oilseeds market, it is really the wheat market. What has been a particular feature of the wheat market in recent weeks is that it has been very sensitive to news.”
He noted, for example, “a spike in prices following the decision by India to restrict exports of wheat.”
“India was initially hoped to help alleviate shortages that stemmed from the Black Sea conflict and the disruption of exports from Ukraine,” he noted. “More recently, we have seen some easing of prices not only in the wheat market but also in the maize market,” because of discussions about opening routes for shipping around Ukraine.
Looking at forecast 2022-23 crops, he said that “the current outlook for production is much worse than we initially anticipated several months ago.”
“We forecast that there might be the first drop in global production in four years,” he said, noting that there were expectations for reduced harvested area.
A reduction of 2% year-on-year in production is expected to be driven by Ukraine where the level of abandonment of winter wheat areas is forecast to be much larger than normal and that is because of reported difficulties with access to fields and also getting inputs. More recently, there have been reports of fuel shortages.
“In some other countries, weather is expected to negatively impact production, particularly in Morocco because of severe drought conditions, in Iraq as well as in Pakistan and India,” he said. “In India, we have seen a very significant reduction recently because of a heatwave late in the season.”
A fall in production also is expected for Australia, but Karavaytsev explained that “in this particular case, it will be a return to trend yields from very good results the previous two years.”
Lower output in some regions of the world could be compensated by increases in North America, particularly Canada and the United States, as well as Russia.
“Having said that, there are still many uncertainties,” he said, referring to North America. “For example, conditions have been far from ideal, and in the US, particularly, there has been dryness.”
He also reported some seeding delays triggered by drought in the United States, and there have been some seeding delays for spring wheat because of overly wet conditions. Canada had mixed conditions during spring planting and “moisture deficiencies still persist in some areas,” the IGC expert said. He also identified “heightened concerns about dryness in some areas, particularly in France,” in the European Union, while “in China we noted poor autumn seeding conditions and, more recently, there has been some unfavorable dryness.”
“For Russia, I would say there is some upside in the forecast,” but with some expectations of dry weather ahead, there were still uncertainties.
Responding in the panel discussion, Fahad Vaipel, vice president of Olam, based in Switzerland, described the situation in wheat as “a looming crisis not because the world does not have enough wheat, but because we are not able to move the wheat from where it is to the place where it is needed.”
“There was no big weather event that would bring down production in the exporting countries significantly,” he said.
“We do have pockets of crisis like hard red winter wheat in the US,” he said. “There were some dry spells in France, et cetera, but overall production in major exporting countries is likely to be higher than last year.
“Even when we move to the Southern Hemisphere crops, we are expecting La Niña now to continue to be there for the rest of the year.”
He said a situation like that would likely result in “a really good Australian crop.”
“So overall the crop is there, but the issue is that the wheat, which is selling in Ukraine and Russia, we are not able to move to the world,” he said.
He said in the July-September quarter, 50% of the world wheat trade is from Russia and Ukraine.
“Today we are looking at the situation where Ukraine will export almost nothing,” he said. “And in Russia also there are issues because of the sanctions (due to) freight not being available, et cetera,” which means that “the availability of wheat from Russia is very limited today.”
Laurent Crastre, senior research analyst, Refinitiv, said exportable supplies will be “an interesting indicator for this market here compared with the import needs.”
“We will probably see a decrease in the exportable supplies in Europe,” he added, forecasting that Canada and Russia will be the main countries available for increasing exports worldwide. “We are in a situation that we can describe as very tight.”
Carlos Mera, head of Agri Commodities Market Research at Rabobank in London, said Rabobank was mostly in agreement with the USDA in that the bank expected a world wheat market deficit of 13 million tonnes, compared with the Department’s figure of 12.6 million.
He disagreed on which regions would export more.
“Myself and most other market analysts are expecting little bit higher production in Russia and Australia, but we see lower production in the EU and the US,” he said.
Sergey Feofilov, general director, UkrAgroConsult, forecast Ukraine’s wheat production in 2022 at slightly below 20 million tonnes, compared with the previous year’s record high of 32 million. He put the export potential from the previous harvest at 18.5 million tonnes, with some 5 million tonnes of wheat still in stock by early March.
“Wheat exports in May were just 41,000 tonnes,” he said, comparing it with 2.53 million tonnes during the month before the Russian invasion.
“USDA is more optimistic for wheat production at roughly 21.5 million tonnes, (but) still the trend is a sharp decline in wheat production in Ukraine,” he said, despite the fact that “weather is, and was during winter, excellent for wheat and even for spring crop vegetation.”
Feofilov did not believe that problems with fuel would prevent wheat harvesting.
“I am sure, according to my contacts with local farmers, local associations farmers will do their best to harvest what they planted,” he said. “The key problems will be off the farm. The first one will be where to store wheat crops as a big carryover is rather high at 4.4 million to 4.5 million tonnes, plus a new crop of 20 million tonnes with a deficit of storage.
“Problem No. 2 is money. If farmers have grain stocks with low incomes and with low possibility to sell wheat,” there could be problems financing winter wheat plantings in just three months. “To my mind, the key problem with wheat production might be in 2023.”
Eren Günhan Ulusoy, chairman of IAOM Eurasia and chief executive officer of the Ulusoy & Söke Milling Companies, explained that Turkey, as a leading flour exporter, was usually dependent on imports of wheat from Russia and Ukraine.
“Of course, if disruption in Russian supply happens or the conflict lasts more time in the Black Sea, in the long term it can affect the Turkish milling industry’s competitiveness in the world market, but as of now I would say the numbers are in conformity,” he said.
“We are still in this season planning that we will close at 3 million tonnes and the monthly volume is still in line with our historical average between 200,000 tonnes and 250,000 tonnes per month,” he said.