Wheat today is in the center of attention for the world agrarian community. They speak about two key factors that have influenced the market of this crop: drought in the Black Sea countries and better than expected production in the US.
Winter in the Black Sea countries went well, in the soil there were large reserves of moisture, but spring and early summer brought a drought.
USDA DOES NOT CONSIDER THE CRIMEA, IN DIFFERENCE FROM RUSSIAN SOURCES
In Russia, it is expected the reduction of acreage in Siberia. This is one of the key regions for growing spring wheat. Russia produces it more than Ukraine. The ratio of winter to spring varies there in fractions of 70% by 30%.
Half of the volume of Russian spring wheat comes from Siberia. At the beginning of summer the Internet was full of photos of snow-covered Siberian fields – the weather there absolutely not spring for the local climate.
Therefore, there is a possibility that the Russian Federation will get a higher yield than before. In addition, in Siberia, as a rule, a large proportion of the area remains uncleaned. However, in the same 2013, it was very low. Coincidence? We’ll see this year.
These two factors – high yields and a small part of undeveloped areas – will be able to compensate for the current insufficient sowing. And the fall in production may not be so strong. It is necessary to monitor this.
USDA in its latest report, which was published on June 12, reduced production in Russia from 72 million tons to 68.5 million tons, that caused a sharp rebound in the market. Because the analysts of the US Department of Agriculture were already giving a rather low level, and here they lowered it even more.
And this happened not at the expense of yield reduction, but at the expense of reducing the harvesting areas. They are projected at the level of 25 million hectares – lower than, for example, Russian agencies – IKAR (Institute for Agricultural Market Studies) or Sovekon.
We assume that this is because the USDA does not take into account the Crimea, in contrast to Russian sources. Meanwhile, in the Crimea, last season, about 1 million tons of wheat were harvested.
But the Ukrainian forecasts with forecasts of USDA almost coincide. Drought is a factor that has affected all the countries of the Black Sea region. In Ukraine, there were more moisture reserves in the soil.
The wheat of the south of Russia suffered from drought. This is confirmed by our colleagues who are now conducting a crop-tour in the fields of the Rostov Region, Krasnodar and Stavropol Territories.
EXPORTING POTENTIAL OF THE black sea region TO REDUCE BY 6 MILLION TONS
According to what they saw, Agritel concludes that the yield in these regions may decrease by 20-30% compared to the previous year. However, in 2017th there was a record harvest, so you can not say that Russia has problems with wheat.
The yield dynamics is forecasted by us and USDA slightly above the trend level, and most likely the production in Russia will return to the average.
IKAR reduced the production forecast to 71.5 million tons, Sovecon as the most optimistic – up to 73 million tons. Most likely, production will be in the range of 68-73 million tons. Much will depend on spring wheat in Siberia.
In general, in every country of the Black Sea region, the situation is rather heterogeneous. About Ukraine, you can often hear that everything is fine in one field, and the yield is expected at the level of last year, but in the next field there was no rain, and everything is much worse.
The indicator of yield reduction is very variable, and it is necessary to monitor this process.
In Ukraine, a significant improvement in the situation of moisture reserves in the soil occurred on June 3. Local rains still go, and they may compensate for the damage caused by the drought.
The yield of wheat in Ukraine is also decreasing. We reduced our yield forecast from 4.3 tons per hectare to 3.9 tons per hectare, and so far our production estimate is 24.5 million tons.
Next week we are going in a crop- tour across Ukraine, in order to clarify the state of the fields locally and revise our assessment.
Two weeks ago we had a crop-tour across Romania, and there was a great variability in yields: from plus 13% to minus 10%. In the west, there was a lot of precipitation, and yields were higher than last year. In other regions, there were drought and decline.
Here, not everything is as critical as in Russia, but still, the harvest returns to the average level after the record figures of last year.
As a result, we forecast a supply decrease by 15 million tons in the Black Sea region at the expense of Russia, Romania, and Ukraine.
Nevertheless, because of a drop in domestic consumption, including for feed purposes, the export potential will decrease by 6 million tons in comparison with the current campaign. This amount will be missing in the world market from the Black Sea region.
The question arises: who compensates for these 6 million tons? And I’ll answer it in the next part of the review.
Viktoria Blazhko, Agritel consultant
Based on: Agrarian Markets Panorama Agritel