Drought, Russian export tax cloud Kazakh trade flows

There is nothing like a drought, global pandemic, artificial trade barriers and an indignant neighbour to disrupt trade flows. While Kazakhstan will undoubtedly have enough wheat to meet its domestic requirements in the 2021-22 marketing year, the picture for grain imports and exports, in particular wheat, is opaque at best.

This season’s winter crop harvest in Kazakhstan is all but complete, a dry seedbed at planting followed by an abnormally warm and dry growing season and numerous dust storms culminated in lower-than-average yields but above-average grain quality in most regions.

Kazakh farmers had harvested 15.8 million hectares (Mha) or 99.7 per cent of the forecast harvested area at October 22. The Ministry of Agriculture reported 16.1 million tonnes (Mt) grains and pulses had been reaped with an average yield of 1.02t/ha.

The October USDA World Agricultural Supply and Demand Estimates pegged Kazakhstan 2021-22 wheat production at 12Mt, down from its September forecast of 12.5Mt, almost 16pc lower than the 2020-21 14.256Mt wheat production estimate. The harvested area is expected to be 12.7Mha, the average yield at around 0.94t/ha.

The season started poorly with an unusually low soil moisture profile, forcing producers to plant deeper than usual in many regions. This resulted in late and irregular emergence in many fields. High temperatures and low rainfall in June led to poor tillering, weak plants and abbreviated stem elongation.

While the result was much lower production year-on-year, 90pc of the harvested wheat made food-grade quality, up from 83pc last year. The volume of high protein wheat with gluten content exceeding 28pc amounted to 74pc, up significantly from 60pc in 2020.

The USDA pencilled in Kazakhstan barley production at 2.5Mt in this month’s WASDE update, unchanged from its September number but 31.7pc lower than 2020-21 output of 3.659Mt. The harvest area is forecast at 2.2 million hectares, putting yield at 1.14 tonnes per hectare.

Like wheat, barley production was challenged by a poor soil moisture profile through most of the growing season, with late sown crops performing the best. The practice of “snow fixing” or piling snow in ridges along the high end of paddocks so that it melts and runs into freshly sown fields pushed yields as high as two metric tonne per hectare in some districts of the Akmola oblast in the north of the country.

Domestic consumption of wheat is estimated at 6.3Mt in the 2021-22 marketing year, up from 6.25Mt in 2020-21. Food, seed and industrial use are forecast to be unchanged year-on-year at 4.8Mt, with the balance of 1.5Mt going into the stockfeed sector, up from 1.45Mt last season.

On the barley front, total domestic consumption is forecast to be 2.1Mt. At 1.8Mt, the stockfeed sector is the primary consumer in Kazakhstan, in particular the poultry industry. An additional 300,000t goes toward food, seed and industrial uses, with malt production for the beer industry a key end use.

Lower production means lower exports to ensure domestic demand is satisfied. The Kazakh government has resisted calls from the grain milling industry to introduce export duties on wheat in a bid to limit exports and take the heat out of domestic prices. Nevertheless, Russian imports will certainly be required to meet export forecasts.

According to the USDA, wheat exports will reach 7.4Mt in the 2021-22 marketing year, based on imports from Russia of 800,000t. Much of these imports will come from Siberia, where the costs of shipping across the border into Kazakhstan are substantially lower than trucking to ports on the Black Sea or in the far east of the country.

However, the USDA export estimate is much higher than local government and the Foreign Agricultural Service forecasts of around 6.5Mt, both based on imports from Russia of around 1Mt. But that import number is overshadowed by the 2Mt estimate from leading agricultural consultancy, Sovecon.

The introduction of the Russian export tax has undoubtedly increased the cross-border trade between Russia and Kazakhstan, but it has also led to widescale underreporting of grain movements. There is no requirement for trade within the Eurasian Economic Union (EAEU) to be inspected or weighed when transiting borders, and several Russian news agencies are saying wheat exports to Kazakhstan could exceed 4Mt this season. This led to a recent announcement of plans to inspect and weigh grain shipments transiting the Russia-Kazakhstan frontier.

Taking the USDA import number of 1Mt means that there is potentially an additional 3Mt of “tax-free” Russian wheat that could be “unofficially” exported out of Kazakhstan as whole grain or as flour to traditional trade partners in the region. Uzbekistan, whose own harvest was 8pc below the five-year average, is traditionally the nation’s biggest wheat export customer. It is forecast to import 3.5Mt in the current marketing year, up 20pc on the five-year average. It also mills Kazakh wheat for re-export to Afghanistan.

Afghanistan is usually the second-biggest customer, but despite government assurances, the clearing of financial transactions is a big concern under the recently established Taliban regime. Tajikistan and Iran, which we know has a higher-than-normal import requirement this year due to domestic drought, are other likely destinations.

China shares a 1783-kilometre border with Kazakhstan and is a critical emerging market for Central Asia’s biggest grain producer. However, persistent Chinese limits on rail and truck transport at the Kazakhstan-China border and unilateral COVID-19 quarantine restrictions on incoming trade are frustrating the Kazakhstani government.

In August, Kazakhstan’s rail authority reportedly announced restrictions on accepting cargo bound for the Chinese border, except in containerised shipments through the new transhipment terminal at the Dostyk-Alashankou border crossing. This significantly increases export costs, not to mention the global shortage of containers for such purposes.

There is nothing like a drought, global pandemic, artificial trade barriers and an indignant neighbour to disrupt trade flows. While Kazakhstan will undoubtedly have enough wheat to meet its domestic requirements in the 2021-22 marketing year, the picture for grain imports and exports, in particular wheat, is opaque at best.

GRAIN Central

Tags: consumption, Production, export tax, forecast, what, Russia, Kazakhstan, export, barley