Ukrainian wheat exports could change game

Wheat analysts might want to keep their erasers handy because there could be huge changes coming to the global balance sheet.

Diplomatic efforts to unblock Ukraine’s ports and open a humanitarian corridor for grain exports could have a tremendous impact on global trade of the commodity.

“This is very significant for wheat supply and demand,” Fahad Vaipei, vice president of Olam, a Singapore-based agribusiness company, said in a pre-recorded presentation for the International Grains Council’s Grains Conference 2022.

If the efforts are successful, it could add eight to 11 million tonnes to Ukraine’s 2022-23 wheat export program.

That is a game changer for world wheat markets.

If the ports remain closed the country will likely ship out seven million tonnes of the commodity in the coming crop year, down from 19 million tonnes in 2021-22.

If all the ports are opened for business that total could blossom to 18 million tonnes. If some of the ports open and those in the war zone stay closed it would be closer to 15 million tonnes, he said.

Sergey Feofilov, director general of UkrAgroConsult, estimates there is about 4.8 million tonnes of Ukrainian wheat left over from what should have been exported in 2021-22.

He is forecasting another 19.8 million tonnes of production this year, which is below the USDA’s forecast of 21.5 million tonnes.

UkrAgroConsult is estimating 10 million tonnes of exports in 2022-23 unless the ports are opened, in which case it would blossom to 16 million tonnes.

Feofilov is concerned about the country’s storage capacity because 6.8 million tonnes of that elevator capacity is in Russian occupied territory.

That leaves 55 million tonnes of capacity, which might be enough to store the soon-to-be-harvested wheat and barley crops but there won’t be enough space for the later-harvested sunflower and corn crops.

He worries what impact that will have on winter wheat planting this fall if the ports are still closed and there is no storage space left.

Wheat and corn prices have been declining in Ukraine since the start of the war in stark contrast to the rest of the world, so that is another disincentive for planting the crop.

“This might make Ukrainian farmers shrink their winter wheat areas for the 2023 harvest,” said Feofilov.

He is more concerned about that than the 2022 crop.

Carlos Mera, head of agro-commodity research at Rabobank, is forecasting a drop of 10 to 12 million tonnes in Ukrainian wheat exports in 2022-23.

“There are wheat stocks around the world that can be used to offset that drop we will see from Ukraine, but they will come at a high cost,” he said.

Mera said the situation in Ukraine is worrying not only for the immediate future but also for the long-term.

“We’re seeing the destruction of Ukrainian agriculture, certainly in the occupied areas but more generally as well,” he said.

Ukraine and Russia are responsible for almost all the growth in global wheat area and global wheat yields since 2010-11, so any setback in Ukraine is a big blow.

Russia is headed for a bumper crop with an exportable surplus of around 40 million tonnes, said Vaipei.

“The Russian wheat weather has so far been near perfect,” he said.

International sanctions initially hurt the country’s ability to export by reducing ocean freight availability and increasing rates and insurance costs.

Dry bulk shipments fell dramatically in March and April but have rebounded nicely in May, exceeding previous five-year highs.

He suspects Russia will have the ability to export large volumes of wheat in 2022-23. But will farmers be willing sellers of the crop?

Sanctions, high freight rates, export taxes and exchange rates have resulted in lower on-farm prices than the previous two years.

Vaipei said some of the potential increases in Ukraine’s 2022-23 exports will be offset by lower-than-anticipated shipments out of India due to a government ban on exports.

Exports will be limited to 4.5 to five million tonnes, about half of what was earlier anticipated.

Traders shouldn’t expect India to relax that ban in 2022-23 because beginning stocks of the crop are the lowest they have been in 10 years.

The government only has enough wheat to distribute 30 million tonnes to the country’s poor people in 2022, down from 47.6 million tonnes last year.

Nathan Cordier, chief analyst with Agritel, said France is experiencing its worst drought since 2011 and 2003. Crop condition ratings are falling.

Agritel is forecasting 33.3 million tonnes of production if there are adequate June rains and 31 million tonnes if it stays dry.

At the high end of the production forecast that would leave 7.5 million tonnes of exports for the European Union and 10.5 million tonnes for non-EU countries.

But the demand for French wheat from non-EU countries is expected to be 12 million tonnes and that’s assuming Ukraine’s ports will be open. If not, the demand blossoms to 13.3 million tonnes.

“There is not enough wheat to supply all the historical French customers,” said Cordier.

“The situation will be very tight with very low ending stocks.”

Tags: shipments, ports, markets, global trade, Ukraine, Russia, exports, UkrAgroConsult, grain, Sergey Feofilov, wheat