Early projections call for another year of big crops in Russia and Ukraine.
Coupled with large carry-in stocks, the grain available for export could rival the record smashing amount moving in the current crop year.
Much has been written about the region’s growing dominance in global wheat trade, but the head of U.S. Wheat Associates thinks the breakneck competition for Asian markets might soon plateau and lessen in the future.
Wheat Associates president Vince Peterson, speaking at a grain conference in Australia in January, said three factors could cause exporters from Russia and Ukraine to focus more on their immediate nearby markets than on distant customers in Asia.
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This view seems to clash with all the talk about China’s massive investment in the One Belt, One Road initiative pouring billions into transportation infrastructure more closely linking China to Russia, Europe, South Asia and Africa.
With improved ports and railway lines, the assumption is that Russian, Ukraine and Kazakhstan grain and other goods could penetrate China and other parts of Asia more easily.
However, Peterson thinks it will be hard for Black Sea wheat to continue to expand exports into Asia. His argument might be wistful thinking, but there is some logic to what he says.
First, he notes, the current buildup of exportable wheat surplus is the result of an unusual string of five years of near ideal weather conditions following the 2012 drought rather than sustainable yield increases.
Production practices are improving in Russia, but crop yields still lag levels common in other parts of the world.
The ideal weather is unlikely to continue forever, and when problems do occur, wheat exports will likely have to be scaled back.
Second, as farm operators in the region become more sophisticated, they will start to shift acres out of wheat and into crops with the potential for better returns, such as soybeans and corn, he said. Russia already has a goal of raising soybean production so as to eliminate its current imports.
Ukraine is already a formidable corn exporter, fourth after number three Argentina, and by 2028, the U.S. Department of Agriculture expects Ukraine and Russia together will surpass Argentina to become the number three world exporter of corn.
Peterson’s third argument is that rapid population growth and increasing wheat demand in nearby markets and rising ocean shipping costs will make it more lucrative for Black Sea exporters to focus on the market in their backyard rather than distant Asia.
His argument appears to be backed up by USDA long-term projections. Over the next 10 years, it sees 57 percent of the total increase in world wheat demand, or about 17 million tonnes, happening in Africa, including Egypt, and in the Middle East, regions in close proximity to Black Sea shippers.
If Peterson is right, North American and Australian wheat exporters can take heart that the Black Sea giant might not be unbeatable everywhere in the world.
Canada, Australia and the United States should remain competitive in important markets such as Japan, Indonesia, South Korea, Philippines, Thailand, Vietnam, Malaysia, and who knows, maybe even China someday, once it uses up its huge wheat surplus stocks.
Peterson also noted his frustration that U.S. President Donald Trump’s administration missed an enormous opportunity to be part of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
While we gaze into the crystal ball to define the future of grain export opportunities for the former Soviet countries, we should also note that Russian agriculture is not necessarily limited to the western half of the country near the Black Sea.
Chinese investors are putting money into agricultural ventures in Russia’s Far East federal district. The region is sparsely populated and under developed but has large tracts of arable land.
Heilongjiang province in China’s northeast is the country’s largest grain producer, particularly corn and soybeans. It shares a border with the Far East federal district. The climate and land are similar on either side of the border.
China and Russia are just starting to make major infrastructure investments in bridges, rails, roads and ports to link the two regions.
For now, the agricultural opportunities in the region are mostly speculative, but who knows what the future could hold?
