Ukraine shines as Black Sea wheat takes hit

Analysts think Ukrainian farmers will harvest a record 30.3 million tonnes of wheat this year.  |  Reuters/ Valentyn Ogirenko photo

‘Unfriendly’ weather hurts the crop in Russia and Kazakhstan, while Ukraine expects record production but lower quality

The Black Sea region will still be a big producer and exporter of wheat this year despite recent weather challenges, says an analyst from that part of the world.

SovEcon recently reduced its Russian production forecast to 82.3 million tonnes, down from its June forecast of 84.6 million tonnes and last year’s 85.9 million tonne crop.

Kazakhstan reduced its wheat production estimate as well to 11.9 million tonnes, down from its previous forecast of 13 million tonnes.

Andrey Sizov, managing director of SovEcon, said several weeks of “unfriendly” hot and dry weather have hurt crop prospects in those two important wheat growing regions.

“Yields are not as great as many farmers were expecting,” he said.

Growers thought their winter wheat crops had fully recovered from an abnormally dry fall due to ideal spring and early summer conditions.

However, Sizov thinks the dismal start proved too difficult to overcome and that is why early-harvest yields are disappointing.

Ukraine is the exception to the rule. SovEcon is forecasting a record 30.3 million tonnes of production because of phenomenal yields in many parts of the country.

The European Crop Monitor confirmed that a record crop is on the way in Ukraine but says wheat quality will be “particularly low” this year due to wet and stormy weather in the main producing regions.

Sizov agrees that crop quality has taken a hit because of the wet conditions and record yields, which are often correlated with low protein levels.

“But I don’t think it’s going to be a big disaster,” he said.

Ukrainian exporters should still have ample supplies of 11.5 percent protein wheat, which is the main wheat they ship out to foreign markets.

Flooding in Germany, Belgium and France is also taking a toll on yields and quality in those important production regions.

The European Crop Monitor said France’s winter cereals have suffered quality damage from excess rain, and there has been some lodging issues caused by storms in that country.

Extreme precipitation events in Germany have caused local crop failures in some regions but are not affecting the overall positive outlook for the crop, said the monitor in a report released on July 26.

Sizov said the emerging quality problems in Europe should not be a big issue and there will be ample exports from that region of the world.

There was a report in a Russian newspaper that the country’s bakers plan to increase bread prices by as much as 12 percent in August. Prices are already up 4.6 percent since the start of the year.

It raises the spectre that the government could increase its already expensive export tax to bolster domestic supplies of the crop.

However, Sizov said he doesn’t think that will happen because the report is bogus. Bread prices may increase another five to 10 percent in the second half of the year, but they’re not going up 12 percent in one month, he said.

Sizov is confident the export tax formula will remain unchanged through 2021.

Farmers are hoping the government will lift or lower the tax in 2022. That could happen if growers severely reduce winter wheat acres this fall or exports plummet in 2021-22.

SovEcon is forecasting 37.1 million tonnes of Russian exports this year, a 1.3 million tonne reduction from its earlier estimate due to the shrinking crop, the punitive export tax and stiff competition from Ukraine, the EU and Australia.

He believes the first six months of the new crop year will be particularly sluggish compared to normal because exporters fear the floating tax, which is adjusted weekly.

A shipment of wheat can take two months to deliver, and the tax can change substantially during that period, creating huge risks for exporters.

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