Wheat markets are in for a rude awakening when the hostilities in Ukraine come to an end, according to a Black Sea grain analyst.
“When there is a ceasefire I think the reversal will be quite substantial,” SovEcon managing director Andrey Sizov said in a recent webinar.
He believes world wheat prices should be around US$300 per tonne or $8 per bushel based strictly on the estimated stocks-to-use ratio for key exporters of about 10 percent in the 2021-22 crop year.
Read Also
Farming Smarter receives financial boost from Alberta government for potato research
Farming Smarter near Lethbridge got a boost to its research equipment, thanks to the Alberta government’s increase in funding for research associations.
“(This) is fundamentally where we should be if there is a ceasefire tomorrow,” he said.
Sizov believes a ceasefire could happen within weeks as Russia slowly withdraws its forces from central Ukraine and focuses on the Donbas region.
He believes Russian President Vladimir Putin wants to wrap up the war prior to Victory Day on May 9, a special holiday in Russia marking the Nazi surrender in the Second World War.
If that happens, Sizov anticipates a rapid return for Ukraine in global corn and wheat export markets.
An estimated 95 percent of Ukraine’s grain exports flow through the ports of Odessa and Mykolaiv and his contacts in the country tell him there is minimal damage at those two facilities.
Russia is already exporting large volumes of wheat, with an estimated 2.2 million tonnes shipped in March. That is close to average despite escalating freight and insurance costs.
There have been some payment issues with western banks refusing to do business in the country but most of those have been sorted out.
“Traders are getting their payments and vessels are going in and out,” he said.
He believes Russia will export 34 million tonnes of wheat in 2021-22, which is about two million tonnes higher than the U.S. Department of Agriculture’s forecast.
That is despite the Russian government implementing a punitive export tax and quota to help keep domestic food price inflation in check.
Sizov thinks food price inflation may hit seven percent in March. There is a chance the government could take more drastic steps, such as refusing to issue phytosanitary certificates.
“We’ve seen that in the past, unfortunately, many, many times.”
He believes Russia will have about four million tonnes of old crop wheat remaining to export in April, May and June.
Reports of ships having to navigate around hundreds of mines in the Black Sea are overblown. He knows of one mine that was found near Romania and another near Turkey.
“At this stage it looks like there is a very limited amount of mines,” said Sizov.
Ukraine is expected to ship 20 million tonnes of the crop in 2021-22, with almost all of that already completed.
The country did manage to export 1.1 million tonnes of corn by rail in March into the European Union via Poland and Romania.
Ukraine uses Soviet era gauge of rail, which is different than what the EU has, so the rail cars must be unloaded and then reloaded onto European cars at the border.
“This is the biggest obstacle,” Sizov said.
Russia’s winter wheat area was down about five percent but winter and early-spring growing conditions have been “almost ideal.”
A meagre three percent of the crop is in poor condition, which is similar to 2017 when farmers harvested a record wheat crop.
Sizov is forecasting a new record of 87.4 million tonnes of production, up from 76 million tonnes last year and it could easily end up at more than 90 million tonnes.
It is a completely different story in Ukraine. Most of the wheat is grown in the southern and central parts of the country where there has been fierce fighting.
It is “challenging to impossible” for farmers to apply fertilizer to the winter wheat and to plant the spring wheat due to limited supplies of fuel plus labour and safety concerns.
On top of the war-related difficulties, it has been very dry in Ukraine, which is why SovEcon is forecasting 23.6 million tonnes of production, down 26 percent from last year’s record harvest. And that is probably optimistic.
Corn production is expected to plummet even further to 24.4 million tonnes, a 42 percent drop.
However, the new crop losses will be partially offset by a record carryout of more than 12 million tonnes of both crops combined.
Sizov believes Ukraine could ship 15 to 20 million tonnes of wheat in 2022-23 if there was a ceasefire in early May. If not, exports could be curtailed further.
If there is substantial damage to Ukraine’s main ports by the time the war ends, that would be a “game-changer,” he said.
Contact sean.pratt@producer.com
