The areas and yields of wheat, maize and other crops are greatly affected in Ukraine by the war. Especially in areas where there is heavy fighting, agricultural companies cannot carry out the spring work. A 'lost' season has long-lasting consequences for the grain market worldwide.
All analysts are currently considering the current growing season in Ukraine and what the consequences are for the area and yield. Because the war is still in full swing - and despite all modern means of communication - it is difficult to give a conclusive answer to this. Don't forget that Ukraine is fifteen times larger than the Netherlands. Especially in the west, companies can enter the country fairly safely. This is different in the east and south.
25% less wheat, 50% less corn
The renowned Russian analyst firm SovEcon is one of the first to have a conclusive one a prognostic made for the 2022 harvest year. It has lowered their wheat harvest forecast from 28,3 to 26 million tonnes. Last year, 32,1 million tons of wheat were harvested – a top harvest. That means almost a quarter less wheat.
The agency puts corn at 27,7 million tons. A drop of no less than 51%. The estimate is that the area will decrease from 5,5 to 4,6 million hectares, with a significantly lower yield. There is a lack of everything: fertilizer, labor, fuel, seeds and even the impossibility to go to work. There are mines, companies are destroyed, machines are shot at and personnel are called up for duty.
Situation may worsen
As mentioned, the effects of the war on agriculture are variable. According to SovEcon, 40% of all wheat and corn areas are currently affected by the war. It is important to note that the agency assumes that a ceasefire will be reached within a few weeks, so that work can resume in April. A noble goal, the feasibility of which can be disputed. Even when it comes true, the gigantic shortages remain and the broken machines, fields and roads with mines and a lack of personnel.
De rates of wheat in Europe (Matif – Paris) and the United States (CBoT – Chicago) continued to make progress last week (week 12) over the week. On Monday, March 28, the rates on the Matif were downgraded again. The price has dropped by about €10 per tonne to €371 per tonne for the May contract. The new harvest is just under €340 per tonne.
World trade recreated
A wait-and-see attitude is being adopted in which the market tries to figure out what the next step should be. With the loss of the essential Black Sea ports, the world trade in wheat is currently being recreated. In the short term, the EU and India benefit from this. Australia is also seeing more demand for grains, especially from Asia. The problem for this country is mainly the shipping capacity in their ports. Remarkably, American exports remain significantly behind estimates made by the USDA and figures from last year.
The Americans have shipped 19,1 million tons of wheat this marketing year through the end of March. A decrease of 6 million tons compared to the previous season. 88% of expected exports (according to the USDA) have been exported. The reason for this is that American wheat, including freight costs, is simply too expensive.
Wheat classes differ
Although other countries – especially India – see their opportunity to cash in on the current market, the reality is more nuanced. Russia and Ukraine are known for their hard baking wheat with 12,5% protein. The so-called 'hard red wheat'. The EU mainly produces 'soft wheat', which is suitable for other bread products. Then there is durum wheat, a variant that is very suitable for making pasta. Indian wheat is therefore not a one-to-one replacement for, say, Ukrainian wheat. If only because of more pollution or possible germs. The downside is that in times of scarcity, countries look much less closely. Egypt, for example, is currently banning wheat from India. The question is whether GASC will adjust its requirements.
What the market is also looking at are new figures from the US, where on Thursday the USDA Agriculture Ministry will announce news about their expectations for the acreage of corn and soybeans, but also spring grains. This creates a vacuum, especially on the American stock exchange, in anticipation of the news.
Consequences for the 2023 harvest
According to the Ukrainian Ministry of Agriculture, farmers in the country have now sown 150.000 hectares (reference date March 24). Deputy Minister Taras Vysotsky reports that companies are sowing more barley, oats and peas instead of corn and sunflowers. The crops are simpler and require fewer inputs. This does mean fewer export products and more products for own consumption.
Elaborating on this: If Ukraine also has problems with the harvest and export and subsequent sowing of winter grains next summer, the consequences for the 2023-2024 season will be even greater. 95% of all wheat in Ukraine is winter wheat and much of this acreage is in areas where the war is currently at its worst. That is still a long way off, especially in today's volatile market, but it is something that participants in the grain market are carefully taking into account.