It is becoming increasingly clear that Ukraine will probably only get half a crop this year. However, this does not have a price-increasing effect. The export engine runs on only one cylinder and export through the Black Sea ports is impossible. Why is the grain market apparently averse to these arguments?
Statements about the 2022 harvest in Ukraine started last month with extreme caution, but the noise that a crop failure is imminent is getting louder. A production reduction of 30% to 55% or more for wheat, maize and sunflowers is now estimated. It is also not possible to get significant volumes of the current harvest out of the country.
War drags on
A shortage of fuel, sowing seeds, fertilizer and crop protection products. But also tractor drivers who now act as soldiers. All obstacles for agricultural entrepreneurs in Ukraine. It seems that the enormous impact on agriculture is only now becoming clear. Where until a week or two ago there was still a positive undertone regarding peace negotiations, that has now fallen on deaf ears on the grain market. Russian troops are regrouping as the conflict drags on in increasingly dire circumstances.
Now that it is also spring in Ukraine, tractors have to hit the country. Tillage, sowing, planting, fertilizing and spraying. In the west around the city of Lviv this works well, but not in many other areas. Farmers who can sow prefer to choose crops that are not risky to grow and that require few inputs. For grain maize, a relatively large amount of fertilizer is required. This crop is therefore crossed out earlier in the cropping plan.
Not everyone is gloomy. Deputy Agriculture Minister Taras Vysotskiy of Ukraine equivalent that 80% of the spring area can be sown. However, there is one but. To do this, areas in the north of the country must be cleared of mines. The ministry previously reported that the acreage could decrease by 50%. Later 30% was mentioned.
2 years backlog
The outlook for the current export season is also negative. Grain leaves the country mainly by rail now that the Black Sea ports are closed. The maximum capacity, according to the Ukrainian Agribusiness Club, is a maximum of 1 million tons per month. At that rate, it will take no less than two years to get rid of current stocks of wheat, maize and sunflowers. These products simply cannot be stored that long. This is especially difficult for sunflower seed. The government office Agrian Fund has meanwhile started buying wheat for the new crop to give farmers certainty that they have a market. In addition, an advance of 50% to 70% is paid, so that the cultivation can be paid for.
According to the Friday published Was thereport, despite all the obstacles, Ukraine can still export 23 million tons of maize (-4,5 million tons) and 1 million tons less wheat. The Americans are therefore quite conservative. Analysts therefore think that the figures will turn out lower and that the figures have been consciously tinkered with so as not to push food inflation down further.
China buys more raw materials
The figures also show that European and American grain exports are not higher despite the war. The European export forecast was scaled down 3,5 million tons. China bought 1,1 million tons of corn in the US last week and today, Monday, it was announced that another 1,02 million tons of corn had been purchased. The largest part (680.000 tons) for delivery of old harvest. The CBoT reacted positively to the news, trading 3,8% higher on Monday afternoon than Friday's closing price. Soy is turning red again, with a minus of 1,3% compared to Friday.
These hefty volumes are somewhat special when you consider that President Xi Jinping, in a media appearance on Sunday, discussed the food security of the country underlined. Since the start of the corona pandemic in 2020, food availability has become a hot topic and an even more important political tool.
Chinese farmer is stuck
Chinese farmers, meanwhile, are stuck. They also have to deal with significantly higher prices for their inputs. In addition, there are many new corona outbreaks in the country. Not only in cities but also in the countryside. The strict government policy ensures that farmers are not allowed to work and sow their own plots during a lockdown. Another hurdle is a new law that prohibits burning stubble to improve air quality.
China's vice prime minister, Hu Chunhua, called last month to produce more maize and rice, among other things, in order to stabilize food production - and thus indirectly prices - in China. The northeast, where a third of all maize in China is produced, is now having the biggest problems with new lockdowns.
Drought in North America causes concern
In Europe, meanwhile, it is quiet on the grain market. Under good conditions, all spring cereals were sown in March. Some of these have now also been supplied with moisture, although this is very local. The winter cereals are in good shape. Rapeseed has been hit by the low temperatures in countries such as France and Germany. Due to a lot of heat early in the year, rapeseed started flowering earlier, so frost came at a particularly bad time. The grain market is more under the spell of conditions in North America. The northern US and parts of Canada are again extremely dry, which means a bad start for the new season.