Russia’s invasion of Ukraine has stressed the EU grains market, which has responded with increases in price, demand contraction, and a surge of intra EU trade. Increased grain exports are forecast for MY2021/22, while the EU seeks alternative corn sources to replace Ukraine’s supply. The challenges affecting spring planting operations, combined with the damage to Ukraine’s trade infrastructure also create uncertainties over EU’s grains trade flows in MY2022/23.
Ukraine is one of the world’s top agricultural producers and exporters and plays a critical role in supplying grains and oilseeds to the global market and to the EU. Since February 24, 2022, Russia’s invasion of Ukraine has significantly impacted EU’s grains markets. Ukrainian trade facilities are running idle to a large extent and sanctions imposed on Russia have altered global trade flows in MY2021/22, creating a very volatile situation. The challenges affecting spring planting operations, combined with the damage to Ukraine’s trade infrastructure also create uncertainties over EU’s grains trade flows in MY2022/23.
EU total grain area in MY2022/23 is expected to amount to 51.7 million Ha, somewhat below MY2021/22 levels. Only barley, and sorghum to a much lesser extent, are expected to exceed previous season planting levels. A price-driven recovery of rapeseed plantings has resulted in a reduction of wheat area across the EU, most notably in France. Conversely, area planted to grains expanded in Hungary, driven by the growing in-country opportunities in industrial uses, and in Ireland, as the country gears up for increased lower-yielding spring-grains plantings. In the case of corn, planted area in MY2022/23 is projected down, despite favorable price signals, and may shift towards less input-intensive spring-planted crops, such as sunflower.
EU wheat area is expected to slightly decline by 0.5 percent in MY2022/23. While French and Spanish wheat growers planted less wheat, producers in the Czech Republic, Denmark, Germany, Hungary, and Romania increased slightly their wheat plantings, leading to an overall almost stable wheat area in the EU. Recent announcements by the EU Commission to allow farmers to plant crops on set aside and fallow lands will not impact the MY2022/23 wheat crop. EU wheat production mostly consists of winter wheat, which has already been planted in the Fall of 2021 for harvest in the summer of 2022 and only to a much lesser extent spring wheat.
EU WHEAT PRODUCTION TO DECREASE
The MY2022/23 EU grain crop is currently forecast at 286 MMT, down from the 292.9 MMT estimated for MY2021/22, driven by the reduction in area planted to grain and the more conservative yield expectations. The extent of farmers’ willingness to use costly agricultural inputs, and spring precipitation amounts, will be particularly critical to determine the EU’s final grain output.
Russia’s invasion of Ukraine has stressed the EU fertilizers’ supply chain, sending the already high fertilizer prices, to record highs. Fertilizer purchase coverage varies on a case-by-case basis. Most EU farmers purchased their fertilizers ahead of the price spike and are expected to carry out normal operations. However, those who delayed their purchases may reduce amounts applied in spring, especially in areas where low soil moisture prevents fertilizers from achieving full performance. This latter situation, combined with soaring prices of other agricultural inputs, such as fuel or plant protection products, is projected to have a limited negative influence on the EU’s grain yields. If the war extends for several more months, the situation may be more worrying for MY2023/24 as the 2023 EU grain crop could be more severely impacted by the reduced access to fertilizers.
EU wheat production is forecast to decrease by 2.2 percent to 135.3 MMT in MY2022/23, driven by smaller expected production in Bulgaria, France, Hungary, Romania, and Spain, not being offset by higher crop expectations in Denmark, Germany, Poland, Baltic Countries, and Sweden. Weather conditions up to the harvest can still play a significant role in final production volumes.
EU corn production is also forecast to decline to 67.5 MMT in MY2022/23, down by 4.3 percent from MY2021/22. Average corn yield throughout the EU is forecast to drop by 2.2 percent after the above-average yields registered in MY2021/22, due to challenges in ensuring adequate inputs and reduced soil moisture.
Total consumption of grains in MY2022/23 is projected at 259.4 MMT, down from the 260.6 MT estimated for MY2021/22. The initial favorable outlook for grain consumption in MY2021/22 has been revised down. While less optimistic prospects apply to feed and industrial uses, food consumption holds some expansion potential. EU feed use of wheat and barley is forecast to remain stable in MY2022/23, while corn and minor grains feed uses will account for the bulk of the downwards correction of total grain feed uses.
Whet food use are already increasing in MY2021/22 as the COVID-19 pandemic-related restrictions affecting tourism and the HRI sector (Hotels, Restaurants, and Institutions) are being lifted. Moreover, population growth in most EU Member States, but especially in Poland, Hungary, Romania, and Bulgaria, fueled by several million refugees coming from Ukraine, is anticipated to drive wheat food use up.
WAR DISRUPTED GRAIN TRADE FLOWS
A large amount of uncertainty prevails regarding Ukraine’s grain production levels and trading volumes for the MY2022/23 season. Ukraine accounts on average for over 40 percent of the EU total grain import needs. The war in Ukraine has raised concerns over MY2022/23 spring corn plantings, as hostilities limit labor force and inputs delivery (diesel, certified seeds, or fertilizers). This situation, combined with damages in trade infrastructure, has the potential to negatively affect the country’s grain export capabilities in MY2022/23.
As per the current season, the EU grain normal trade flows have been severely disrupted by the war in Ukraine. Consequently, despite Ukraine’s current sizeable grain crop, the invasion has limited export capabilities. In this scenario, with port loading operations in Ukraine halted since February 2022, EU grain importers have been forced to look for alternative suppliers of grains in North America (namely the United States and Canada) and South America. Neighboring Serbia has put in place a ban on exports to third countries since March 10, 2022, which prevents the country from supplying grains to the EU. The currently tight EU grain balance is anticipated to improve once the Brazilian safrinha corn becomes available later in the summer.
In MY2022/23, EU’s total grain exports are projected at 45.7 MMT, higher than in MY2020/21 but lower than MY2021/22, as the large export levels estimated for MY2021/22 are not expected to be repeated. The final amount of EU grain exports will depend on the size and quality of the crop. In MY2021/22, the EU’s total grain exports have been revised up to 48.3 MMT, as opportunities arise in formerly Ukraine and Russia-dependent export markets.
EU wheat exports are foreseen to expand in MY2021/22 given the ample domestic supply available and the fact that the war in Ukraine has negatively affected export competition by the Black Sea region supplies. The bulk of EU wheat exports goes to North Africa, the Middle East, and sub-Saharan Africa. Algeria is a steady customer for French milling wheat. While in the first half of MY2021/22, French wheat lost some tenders in Algeria to the benefit of Black Sea Region (BSR) origin wheat, until the geopolitical situation in Ukraine improves, the EU will have a de facto quasi-monopoly in North Africa and the Middle East, given its significant shipping cost advantage. Likewise, EU wheat exports to Egypt, originally anticipated to shrink in MY2021/22 due to the competition from BSR wheat, are now foreseen to increase, as French-origin wheat had the most competitive proposals in the latest tenders from the Egyptian GASC (General Authority for Supply Commodities) due to the conflict in Ukraine. EU wheat exports to South Korea (mainly coming from Romania, Bulgaria, and Baltic States) also surged in MY2021/22, but still lag below U.S. and Australian exports to this country. China is currently the second-largest customer for EU wheat. EU exports to China increased tenfold between MY2018/19 and MY2020/21 and, according to preliminary trade data, are projected to continue expanding in MY2021/22.
Given the smaller EU grain crop projected, EU wheat imports are forecast to increase by 6 percent in MY2022/23, as Italy may import more durum wheat. Italy is the EU’s largest wheat importing Member State, accounting for over 50 percent of the total imports, followed by Spain, to a much smaller extent.
And EU corn imports are forecast to rise by 4 percent to 13.5 MMT in MY2022/23. However, in terms of suppliers, some adjustments are anticipated because of Russia’s invasion of Ukraine. The progressive adoption of agricultural biotechnology or differences in plant protection products tolerance has forced the EU corn importing Member States to rely heavily on Ukraine, and Brazil to a lesser extent. Over the past ten years, Ukraine has been the EU’s largest corn supplier, accounting for over 50 percent of imports.
Under the expectation of a shorter EU crop, corn exports are forecast to plunge by 14 percent in MY2022/23. Romania is likely to remain the EU leading corn exporter, followed by Poland, the newest player on the export market, Bulgaria, and France. In terms of destinations, EU is anticipated to maintain its competitiveness in the Middle East and North African countries, and South Korea.
MY2022/23 ending stocks in the EU are projected to remain tight at 27.9 MMT. The final EU grain stocks figure may be a combination of a potential yield reduction, new alternative sources for feed grain imports, the amount of EU grain exports, and the pace at which the internal demand contracts in response to soaring feed and food prices. Overall, EU ending stocks in MY2021/22 are estimated at 28.3 MT. This figure is partially explained by the ample EU grain crop, which preempts stocks from falling to lower levels. The export limitations in the EU Member States such as Hungary and Bulgaria also contribute to building stocks.
EU Grain and Feed Annual. United States Department of Agriculture (USDA), Foreign Agricultural Service, April 26, 2022.