“Russia remains the key wheat producer in the region, with a bumper crop expected this season. UkrAgroConsult’s forecast is at 81 MMT, but there are estimates above 83 MMT in the market. Ukraine harvested a good wheat crop in MY 2019/20, and its 2019/20 exports hit an all-time high. The season’s leader is Egypt, but the most active importer was Turkey, which boosted imports by +296% from MY 2018/19. UkrAgroConsult forecasts 2020/21 exports at 17.5 MMT.”

WHEAT Prices Over the last month, prices of Black Sea growers have surpassed those on the French exchange. Romanian wheat price sank last week due to keen competition within the EU. As the 2020 crop in France fell by almost one-fourth (the European Commission’s estimate), other grain growing countries – Poland, Romania, Bulgaria, Lithuania and Latvia – have come to the foreground. While Bulgaria and Romania were also hit by drought this summer, the crop in Poland, Lithuania and Latvia rose from last year by 8%, 3% and 18%, respectively. In the GASC tender of September 16, wheat of Polish origin was bought for the first time since 2015, because of its most competitive price (at least USD 7 below other bids).

RUSSIA: PRODUCTION AND EXPORTS Russia remains the key wheat producer in the region, with a bumper crop expected this season. UkrAgroConsult’s forecast is at 81 MMT, but there are estimates above 83 MMT in the market. The large crop resulted from unusually high yields in the Central and Volga regions, which were not affected by drought. According to the latest data (as of September 24), the average yield in Russia is 3.07 MT/ha that is up 3% from last year. We believe the final yield value may reach 2.8 MT/ha and exportable supplies will be at 38.2 MMT.

The 2019/20 export season witnessed a decline in exports to many destinations because of reduced production and, consequently, tight exportable supplies. MY 2019/20 witnessed a significant rise in demand from Turkey (+52% from MY 2018/19).

The rise in wheat imports to Turkey was fueled by the following: - reduced own production in MY 2019/20, - the fulfillment of a program of exporting flour and other wheat products, - the coronavirus pandemic (surged purchases in April-May); According to the USDA estimate, 2020/21 wheat imports to Turkey will be down at 7 MMT, but we believe this figure is understated because Turkey has earned the title of the top flour exporter. To retain buyers, the country will have to continue producing and exporting wheat flour. Moreover, devaluation of the national currency makes its export still more profitable (the Turkish lira has lost 8% over the last two months); In the near future, Russian wheat may become more competitive in the global market owing to devaluation of the rouble, whose exchange rate directly depends on crude oil market trends.

UKRAINE: PRODUCTION AND EXPORTS The key grain growing regions in Ukraine (Odesa, Vinnytsia, Cherkasy, Kirovohrad) were most exposed to drought during grain ripening. UkrAgroConsult estimates production at 25.9 MMT. The State Statistics Service preliminarily puts the harvest size at 25.1 MMT, but we expect it to be revised upwardly.

2019/20 export results: Ukraine harvested a good wheat crop in MY 2019/20, and its 2019/20 exports hit an all-time high.

The season’s leader is Egypt (purchases up 94% from MY 2018/19, export share up 5%), but the most active importer was Turkey, which boosted imports by +296% from MY 2018/19. UkrAgroConsult forecasts 2020/21 exports at 17.5 MMT. 4.1 MMT was already shipped abroad during the first two months of the season (down 14% on the year, but up 17% from the five-year average). Traditionally, the main export destinations are Indonesia, Bangladesh and Egypt. Other active importers include Morocco (up five times from a year ago) and South Korea (up three times). Pakistan purchased 203 KMT of wheat from Ukraine in August, for the first time since November 2014.

According to real-time data (the State Consumer Protection Service), exports as of September 21 were already above 7.5 MMT. They picked up to 3% behind last year. The export share of milling wheat increased to 81% from last year’s 72% (a consequence of dry weather).

KAZAKHSTAN: PRODUCTION AND EXPORTS Because of drought, heavy wheat crop losses were predicted in Kazakhstan in the 2020/21 season (like in 2019/20). However, the key grain growing regions received abundant August rainfall that replenished soil moisture. Reportedly, the soil in some areas was even too wet, causing kernels to blacken and germinate that could affect the grain quality.

On September 22, the Ag Ministry of Kazakhstan reported that farmers had harvested 14.8 Ml ha (93.4% complete). The current average yield increased by 11% from a year ago, to 1.23 MT/ha (1.11 MT/ha in 2019). As of the reporting date, the crop was at 18.2 MMT, or above the Ministry’s own estimate of 18 MMT. Therefore, a new target was set, at 20.5 MMT. UkrAgroConsult considers the Ag Ministry’s new forecast of 20.5 MMT too ambitious. According to our estimates, grain production may reach 18.1 MMT (in net weight), including 12.2 MMT of wheat.

The Ag Ministry says the above-mentioned wheat quality concerns have not come true either, because the harvested grain is good: almost 84% out of the examined 3 MMT of wheat was attributed to grades 1-3, whereas in 2019 this percentage equaled 67%. In addition, high gluten content was reported: the wheat share with gluten above 28% was 59 % vs 43% last year. The Ministry believes this will contribute to wheat export growth in MY 2020/21.

We expect grain exports from Kazakhstan to be at roughly the same level as a year ago – 7.6 MMT, with 6 MMT of this volume represented by wheat (including flour in grain equivalent).

The main destinations for Kazakh exports include Central Asian countries, but official representatives of Kazakhstan have made active efforts in recent years to set up trade with China. A disappointing crop limited the country’s export potential in MY 2019/20 and even forced Kazakh companies to import wheat from Russia (officially some 500 KMT, UkrAgroConsult’s estimate is 1.1 MMT). We believe wheat imports in the new season will return to their previous levels (i.e. reduce to buying foreign seeds and border trade within the Customs Union), totaling at most 200 KMT.

BARLEY Prices Black Sea barley price has already exceeded the point of USD 200/MT FOB (up USD 25 from a year ago). Barley price is moving following those of wheat and corn, which are in the rise since mid-August:

RUSSIA: PRODUCTION AND EXPORTS Again, due to abnormally high yields in the Central and Volga regions of Russia, a bumper barley crop is expected there as well. As of September 24, barley harvest in Russia was 92.6% complete, producing 21.4 MMT (bunker weight) and at a yield of 2.71 MT/ha (up 6% on the year); UkrAgroConsult’s estimate equals 20.5 MMT, though some market estimates reach 21 MMT. We forecast Russian barley exports in MY 2020/21 at 5.2 MMT.

The key buyer in recent years is Saudi Arabia, which already managed to step up purchases by 35% in July 2020 versus the same month in 2019.

UKRAINE: PRODUCTION AND EXPORTS UkrAgroConsult estimates Ukraine's barley crop at 7.9 MMT (less than last year because of drought). We estimate exports at 4.25 MMT. it is already possible to compare the results of the first two months with last year’s ones. Like a year ago, the bulk of Ukrainian barley is shipped to China. This season the volume is 77% higher, and China’s share in Ukrainian barley exports expanded from 35% to 60%.

In the first two months, the export share of the second biggest importer – Saudi Arabia – dwindled to 15% from 19%. At the same time, demand from the EU plummeted (89% on the year) and the export share slumped from 21% to 3%.

Judging by the updated estimates, the EU harvested a larger barley crop than last year and continues increasing its presence in Saudi Arabia and China, which are major export markets for Black Sea countries. In MY 2019/20, the EU replaced Ukraine in the leading position in the market of Saudi Arabia.

In July-August 2020/21: - the EU already supplied 442 KMT of barley to Saudi Arabia (+18% on the year). - Ukraine – 334 KMT (-14% on the year), - Russia – 771 KMT, or 80% more than in July-August 2019 (according to port data).

Overall, the USDA estimates demand from the main buyer – Saudi Arabia – at last season’s level (7.5 MMT), and the exporters try to supply as much as possible before Australia’s new crop arrives in the market (+1.5 MMT from MY 2019/20).

In addition, the EU continues stepping up exports to China (648.7 KMT has already been shipped to the country, or up 45%), but Ukraine retains the leading position with 1.3 MMT exported to the Chinese market in July-August.

The USDA expects China’s barley demand in MY 2020/21 to be down year-on-year at 5 MMT (-300 KMT from MY 2019/20). Moreover, the EU and Black Sea countries will soon face competition there from Canada, which has already harvested some 35% of its new crop and was a strong player in this market in MY 2019/20:

UkrAgroConsult predicts Australian barley shipments to Saudi Arabia to fully restore in MY 2020/21 for a few reasons: 1. the import duty imposed by China restricts access of Australian barley to the Chinese market, i.e. Australian exporters need to increase their presence in other markets. In MY 2016/17 (July-June), Australia exported 794 KMT of barley to Saudi Arabia owing to a large crop;

2. Australian export price for November-December is set at the current level of Black Sea price in view of sharply increased production:

3. freight from Australia is also cheaper than from the Black Sea region (now USD 22-23/MT vs. USD 28-29/MT, respectively); For Ukraine, whose exportable supplies dwindled, losing the market of Saudi Arabia will not be that noticeable, because Ukrainian barley is still consumed mostly by China. This will to a greater degree affect deliveries from Russia in view of its high export potential in MY 2020/21.

In its latest tender, Saudi Arabia bought 540 KMT of barley for November-December delivery. It seems it is barley of Australian origin that will be shipped in December.

KAZAKHSTAN: PRODUCTION AND EXPORTS We estimate 2020/21 barley production in Kazakhstan at 3.9 MMT (+2% on the year) and exports at last year’s level, i.e. 1.3 MMT. The top buyer of Kazakh barley in MY 2019/20 was Iran, whose export share equals 86% (for the 11 months). Most likely, MY 2020/21 will bring no surprises and the range of destinations for Kazakh barley exports will remain unchanged.

CORN Prices Corn of Ukrainian origin is now more expensive than American product and priced up USD 40 from last year. Nevertheless, market participants still point out active demand from the main buyer, i.e. China.

UKRAINE: PRODUCTION AND EXPORTS Ukraine is the main corn producer in the region. For two seasons in a row, we have observed record crops and exports. However, the summer of 2020 turned out to be hard for corn due to soil moisture shortages:

UkrAgroConsult forecasts Ukraine’s corn crop at 35 MMT at a yield of 6.64 MT/ha. Our export estimate equals 28.5 MMT (down 2% from last year, but up 24% from the five-year average) due to potentially strong foreign demand.

2019/20 corn crop results: 1. Exports totaled 29.12 MMT that is the second highest after MY 2018/19; 2. The main destinations included the EU (largely Spain and the Netherlands), China and Egypt:

3. Major importers stepped up purchases, except for the EU (-32%), Turkey (-25%), and Israel (-26%).

The EU corn crop in MY 2019/20 was the largest in three years (over 70 MMT), with exports reaching a record some 6 MMT (+1.6 MMT on the year). This reduced demand for Ukrainian corn – the top buyer of EU product was Turkey.

Our expectations from the new export season: 1. China may step up imports thanks to an increase in its import quotas, a gradual recovery of the livestock sector after the ASF, and unfavorable weather events at the final stage of Chinese corn maturation (several typhoons damaged crops in the northeast).

2. The EU, which also was hit by drought this summer (Romania and Bulgaria), may also increase corn imports from Ukraine. In the end of August, the European Commission cut its EU crop forecast and raised import expectations by almost 2 MMT. We expect another downward adjustment in the crop estimate.

3. High competition from Brazil is expected at the start of the season, as the country just switches from soybean exports to corn in August-September. Although Ukrainian corn on CIF basis is cheaper than its Brazilian counterpart, the traditional importers of the Brazilian product (Iran, for example) are ready to pay premium for the quality. Also Brazil currently dominates the EU market (with 74% share according to last information).

4. The market of Iran (which stepped up corn imports from Ukraine by 59% in MY 2019/20) is potentially promising as well, and Ukraine could increase shipments to this country after the peak in Brazilian exports.

RUSSIA: PRODUCTION AND EXPORTS Corn is not a core crop for Russian growers. The main buyer is Iran, though the Federal Customs Service of Russia has been providing no official statistics on the country since October 2019. UkrAgroConsult estimates Russian corn production at 14.2 MMT and exports at 3.2 MMT. The range of export destinations hardly will undergo any significant changes in MY 2020/21.