Extreme weather is reshaping global grain trade routes

07 September 20205 min reading

The global wheat trade is being shaken up again after extreme weather hurt crops in the European Union while harvests are booming elsewhere. Fresh from leapfrogging Russia as the top exporter, the EU will drop to third place this season after drought and floods pummeled crops. There’s a different story playing out in other key shippers: Canada is set for record sales, Australia will export the most in four years and Russia will regain the No. 1 spot, according to the U.S. Department of Agriculture (USDA). “Where there’s so many producers, someone always gets shorted by Mother Nature,” said Dan Basse, president of Chicago-based consultant AgResource. “Undoubtedly, there will be others that would be available to plug the hole.” USDA lowered its global wheat production forecast last month as reductions for the European Union, Kazakhstan, and Turkey more than offset a larger crop in Russia. Global consumption is also lowered mainly on feed and residual use for the European Union. Global trade is up, driven by stronger imports for Pakistan. Exports are raised for Russia, Ukraine, and the United States, more than offsetting lower exports for the European Union.

North Africa Projected to Be Top Wheat Importing Region According to a new report released by USDA, North Africa is poised to become the world’s leading wheat importing region for the first time in 3 years. Growing demand and reduced production is expected to push imports for the region to a record. Egypt, the world’s leading buyer, is projected to import a robust 13.0 million tons in 2020/21, down slightly from 2019/20, which was a record partly due to government stockpiling during the COVID-19 pandemic. Algeria, the world’s fourth largest importer, is forecast to import 7.0 million tons with continued growth in demand and flat production. Morocco is projected up significantly to a record 6.2 million tons as its crop has been ravaged by drought and the government is allowing duty-free wheat imports through the end of 2020. It is worth noting that Morocco’s imports at the end of 2019/20 were also large in anticipation of tighter new-crop supplies. Imports for Tunisia and Libya are expected to be nearly unchanged. Historically, the Middle East and North Africa were the top importing regions, but this dominance waned significantly in the last decade as imports by Southeast Asia and Sub-Sahara Africa rose substantially. In the last few years, the major wheat importing regions have ebbed and flowed in terms of importance depending on market conditions. For instance, Southeast Asia briefly became the world’s leading import region in 2018/19, but has since lost that position as demand there has flattened with lower feed use roughly offsetting stronger milling demand. The Middle East was the world’s leading importer in 2019/20 as tightening supplies led to massive purchases for Turkey and Iran. Now, markets have shifted, and North Africa is once again the top importing region.

Here’s a summary of how crops and shipments are shaping up in major shippers:

AUSTRALIA With the harvest just a few months off, the market is looking to Australia to fill the gap left by the EU, Rabobank strategist Stefan Vogel said on a webinar. The government in June forecast output to surge 76% to 26.7 million tons as rains aided crops after years of drought and farmers switched from barley amid a trade spat with key buyer China. Production could even reach 30 million tons, said Ole Houe, chief executive officer of broker and adviser IKON Commodities. That will help Australian wheat regain a stronghold in Southeast Asia, AgResource’s Basse said. Australia was one of the top four global wheat exporters before the unrelenting drought started slashing production.

RUSSIA Analysts are raising production estimates, with the crop expected to be Russia’s second-biggest ever. The country already sells to more than 100 nations and dominates the key Egyptian market, where it has kept Romanian and French grain sidelined so far this season. The USDA sees exports climbing 10% this season, although the pace has so far trailed last year. That could be because the harvest started later than in 2019 and southern areas that were first to collect saw poor yields. As Russia sells more to EU exporters’ traditional markets like North Africa and and the Middle East, that could leave less grain available to ship to Asia, benefiting Australian sales there, said Andree Defois, president of researcher Strategie Grains.

NORTH AMERICA A recent crop tour pegged Canada’s harvest at an all-time high and the USDA projects the country’s exports will beat the record set in the early 1990s, meaning supplies should compete with Australian grain in Southeast Asia. The strong production outlook is weighing on near-term prices, according to Strategie Grains. For U.S. wheat, a weak dollar could buoy sales and exports to China have recently climbed. Overall U.S. shipments, while little changed from last year, are set to surpass the EU this season.

EUROPEAN UNION The region’s top grower France is still shipping to mainstay markets like Algeria, and cargoes to China - which emerged as a major customer last season - continue to flow. Still, French exports could slump by a half this season after a poor crop, although better harvests in Poland and the Baltic states could ease some of the EU shortfall. However, the French crop showed sufficient quality to meet milling and export market requirements. Germany's 2020 crop of all wheat types will fall 5.1 per cent from last year to 21.88 million tonnes, the agriculture ministry estimates. A fall had been expected after farmers reduced the area sowed. Poland's wheat harvest could increase by between 4 per cent and 5 per cent on the year to about 11.7 million to 11.8 million tonnes.

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