In the past decennia we have been lulled into complacency by a relatively well balanced supply-demand situation in the grains markets, and Black Sea became the new lauded granary of the world. Will the Biblical seven years of plenty make place for the ‘seven years of famine’? Will ‘all the good years be forgotten’?
Natalja Skuratovic
Senior Sales Manager CIS
CESCO EPC GmbH
“Nothing has really happened unless it's been described.” - Virginia Woolf
We have been raised with the knowledge that the price of grain is determined by the intersection of supply and demand, which are affected by many factors, such as weather, cost of inputs and other aspects, and that supply and demand balance can and will eventually be achieved by world price adjustments in order to facilitate logistics and wade off eventual imbalances.
In the past decennia we have been lulled into complacency by a relatively well balanced supply-demand situation in the grains markets, and Black Sea became the new lauded granary of the world. Will the Biblical seven years of plenty make place for the ‘seven years of famine’? Will ‘all the good years be forgotten’?
On 4 May 2022, the Global Network Against Food Crises released the latest numbers on people facing acute hunger and malnutrition in crisis-prone countries in a new edition of the Global Report on Food Crises. This year’s edition indicates alarming increases in the number of people in the most severe phases of acute food insecurity, recording unprecedented levels of hunger worldwide. The outlook for global acute food insecurity in 2022 is expected to deteriorate even further as compared to 2021, even though the number of population in crisis or worse nearly doubled between 2016 and 2021.
Notably, the ongoing war in Ukraine is likely to exacerbate the already severe 2022 acute food insecurity forecasts included in this report, given that the repercussions of the war on global food, energy and fertilizer prices and supplies have not yet been factored into most country-level projection analyses. According to International Grains Council data, Ukraine was the world's fourth-largest grain exporter in the 2020/21 season, selling 44.7 million tonnes abroad. The volume of exports has fallen sharply since the Russian invasion. In the situation were Ukraine is practically cut off from its Black Sea ports without any access to Ukrainian ports at all, Constanta becomes the logical safe haven big port option for Ukrainian grain. Ukrainian farmers are forced to discount their grain in order to have logistical access to exports. The port of Constanta is becoming subject to extreme pressure and Romanian farmers might have to pay higher fobbing prices to compete for exports.
Meanwhile, reports of grain expropriation and grain looting in occupied areas have been ubiquitous. Russian attacks on Ukraine's grain infrastructure look like attempts to reduce the competition in Russia's export markets, German Agriculture Minister Cem Oezdemir was reported saying. “We are repeatedly receiving reports about targeted Russian attacks on grain silos, fertilizer stores, farming areas and infrastructure,” Oezdemir was quoted as telling the Redaktionsnetzwerk Deutschland, a cooperation network of German regional newspapers. The suspicion is growing that Russian President Vladimir Putin is seeking “in the long term to remove Ukraine as a competitor”, Oezdemir was quoted as saying. As a result of it, the United Nations estimates that about 1.7 billion people may face poverty and hunger.
Taking a closer look at the weather, which uncontestably remains one of the main factor affecting supply and demand in grain markets, we look at the current global crop prospects relative to a year ago:
•Crop ratings for the US Plains wheat are much worse than same time last year.
•EU wheat crop potential looks worse over up to 50% of the area due to excessive dryness.
•Current extreme heatwave and subsequent dryness wreaks havoc in Indian wheat crop. LST collected on April 29 shows max value exceeding 62°C/143°F. Source: ADAM Platform
•Excessive rain in parts of Australia might be beneficial in the long term, but short term it causes concerns for potential planting and early germination.
•US corn planting delays have raised some concern, however, about 70% of the US belt is set to benefit from wet weather and warmer temperatures.
Will above logistical constraints coupled with persistent weather concerns have a lasting impact on the trade and how does one trade these extremes?