Andrée Defois,
President of Tallage and Managing Editor of Stratégie Grain:

"It was expected that Russian stocks would be very low at the end of the 2019/20 campaign and that Russian exports in the last months of the campaign should have to decrease. This is exactly what is currently happening and which leads, in particular, to record exports from other countries of which the EU (34 Mt compared to only 32 Mt for common wheat in 2018/19). Even if all global supplies have to be mobilized, there is no supply problem at present: this is the reason why we think that the prices of the 2019 harvest have already reached their highest levels."

Coronavirus lockdowns across the world slow global food supply chains, leaving some farmers unable to get their products to consumers and major producing countries restricting exports. As companies and governments are stockpiling grains and pulses, some exporting countries have limited their sales abroad to prioritize domestic supply. Russia and Ukraine have taken protective measures and set an export quota for wheat. Vietnam has suspended new rice export contracts. Wheat prices have gone up after a price drop in March. Rice has become more expensive, and corn has lost market due to decreased interest in biofuels.

We asked the short/medium impacts of the coronavirus and the changing grain market dynamics to Ms. Andrée Defois, President of Tallage and Managing Editor of Stratégie Grains, an agro-economic research and analysis consultancy. Specializing in European and world grain and oilseed markets, Stratégie Grains is one of the most reliable sources for market information. With more than 25 years of experience in agricultural market analysis, Ms. Defois is a sought after speaker in international grain events. Her comments and reports are frequently quoted in international media like Reuters and Bloomberg.

Here is Ms. Defois’s analysis and forecasts regarding the grain markets.

The coronavirus pandemic has had a significant impact on agriculture, as the lockdowns have severely disrupted the global supply chain. There are some concerns that this health crisis would transform into a food crisis. Do you think coronavirus measures could cause a global food shortage? What the world should do to avert a global food crisis?
The supply of grains will be affected by the coronavirus pandemic: This is already the case in China, where farmers have been hit by fertilizer supply problems. It will also be the case on the Indian subcontinent, which is experiencing labour shortages for agricultural work. Our forecast for world wheat production in 2020 has therefore fallen by more than 10 Mt since last month to close to 735 Mt last month vs 730 Mt in 2019/20, largely as a result of these problems – to which must be added the damage caused by overly dry conditions in April in the Black Sea (but which now seem to be improving) and North African countries and an even larger reduction than we estimated last month to wheat-growing areas in the EU. Our estimate for the 2020 barley crop has also been reduced this month (by 1 Mt), although this is mainly due to adverse weather.

However, for the short term, we do not think that the health crisis will transform into a food shortage. Most of the world's crops are still expected high this year, close to that of 2019 for wheat and barley and much higher for corn.

For the medium term, depending on the way the pandemic is managed and the remedies that will be found, it is possible to see production plunge more sharply, in Asia and Africa in particular where the effect of the coronavirus comes to combine with severe locust attacks. Rice production could be affected. However, there are currently no large concerns among the main world exporters of wheat, barley and corn where the measures taken to combat the virus do not prevent the crops from growing and field work to be carried out.

Some grain exporting countries are imposing export restrictions to safeguard their national food security. How do these measures affect the grain market? How these restrictions will affect the wheat supply over the coming months? Should we worry about wheat supplies and prices?
Russia, Kazahkstan and Ukraine have decided to control their grain exports by the end of the current cereal season. These measures result mainly of lower supplies than last year in Russia and Kazakhstan (lower harvests in 2019) and a booming wheat export campaign in Ukraine in 2019/20. Russian measures were mostly taken to limit the rise in Russian domestic prices at a time when the ruble collapsed as a result of oil price reduction. These export restrictions were taken while several countries in the Middle East and North Africa (Arabia, United Arab Emirates, Iran, Egypt among others) have been recently accelerating their purchases, partly to ensure stocks in face of the pandemic crisis. It can, therefore, be said that the coronavirus crisis is also for a small part responsible for the export limitation decisions taken by the three major countries of the former Soviet Union. Romania had tried to follow in mid-April but had to reverse its decision because this measure does not comply with EU rules.

In the rice segment, Vietnam has also announced that it will block exports, but here too the country has reversed its decision and its Prime Minister announced in late April that exports would resume normally in May. For the coming months, the world of cereals will be marked by a good harvest in Russia and a huge corn harvest in the USA, except in case of climatic accidents. At the same time, because of stocks built up by certain importing countries on the one hand, and also because of the drop in world consumption forecast for 2020/21, world wheat trade will contract, especially for soft wheat. We now forecast world soft wheat trade at 154 Mt compared to 162 Mt in 2019/20. With this reduction in trade expected for 2020/21 and a good harvest in Russia (weather permitting), there will be no problem of wheat supply in the coming months and this should press prices down during the summer months and the beginning of the autumn.

For the remainder of 2020/21 (from winter 2020 onwards), once harvest clearance pressure has subsided, prices could start to recover in response to the fact that projected 2020/21 carryout stock held by the main exporters will not be particularly heavy. World wheat stocks are expected to recover slightly in 2020/21 but will remain low as shown in the graph below and this is why prices may firm up in the second half of the season. However, this firming of prices will only be moderate as wheat will face strong competition from corn throughout the season and demand is expected to be constrained due to the global pandemic.

What about the demand side? The demand for wheat has increased in the recent period.How the pandemic will impact the demand for the wheat? Do you think the demand will continue to increase in the long term?

Yes, we think that the demand will continue to increase in the long term but it will be affected short term by the pandemic. Global wheat Human/Industrial demand is revised down 7 Mt this month in our global balance sheet, in anticipation that the disruption caused by the coronavirus crisis to world demand will continue through the first part of new campaign. We are currently working on the assumption that the period of disruption will actually be longer in 2020/21 than in 2019/20,

particularly as far as the out-of-home catering and tourism sectors are concerned. However, we currently anticipate a less pronounced impact in July-December 2020 than is expected through the second quarter of 2020, in anticipation of a complete or partial relaxation of the containment measures and a resumption in the activities of artisanal bakeries.

As a result, our forecasts this month see reduced demand for a majority of countries. The largest declines relate to India (-1.4 Mt), EU (-1.8 Mt), Egypt (-0.4 Mt), Turkey (-0.4 Mt), and China (-1.2 Mt).

Wheat use in the world’s animal feed sector is also revised down this month (-4 Mt); this stems from both a decline in wheat’s competitiveness for use in industrial feeds, and lower projected industrial feed requirements. In effect, the later have decreased compared with last month because of the coronavirus crisis and its economic repercussions on the purchasing power of consumers, which will reduce meat consumption outside the home – at least during the first part of the new campaign. The main reductions to projected feed sector demand since last month relate to Southeast and Northeast Asia, China, India and the EU.

Wheat use in animal feeds on the world market is currently forecast to decline compared with 2019/20. In the EU, the year-on-year reduction will stem from reduced supply of wheat for on-farm consumption and wheat’s weak competitiveness for use in industrial feed rations. In Australia, the decrease would be due to weather conditions returning to normal, implying greater availability of grazing land and a reduction in early crop cutting. Decreases are also expected in the USA and Canada, where wheat’s competitiveness for industrial feed use is expected to be lower than in 2019/20.

Wheat prices have also increased in the face of trade restrictions. Do you think this trend will continue over the summer?
No, we do not think so as explained above due to the new harvests coming in.

Do you have any concerns that closures, lockdowns, and restrictions of movement would cause a negative effect on grain harvests?
Yes, the grain harvest will suffer slightly from the closures, lockdowns and restrictions (see above) but the effect will be limited at the global level given that there are no big worries in big exporting countries.

The spread of the coronavirus leads to the stockpiling of staples like flour and pasta. How does the European milling industry handle the increased demand for flour?
The measures taken in EU countries to contain and close down food consumption points outside the home are taking a heavy toll on the European milling industry. Surging demand for bagged flour consumed at home and biscuits cannot make up for the fall in demand for bakery products (both artisanal and industrial) and products produced by the agri-food industry.

However, given the differing profiles of the outlets through which milled flour is distributed and the varying degrees of social distancing imposed across the various EU member countries, the reductions depend on countries. For the end of the 2019/20 season, the largest reductions concern France, Italy, Spain and the UK, with smaller falls in Germany, Scandinavia and the Baltic States. Thus, based on the assumption that restriction measures will be extended through most of May and June, we reduce projected demand from the milling sector by 3% in year equivalent (-1.3 Mt) this month. At 44.5 Mt, soft wheat milling demand in the EU for current ending season 2019/20 is now estimated 1.4 Mt below the level of 2018/19.

At present, there is very little visibility concerning the duration of containment measures in EU countries, or for how long out-of-home catering establishments must stay closed into 2020/21. However, we are working on the basis that the health crisis will continue to weigh heavily on demand and could therefore disrupt activities in the milling sector during July-December 2020. For the time being, we are assuming that the disruptions will continue for a longer period of time during marketing year 2020/21 than in 2019/20, especially in the out-of-home catering and tourism sectors. On the other hand, in anticipation of a total or partial end of containment measures during the second half of 2020, and a resumption of activities in the artisanal bakery sector, we project that the impact will be less severe than in the April-June 2020 quarter. As a result, we revise down projected demand for wheat from the milling industry for the 2020/21 season by 1% this month (-0.5 Mt). EU milling demand is now expected to increase by 1 Mt to 45.6 Mt from the level of 2019/20.

With the coronavirus crisis already triggering concerns over food security, Russia’s export quotas for grain depleted. How could grain export suspension from Russia affect the grain market this time?
It was expected that Russian stocks would be very low at the end of the 2019/20 campaign and that Russian exports in the last months of the campaign should have to decrease. This is exactly what is currently happening and which leads, in particular, to record exports from other countries of which the EU (34 Mt compared to only 32 Mt for common wheat in 2018/19). Even if all global supplies have to be mobilized, there is no supply problem at present: this is the reason why we think that the prices of the 2019 harvest have already reached their highest levels.

Do you think the pandemic would cause radical reforms in the food supply system?
Several importing countries have already started to increase their reserves: we observe this trend in certain countries of the Middle East for a wide spectrum of products: meat, protein, cereals. This trend should continue and lead countries that rely heavily on imports to build up stocks.

Another consequence could also be the desire to push local supply to the detriment of the supply of imported materials where it is possible to do it.

Is there anything you would like to add?
This coronavirus crisis is occurring together with a serious oil crisis. The latter stems in part from the fall in demand caused by the pandemic, but it also results from the global overproduction of oil and the struggle between the major producing countries. The effects of low oil on economies that derive much of their income from oil will combine with the effects of the pandemic. In some oil-producing countries in Africa and South America, this could seriously disrupt access to imports and the food balance.