May is a key month for new crop forecasts, as exactly in this month the USDA gathers all local expectations in one global table, which influences the price trend. Ukraine so far promises to offer the second biggest in its history or even a new record crop to the world in 2021.
Agricultural Commodities Broker
Head of Analytical Department
As per latest update of the Ministry of Agriculture, the total grain area 2021 is likely to total 15.5 mln ha vs. 15.2 mln ha last year, including 7.6 mln ha of spring grains. Mild winter, low winterkill, rainy spring could help farmers increase the grain crop to 75 MMT this year from 65 MMT in 2020, as per the AgMin. The Ministry of Agriculture sees grain export 2021/22 at 50-53 MMT vs. 45.4 MMT expected for the current season.
Herewith, harvesting campaign could start a little bit later than usual, as this year's spring planting started a few weeks later compared to the previous year due to a lingering cold weather in most regions of the country. Of course, all will depend on May and June weather development. As of 29 April, 2021 Ukrainian farmers planted 1.1 mln ha of corn (20% out of 5.33 mln ha), 168 KHA of spring wheat (95% of 176.6 KHA plan) and 1.28 mln ha of spring barley (92% out of 1.39 mln ha plan).
Ukrainian Ministry of Agriculture forecasts wheat crop 2021 to rebound to 29-30 MMT vs. 25.1 MMT last year. Ukrainian Grain Association (UGA) is more conservative - 27.67 MMT; SovEcon at a record 28.6 MMT; FAS USDA sees Ukrainian wheat crop 2021 at 26.84 MMT vs. 25.5 MMT for 2020 crop in April WASDE report. The share of milling wheat in the 2021 output could be no less than 65%, almost the same as in 2020.
Ukrainian AgMin sees wheat export 2021/22 at 21-22 MMT vs. 17.5 MMT in 2020/21. In the new season, we expect Ukraine to preserve its positions in Indonesia, Egypt, Bangladesh. Pakistan should be left in the top destinations for the second consecutive year, as it is forecast to have a shortfall of 3 MMT of wheat in 2021/22, which should be covered by about 50%/50% by Russia and Ukraine, plus some part could be EU origin. At the same time, Morocco, Tunisia, Turkey most of all could decrease their imports. It is also an important question, whether China could increase its purchases of Ukrainian feed wheat due to switching its animal nutrition formula away from corn.
Ukrainian AgMin sees Ukrainian corn crop 2021 at 34 MMT vs. 30.3 MMT LY: UGA at 35.5 MMT vs. 29.92 MMT LY; SovEcon at a record 36.6 MMT; FAS USDA at 33.5 MMT vs. 2020/21 crop in April WASDE at 29.5 MMT. Export 2021/22 is seen by UGA at 30 MMT; FAS USDA at 27.6 MMT.
In the new season, China will definitely maintain its position of the main outlet of Ukrainian corn. Herewith, the volume could be smaller than this season, amid expectations of higher crop in China, as well as change in the pigs diet. China’s AgMin issued specific guidelines for reducing the amount of corn and soybean meal in animal feed rations in favor of feed wheat. In April, FAS USDA estimated China's corn imports for 2020/21 at 28 MMT (April WASDE at 24 MMT). 2021/22 Chinese corn imports are seen much lower by FAS USDA at 15 MMT. Before the news about change of pigs’ diet, AgResource saw Chinese corn imports growing to up to 40 MMT per year in the coming years, due to the rebuilding of the country’s pig herd. Europe, Egypt should preserve the level of Ukrainian corn purchases, while Turkey and Iran could increase on lower local crops.
Ukrainian Ministry of Agriculture sees barley crop 2021 at 9.5 MMT vs. 7.76 MMT in 2020 (lately other analysts increased 2020 figure); UGA at 8.2 MMT vs. 9 MMT LY; FAS USDA at 8.2 MMT. Barley export is seen by most market participants at 4.1-4.2 MMT.
China will stay the major buyer of Ukrainian barley in the new season. Herewith, competition with French and Canadian barley becomes tougher. Saudi Arabia switches more and more to Australian and Russian barley. Tunisia, Libya, Algeria could decrease purchases on expectations of higher local crops.
During the whole history of Ukraine, there were four price jumps: 2008, 2011, 2013 and 2014 years. But if you compare the production figures and prices, exactly this time it looks contradictory: both for Ukrainian and world markets. Most analysts are foreseeing world wheat and corn crops 2021/22 to beat new records. Thus, it is demand, which drives prices crazy.
So far, wheat crop 2021/22 is expected to increase in the major producing countries. Due to favorable weather conditions, in April report, SovEcon raised its forecast of wheat harvest in Russia by 1.4 MMT per month - up to 80.7 MMT, which is the third largest figure for the country after a record 85.3 MMT last year (-4.6 MMT y/y). In the EU, Strategie Grains analysts expect the soft wheat harvest to recover after last year's drought to nearly 130 MMT (+10 MMT per year). In Ukraine, the Ministry of Economy predicts a harvest of 29-30 MMT against (+5 MMT per year). IGC analysts predict the 2021 US wheat harvest at 51.1 MMT (+1.4 MMT per year). How USDA will process and combine all above figures, we will see in their report on 12 May 2021.
But how it normally happens in spring, bright crop expectations fell under the cloud of weather influence: lack of rains in the northern U.S. Plains spring wheat belt; dryness and cold spell in the EU; high winterkill in Russia pushed prices to a cosmic high level.
Ukraine: wheat export 2020/21
As of 30 April 2021, the price of the new crop wheat with 12.5% protein for August delivery reached $267/MT FOB Novorossiysk and $252/ MT FOB Berdyansk. It showed increase by $26-27/ MT compared to the prices in the middle of the March 2021 and by $65-70 compared to the prices of the new crop wheat same time last year. Also, it is very important to note, that for the first time since 2015/16 MY, Ukrainian corn prices appeared higher than wheat. Corn market is heavily driven by Chinese demand, as well as adverse weather conditions in the South America. One could only imagine, how prices could be heated in case China starts rebuilding its wheat stocks. In April 2021 report, Strategie Grains mentioned: "…2021-crop wheat prices have little potential for decline at present".
[box type="shadow" align="" class="" width=""]Factors to watch:
• Development of weather in the US: dryness spurred prices in April, but rains are forecast;
• Wheat, corn, barley crop development in the BS;
• Dry conditions were observed in April in Europe;
• Rally in corn prices;
• Chinese feed demand for wheat, Chinese stocks;
• Official and unofficial export regulations in the Black Sea and other exporting regions
• Corn harvesting results in Argentina and Brazil
• Demand from major importers[/box]