Analysts unravel crop situation in Black Sea as Australia watches its markets

Russian wheat crop in for a scare this week

Grains
Wheat exports from Russia, Ukraine and Kazakhstan are expected to rise by about 5 per cent year-on-year this year, which may impact on Australia's markets.

Wheat exports from Russia, Ukraine and Kazakhstan are expected to rise by about 5 per cent year-on-year this year, which may impact on Australia's markets.

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Crop production trends in the Black Sea this season are being monitored.

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The Russian word "sukhovey" caught the attention of global grain markets last week, as the possibility of it striking Black Sea crops in the coming weeks popped-up in several market and weather news wires.

Meaning dry or drought, "sukhovey" is now used for a far more specific terminology that implies a certain set of associated phenomena.

It refers to a wind with high temperatures and low relative humidity that has its origins in the steppes, semi-desert and desert regions of Kazakhstan.

It emanates from the periphery of anti-cyclones, predominantly during the summer months, and generally blowing in a westerly direction.

The speed of the winds is usually quite moderate at less than 20 kilometres per hour.

But in extreme cases, the wind speed can be more than 50kph and - on rare occasions - as high as 80kph.

When associated with air temperatures above 25°C and relative humidity of less than 30 per cent, this unique weather phenomenon can cause rapid evaporation of soil moisture - and crops in its path can wilt quite quickly.

Several weather models are forecasting a "sukhovey" to strike western Kazakhstan, large parts of southern Russia and north into the Volga River Basin this week.

While it will add to the spring crop woes, most of the winter cropping regions have plenty of moisture and could cope with some drying weather.

But some models suggest it may persist into the first week of July, which could definitely stress crops and reduce yields in some districts.

The area sown to spring wheat in Russia reached 12.8 million hectares this year, according to leading Russian agriculture consultancy SovEcon.

This was due to an increase in the total cropping area as more land is bought back into the production cycle, and a higher than average re-plant of winter cropping areas due to winterkill in the central regions.

The spring wheat issues are likely to be the limiting factor for Russian production this harvest.

Despite these issues, Russian production forecasts have been on the rise this month.

SovEcon raised its Russian wheat production forecast on June 11 by 1.5 million tonnes to 82.4 million tonnes.

Two days earlier, another local agriculture consultancy - IKAR - raised its wheat crop forecast by 2 million tonnes to 82 million tonnes.

Above average rainfall in May and early June has significantly improved the winter crop outlook, particularly in the south, which is Russia's biggest wheat producing and exporting region.

For now, it seems bumper crop conditions in the south are more than compensating for any production losses in the spring wheat regions.

So, Russian wheat export estimates remain steady at about 37.5 million tonnes in 2021-22.

Farmers across most of the Ukraine have had an ideal growing season and production forecasts are quite upbeat.

Nikolay Gorbachov, the president of the Ukrainian Grain Association, is forecasting a bumper crop in 2021-22.

A record wheat crop of more than 30 million tonnes is on the cards there, if conditions remain favourable.

The Ukrainian Grain Association is currently forecasting wheat exports of 21 million tonnes in the 2021-22 marketing year.

At the other end of the forecast spectrum is Ukraine analyst APK-Inform, which trimmed its wheat harvest forecast slightly last week to 27.3 million tonnes.

But it kept its export outlook unchanged at 19.8 million tonnes.

Ukraine's wheat crop is typically as high as 80 per cent milling quality and is highly sought after in the export market.

But the proportion may be lower this year, as there is a distinct risk that farmers may not achieve the 12.5 or 13 per cent protein level due to the higher than average spring rainfall and lack of sunshine to finish the crop quickly.

Logistical issues have historically hampered Ukraine's ability to quickly move grain into the export pathway.

But, according to Gorbachov, that issue has been addressed.

Ukraine has invested heavily in rail logistics and has 28,000 grain wagons in its fleet, compared to 10,000 just three years ago.

It is estimated that 65 per cent of grain destined for export can move to the port by rail, which reduces the road task to 25 per cent - and the balance is shifted by barge.

There are also moves afoot to increase the proportion moving to port on the country's river system.

New legislation, due to come into effect at the start of 2022, will make it a much more economical mode of grain transport.

This will further reduce the reliance on road freight.

In Kazakhstan, hot weather and insufficient soil moisture reserves are stressing the developing spring wheat crop and putting downward pressure on production estimates.

Some forecasters still have that country's wheat crop pegged at more than 14 million tonnes.

But most are now under that mark, with yields expected to be less than last season as the adverse weather conditions take their toll.

Analysts have wheat exports penciled-in for about 7.5 million tonnes at this stage.

With harvest almost on us, we are getting to the pointy end of the production cycle in the Black Sea region.

If current production estimates are maintained through the harvest period, exports from Russia, Ukraine and Kazakhstan combined are expected to rise by around 5 per cent year-on-year to 66 million tonnes.

This is primarily due to the sizable rebound in Ukraine production.

The tax regime will continue to cloud the grain export landscape out of Russia this season.

But a big exportable surplus in Ukraine will provide liquid competition into similar destinations. So, Russian exporters will be eager to buy their share of the global demand pie.

The potential for another big crop down under means the key unknown is how aggressive they will be into Australia's traditional Asian markets in the 2020-21 marketing year.

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