Appraising global wheat supply options amid Black Sea supply loss

By Fastmarkets Agriculture reporting team

Wheat prices globally have reacted with profound volatility in the days since the Russia-Ukraine conflict started.

With the conflict now entering its third week, key exchanges in the US and Europe have charted the mounting fears over supply within a region that exports a third of world wheat and barley supply, nearly a fifth of world corn supply and is the overwhelmingly dominant origin for all sunseeds.

Wheat has borne the brunt of the price reaction to date – but reshuffling supply options and appraising viable alternatives has seemingly capped, for now, hitherto runaway prices.

If farmers across the two countries are unable to finance or physically undertake planting operations, the near-term supply shock could yet morph into a major long term loss of production.

According to the USDA’s March version of its World Agricultural Supply and Demand Estimates, Russia is expected to produce 75.16 million tonnes of wheat and export 32 million tonnes, with Ukraine producing 33 million tonnes and exporting 20 million tonnes.

Export figures were revised lower for both countries as the USDA delivered its first take on a region that collectively represents 14% of total world production, and 25% of expected world exports.

Perhaps more than any other grade of agricultural production, wheat is most closely aligned with staple diets for people and world leaders will be eyeing reports of food riots and high prices already emanating from the Middle East.

“Wheat is more for the human heart for agriculture than any other global commodity traded, as people eat bread. That market is more susceptible to volatility because it is used for human consumption,” Futures International’s Terry Reilly told Fastmarkets Agricensus.

Fastmarkets Agricensus reviews the current status of other origins and potential supply options:

Argentina
USDA 2021/22 outlooks: 20.5 million tonnes production, 14 million tonnes exports (unchanged)

Despite a record-breaking wheat crop, Argentina is already facing some challenges on its export program with the government implementing limits on export licenses as it bids to protect domestic prices.

New crop sales suggest 73% of the 2021/22 crop has been committed already – up 9% on the same period of the previous season, with export licenses at 13.62 million tonnes – very close to the expected exports for the year.

Brazil
USDA 2021/22 outlooks: 7.70 million tonnes production, 1.7 million tonnes exports (up 200,000 tonnes)

A rank outsider and typically a heavy importer from neighboring Argentina, Brazil has been seemingly able to utilize some of its port capacity to offer handy size, feed wheat parcels. Offers FOB basis Imbituba, in the south of the country, have been heard, and the country’s grain exporting agency, ANEC, began publishing wheat export data for the first time earlier this month.

India
USDA 2021/22 outlooks: 109.6 million tonnes production, 8.5 million tonnes exports (up 1.5m tonnes)

High freight rates and barn-busting production have already seen India carve out a surprise place for itself on the global export scene, breaking out of its typical trade partners and getting into bigger regional markets. Ever alive to opportunities to curry favor with the country’s huge, and politically influential, farmers, Prime Minister Narendra Modi urged the world’s second biggest wheat producer to be ready to capitalize on Black Sea production disruptions.

South Africa
USDA 2021/22 outlooks: 2.2 million tonnes production, 0.16 million tonnes exports

A niche player and more typically an importer of wheat, the country is expected to report its largest wheat harvest since 2002. That could mean its contribution to wheat balances could come in lower imports – allowing volumes to be placed elsewhere – rather than through direct exporting. Much of the country’s existing wheat export program heads to neighboring African states, while this year’s imports have been dominated by the Baltics, Argentina, Australia and Brazil.

EU
USDA 2021/22 outlooks: 139 million tonnes production, 37.5 million tonnes exports (unchanged)

Currently, the main beneficiary of Black Sea problems, basis values and outright prices across the bloc have surged as exporters look to it as an alternative, local supply option. Much of that demand also reflects the fact that Germany, Poland and the Baltics, Romanian and Bulgarian wheat are typically all hard wheats, in the same category as Russian and Ukrainian 12% wheat supplies.

• Germany, France and Baltics
  France is the EU’s biggest exporter of soft wheat, and a steady supplier to North Africa, particularly Morocco and Algeria. And while the latter has overlooked French wheat in several recent tenders, it now seems to be back in the market for it. Earlier this week French state-backed farm agency FranceAgriMer increased its forecast for soft wheat exports outside the EU in the 2021/22 marketing year for the first time in months to 9.7 million tonnes, a whole 9% higher than its forecast in February. According to the agency, most of the country’s grain crops were in good to very good condition as of early March.

France, Germany and the Baltics have seen a huge buying spree over the last couple of weeks in reaction to limited supplies from the Black Sea, while the scare over Black Sea exports may bring Algeria back to the French table to secure supply – after citing quality concerns for halting imports in late 2021.

• European Black Sea
  The picture is muddier in the Black Sea. Romania and Bulgaria, also big exporters of corn and wheat, have been discussing a ban on grain exports to ensure supply to the domestic market. This is somewhat problematic. Technically EU countries cannot unilaterally ban exports – it would need to be agreed with the bloc. However, they might limit exports to outside the EU, or simply stop issuing phytosanitary certificates, which would effectively limit exports without an official ban.

Bulgaria and Romania have also already clocked up substantial demand – not least amid the imposition of the Russian export quota and export duty – and have consequently been exporting at a frantic pace. There’s unlikely to be much left in the locker.

US
USDA 2021/22 outlooks: 44.8 million tonnes production, 21.8 million tonnes exports (down 280,000 tonnes)

Already dogged by an atrocious season last year, planting efforts in the US are underway and worries continue around water scarcity and stress on the new planting. The impact from last year’s hot conditions has tipped the balance of planting for the new upcoming season, with the USDA expecting a 3% increase in the wheat area and potential for the biggest crop in five years.

Like Canada and Australia, US wheat offers have been picked up for delivery into Vietnam in recent cash indications, with soft red winter wheat cargoes for June loading heard offered at $459 per tonne on Friday.

Canada
USDA 2021/22 outlooks: 21.6 million tonnes production, 15.5 million tonnes exports (up 300,000 tonnes)

Like the US, production was hit hard by drought conditions and extreme heat last year and output is well down on the previous season. Canada’s agriculture ministry expects planted area to gain 5% to 547,000 ha for winter wheat, with rebounding yields delivering 25.6 million tonnes of spring and winter wheat, along with 5.5 million tonnes of durum – potentially delivering 29 million tonnes of exports, up 19%.

Offers for Canadian wheat have also been heard for March loading parcels delivered into Vietnam, with western red spring wheat at $521 per tonne and spring wheat at $459 per tonne, both basis Ho Chi Minh.

Australia
USDA 2021/22 outlooks: 36.3 million tonnes production, 27.5 million tonnes exports (up 2m tonnes)

Another major beneficiary, Australian wheat production had already done much to roll back Russian export influence in the Asia-Pacific region as the country emerged from a multi-year drought with consecutive huge crops. Heavy rain through the final stretches boosted production but washed out protein levels. However, Australia’s biggest concern remains logistics. The country’s ports offer limited capacity to increase export flows but should ensure that the resources remain a viable export presence well into 2022. That said, recent offers for delivered feed wheat into ports of Vietnam have been heard at levels around $430 per tonne for standard through to $460 per tonne for premium, but for June loading.

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