The latest crop report as of mid-July by the U.S. Agricultural Attaché in Ukraine shows harvest of winter grains on track despite disruptions from military movements. Spring crops had timely rains through early summer rains before the critical crop reproductive stages when weather has the most impacts. Unless conditions change, production disruptions to trade should be manageable.
As of mid-July, 4.3 million metric tons (MMT) of barley (50 percent of the crop) and 7.6 MMT of wheat (40 percent of the crop) were harvested according to the Ukrainian Ministry of Agriculture. This does not include Crimea that is now controlled by Russia. Yields per acre were good, except where excess rains hurt some central and western region crops. Rye harvest had just begun. Recent estimates from the ministry put the early grains harvest at 20.5 MMT, 64 percent complete, with wheat at about 14 MMT and barley at 6 MMT. The average yield was 3.26 metric tons per hectare (MT/HA) compared to 2.99 MT/HA last year. Grain crop harvest losses due to the military conflict in the eastern part of the country were put at 500,000 MT.
The total area planted (fall and spring) for harvest this year was 27.3 million hectares (MHA), down about 0.5 percent from last year. Wheat area was down 4 percent at 6.1 MHA and barley was off 3 percent at 3.1 MHA. Corn planted was down 3 percent at 4.7 MHA, sunflowers up 4.0 percent at 5.1 MHA and soybeans up 33 percent at 1.8 MHA. Summer crops are expected to be above average based on weather up to mid-July. Late-July and August weather is critical for good yields.
Some uncertainty exists about the amount and quality of inputs used on the spring planted crops. The Ukrainian currency, the Hryvnia, was devalued over 40 percent between December 2013 and April 2014. Most inputs are usually imported or produced with the use of imported materials and many small and medium size agribusinesses, and a few large ones, are thought to have some financial difficulties this spring. Local producers were reporting reduced levels of chemical application and switching to cheaper products while adjusting production technology to minimize costs.Summer crops may not be able to fully respond to favorable summertime weather.
The grain export industry and the Ukrainian government have apparently worked out an arrangement that has allowed a fast start for wheat and barley exports for the marketing year beginning July 1. Crops appear to be large enough that export restrictions are unlikely, but military operations could disrupt agricultural business operations in some areas. In the first half of July barley exports were 293,000 MT and wheat exports were 111,000 MT. Also, old crop corn exports were 260,000 MT. The corn marketing year is October 1 – September 30. Preliminary export data from the Ministry of Agriculture for the 2013/14 export year show wheat exports at 9.4 MMT and barley at 2.5 MMT. Corn exports for the first nine months of the 2013/14 marketing year were 19.4 MMT.
Any disruption in the flow of wheat to export markets would have an immediate impact. In the first ten months of the 2013/14 wheat marketing year, Ukraine exported 8.4 MMT of wheat. Egypt was by far the biggest buyer at 2.3 MMT, over 27 percent of the total. The next largest customer was South Africa with 460,000 MT. Egypt took 640,000 MT in October 2013 alone. Egypt was the world’s largest importer of wheat at 10.3 MMT in 2013/14 and is projected at 10.6 MMT in 2014/15 according to the Foreign Agricultural Service (FAS) of USDA. This year Egypt will need to import almost 900,000 MT per month. It cannot afford disruptions in deliveries, even though Black Sea wheat has the low transportation costs. The world second largest wheat buyer last year was Indonesia at 7.4 MMT and Ukraine provided only 390,000 MT for the first 10 months of the marketing year.
Barley exports are particularly important to the Middle East. Of the 2.3 MMT exported in the first ten months of the last marketing year, 1.5 MMT went to Saudi Arabia. The next five largest buyers were also from the Middle East and totaled about 600,000 MT. As for wheat, the short shipping distance is advantages for the Middle East. Japan was the largest buyer not from the Middle East at 50,000 MT. The total world barley trade is estimated by FAS-USDA at about 20.0 MMT. Supplies could probably shift if Ukraine shipments were delayed.
Ukraine’s corn markets are much more diverse. For the first seven months of the current marketing year (October–April), exports were 17.8 MMT. The number one market was Spain at 2.8 MMT (16 percent) followed by Egypt at 2.4 MMT (13 percent). The next four largest markets were South Korea at 1.8 MMT, the Netherlands at 1.6 MMT, Italy at 1.3 MMT and Japan at 1.2 MMT. The European markets have a transportation advantage, but Asian markets will face increase competition this year from larger U.S. supplies and lower market prices.
World grain supplies are much more comfortable than they were a couple years ago, making it much easier to work around any disruptions in supplies from Ukraine. The global wheat crop was only 658 MMT in 2012/13, but last year’s record crop of 714 MMT helped to build back supplies. This year’s wheat crop is projected at 705 MMT, exceeding use of about 700 MMT. Lower corn prices could further reduce wheat feeding. World corn production was 869 MMT in 2012/13 and increased to 984 MMT in 2013/14. Production is projected to be almost as large this year at 981 MMT, well above expected use. Barley had a short crop of 130 MMT in 2012/13 and had a recovery to 145 MMT in 2013/14. Production this year will likely slip to 132 MMT, while consumption will stay at 136 MMT and stocks are drawn down.
While Ukraine’s summer grain production as of mid-summer looks good, much can still go wrong. As noted earlier late-July and August are grain filling time when the reproductive stages of growth are primary. Prolonged hot and dry weather can reduce the yield per hectare. The lack of adequate inputs could prevent the crops from reaching their full potential. Wet fall weather could delay the start of harvest and an early onset of winter could prevent harvest from being completed. Increased military excursions could destroy crops, limit movement of crops at harvest and consume motor fuel supplies in what is expected to be a tight market.
Exporting and importing grain is a sophisticated business when done on a massive scale like in Egypt. Business, credit and transportation networks may not be able to handle the geopolitical risks of continued instability in the region. Short of an outright war, Ukraine will likely have crops to sell if the market participants outside the country can handle the risks of moving the crop.