MARKETS OUTLOOK ‘Black Sea’ crop outlook underpins forward market
by John Buckley
"MAIZE prices proved surprisingly resilient to the USDA issuing a far more bearish than expected set of US and global supply/ demand data in November. As many in the trade anticipated, it raised its estimate for US yields but by more than most analysts expected, to a new peak of 169.3 bu/acre."
CONCERNS about the long-term impact of a weather-challenged autumn sowing campaign in the former Soviet ‘Black Sea’ countries have dominated market sentiment since our last review, keeping wheat prices off the rock-bottom levels that might have been demanded by this season’s huge surplus crop. All three of the region’s wheat exporters – Russia, Ukraine and Kazakhstan – have had problems with lack of rain, delaying and/or downsizing planting intentions. Although some moisture has been seen in the last few weeks it has not yet been enough to rescue crops from their shaky start. For those even yet being planted, well beyond optimum dates, there is the added threat of cold snaps that may prevent, or make for uneven, germination. Many of the fields that have sprouted and got underway are not in the best shape to resist ‘winterkill’ if the weather, as it often does in this region, gets bitterly cold. All in all, it doesn’t look promising for next year’s CIS yields. At this early stage, forecasts circulating in the market obviously tend to be fairly tentative but, based on likely lower sown areas alone, many traders and analysts within the region are looking for a significantly smaller crop. Ukraine’s could be down by as much as one third from this year’s 27m tonnes, Russia’s by perhaps 3m to 5m, maybe more (from 60.5m), Kazakhstan’s by maybe 2m or 3m, again possibly more (from 14m). Overall, the three main exporters could see a drop of up to 10m tonnes – maybe considerably more from this year’s combined 101.5m tonnes. The decline might also be less than this but only if all three get adequate winter moisture and are lucky with spring and summer weather next year. Doubtless some unplanted or lost fields will be sown with spring wheat but that yields significantly less than winter wheat. There is also the possibility that maize, sunflowers and other spring sown crops may compete more effectively for this land. Funds and other speculators who have reacted to this sort of scenario in the past with heavy buying, don’t, so far, seem to be rushing to invest in a ‘Black Sea’ based boom in wheat prices, as they’ve done with resounding results at least three times in the last decade. This is partly because it is still early days to be writing these crops off and partly because the sort of losses mentioned above can probably be accommodated without too much trauma by a wheat market currently that is sitting on its largest ever crop and carryover stocks (the latter equivalent to almost four months’ supply). Also, the funds have had a disappointing year with their commodity investments all round, thanks partly to China’s economic wobbles undermining confidence in world raw material consumption and, in the crop markets, due to several successive years of larger than normal (and larger than expected) supplies. Nonetheless under the worst case scenario, the CIS outcome could have a significant impact on forward prices. Russia is now the world’s second largest wheat exporter, moving narrowly ahead of the former leader, the USA, if some way yet off the EU’s total. Ukraine is now the sixth and Kazakhstan seventh largest exporter. In total, they are expected to account for 45m tonnes of shipments – 28% of world export supply versus the EU’s 33.5m and the USA’s 22m. The former Soviet countries have not been the only region suffering weather challenges. In Australia too, crop estimates appear to be sliding after dry weather linked to the El Nino
68 | December 2015 - Milling and Grain