Frédéric Hénin
The Russian invasion has devastated the Ukrainian economy and its agriculture. But it has also backfired on Russian farmers. Last year, none of them benefited from the record-high global prices of grains and oilseeds. Mediterranean countries paid a high price for imports of essential grains to feed their populations. And as they face drought episodes once again, they will increase their purchases of cereals during the upcoming 2023-2024 marketing campaign. However, they will benefit from a return to cereal prices equivalent to those in 2021.
48 million tonnes (Mt) is the estimated grain production in Ukraine according to the International Grains Council (CIC) in its latest report published on May 18. Two years ago, Ukraine harvested a record 86 Mt of grains!
When Russia invaded Ukraine in February 2022, the prices of all cereals soared. The corn market was more affected than wheat and barley due to Ukraine’s withdrawal from the global market. The country had already exported its 19 Mt of wheat and 6 Mt of barley harvested in 2021. In the last leg of the 2021-2022 campaign, the focus was on corn: 27 Mt of grains were expected to be shipped by the end of June 2022.
The fear of losing access to all Black Sea ports, both Russian and Ukrainian, for loading cargo ships had alarmed the cereal markets. At that time, Russia alone had to export around fifteen million tonnes of wheat by the end of June 2022.
Ukraine will start the next 2023-2024 campaign with stocks close to normal. But Russia is burdened by its excessive wheat harvest of over 100 Mt (source: Ukragroconsult). It is struggling to export its 45 Mt of wheat due to the distrust it has generated among some of its customers during 2022.
Therefore, Russia will begin the new 2023-2024 campaign with excessive wheat stocks of 17 Mt. And it will once again have to export nearly 45 Mt.
Russia is overwhelmed with over 100 Mt of wheat.
Overall, Russia will produce 125 Mt of grains (a decrease of 15 Mt compared to the previous year) and is expected to export 54 Mt, similar to last year, thanks to its excessive stocks! Since last autumn, global cereal prices have been declining and are lower than their 2021 levels. This price decrease obviously benefits African countries, which were the hardest hit by the surge in grain prices when the Russo-Ukrainian conflict began.
To avoid starving their populations, these countries did not reduce their purchases even as grain prices skyrocketed. During the upcoming 2023-2024 marketing campaign, they will import 56 Mt, a record! For corn, Africa will import 19 Mt, the same volume as last year.
On a global scale, 410 Mt of grains will be traded worldwide, the same as the previous campaign, despite the ongoing war in Ukraine. However, nearly 2,295 Mt of grains will be produced, 40 Mt more than last year (mainly corn), even as Ukraine’s cereal production has been halved. The corn that Ukraine is no longer able to produce and sell is now being supplied by Brazil and the United States.
In fact, the evolution of cereal prices is once again guided by fundamentals. “The conflict in Ukraine no longer poses a risk for operators,” analyzes Philippe Chalmin, coordinator of Cyclope 2023 presented on May 23. “In the markets, prices no longer include any geopolitical risk premium.” Furthermore, the geostrategic importance of the Black Sea corridor has significantly diminished since last summer.
All connected to the corridor
Although Russia has played both hot and cold, the negotiations on the extension of the agreement on the corridor have had no real impact on the evolution of grain prices. After a brief surge a few days before the May 18 deadline, prices continue to decline, as they did last autumn, reaching levels equivalent to or even lower than those in 2021.
Furthermore, Ukrainians have taken the necessary measures to export up to 50 Mt of cereals and oilseeds by road, rail, or river routes in 2023-2024. The logistics of the Reni and Izmail ports on the Danube River have greatly improved. In Romania, the port of Constanza alone is capable of shipping up to 10 Mt of Ukrainian grains.
Turkey, as a party to the UN agreement, has made efforts to extend the corridor agreement. It needs to import millions of tonnes of cheap wheat to supply its milling industry. In 2023-2024, Turkey will even be the world’s third-largest grain importer (9.5 Mt).
In the meantime, Russia is eager to sell its last harvest before having to export another 45 Mt of wheat after the next harvest is completed. Its selling prices are driving down grain markets. Competitors are aligning themselves with these prices in order to remain competitive. However, Russia has won almost all market bids launched by the GASC in Egypt since last winter. Out of the 6.3 Mt imported by Cairo since July last year, 4.6 Mt are Russian.
Fighting the price surge
During the grain crisis, the European Union, Australia, and grain-exporting American countries shipped all the available cereals to curb the price surge and facilitate commercial transactions. Nearly 48 Mt of European grains were exported during the 2022-2023 campaign, and 51 Mt will be exported during the upcoming campaign. However, in the meantime, the European Union imported 26 Mt of corn!
Since the beginning of the 2022-2023 marketing campaign, one-third of the wheat and two-thirds of the barley exported by the European Union have been shipped from France.
Morocco is the largest importer of European wheat (4.2 Mt), followed by Algeria (3.9 Mt). Meanwhile, Ukraine has taken advantage of the opening of the European market to export 4.9 Mt of wheat, 13.1 Mt of corn, and 0.8 Mt of barley. However, in the European Union, the influx of Ukrainian grains (over 8 Mt of wheat, corn, rapeseed, and sunflower) has flooded the markets of neighboring countries.
Photo: In Buky (40 km from Uman), a storage hall on Yvan Melnyk and Oleksandr Pidlubny’s farm.