WILLAGRI
The global supply of wheat and corn is expected to tighten. Australia, Argentina, and Brazil are selling their new harvests, which are less abundant than last year. By the end of June, Russia must export over 25 million metric tons of wheat to start the 2024-2025 marketing season smoothly. Despite being weakened, Ukraine is crucial to balancing global markets. Poor weather conditions are already affecting the potential harvest of winter cereals in the European Union.
From Russian ports, over 20 million metric tons of wheat have already been shipped in six months. Business activity has slowed in recent weeks. Last autumn, storms in the Black Sea disrupted commercial traffic, and the farm gate prices of exported cereals (around €130 per ton at the beginning of December) do not encourage farmers to make deals. If the end-of-season export quota, set at 24.0 million metric tons (Mt) of cereals this year, is not reached, Russia will begin the new 2024-2025 season with significant carryover stocks. Ukraine, although weakened, remains a major exporter of cereals. In mid-December, 302 ships sailed through the new maritime corridor along the coasts of Romania and Bulgaria, according to Ukr Agro Council (UAC). Out of the 10 million metric tons of goods transported, 5 million metric tons are cereals. Since the European market opened to Ukrainian agricultural products, Kiev has exported significant quantities of grains to the European Union without customs duties or transited them through the EU before shipping them to other third countries. According to the European Commission, Ukraine has become the leading trading partner on all cereal markets, except for hard wheat, as it does not produce it. Ukrainian wheat, barley, and corn totaling 7.5 million metric tons have been delivered since January 1. To win tenders, Ukraine has not hesitated to market them at highly competitive prices.
The Unimpressive Return of the Southern Hemisphere
This winter, Australia is expected to produce only 25.5 million metric tons of wheat and 5.5 million metric tons of barley, 17 million metric tons less than last year. It will export only 22 million metric tons of wheat (down by 10 million metric tons year-on-year). Consequently, the island continent cannot flood the cereal markets as it did at the same time last year. At that time, it helped push grain prices back down after they soared during the spring and summer of 2022. Maghreb countries will remain very active in the wheat market, competing with Russia, Ukraine, and the European Union. However, four African countries have already purchased 5.5 million metric tons of European wheat since the beginning of the marketing season on July 1. Leading the way is Morocco (2 million metric tons), followed by Nigeria (1.37 million metric tons), Egypt (1.15 million metric tons), and Algeria (1.06 million metric tons). Including Egypt among its clients, the European Union demonstrates that it can be at least as competitive as Russia in certain tenders. However, Algeria prefers Russian wheat to European wheat for geopolitical reasons. In fact, Russia won a tender for 900,000 metric tons launched by the Algerian Interprofessional Cereals Office (OAIC) in early December.
Corn Dictates Prices
In the corn market, the United States and Ukraine will be challenged in a few weeks by Argentina and Brazil, two heavyweights! Even though the USDA and CIC have already anticipated an 8 million metric ton decrease in Brazilian corn production compared to last year, the harvest forecasts (124 million metric tons) published by the USDA seem optimistic. In Brazil, planting the first corn crop (full season) was complicated by heavy rains in the southern part of the country, according to the CIC. The Safrinha area, the second corn crop of the 2023-2024 season, could be 10%, 20%, or even 50% smaller than last year, according to UAC. Indeed, soybean harvesting will be late. Farmers could also reduce the usual amounts of fertilizer applied, as inputs are too expensive. In Argentina, growing conditions have become more favorable since El Niño is no longer present. An estimated 61 million metric tons of corn could be harvested (up by 47% year-on-year). Even though weakened, Ukraine (21 million metric tons of exportable corn in 2023-2024) contributes to the regained balance in the grain markets. Without its corn production, the world would be in deficit. Globally, the abundant corn production (1,222 million metric tons; +65 million metric tons year-on-year) weighs on all cereal prices. However, it is also the only surplus cereal. Other cereal crops are in deficit, including rice. Inexpensive corn arouses the appetite of importing countries. They aim to buy 194 million metric tons, 20 million metric tons more than last year. For example, China will produce 277 million metric tons as it did last year, yet it plans to import 23 million metric tons (up by 5 million metric tons year-on-year). China has no intention of depleting its stocks (202 million metric tons, down by 4 million metric tons year-on-year) to process and consume the 303 million metric tons of grain needed to revive its animal sectors. In Africa, countries on the southern shore of the Mediterranean may be tempted to compete with South American and Ukrainian corn. During the 2023-2024 marketing season, their needs are estimated at 16.7 million metric tons of grain. Conversely, sub-Saharan Africa produces 83 million metric tons of corn, of which it will only import 2.4 million metric tons. In fact, South Africa is the only country on the continent to export significant quantities (3 million metric tons).
Sub-Saharan Africa Relies on Sorghum
Sub-Saharan countries can rely on sorghum production (28.8 million metric tons) to cover part of their food needs. “Demand in Africa could peak, partly due to demographic drivers, with regional use in human food showing a slight year-on-year increase to 24.9 million metric tons,” explains the CIC. Trade in the cereal (7 million metric tons out of the 9 million metric tons traded worldwide) mainly involves American sorghum produced at the end of summer and exported to China. In addition to the unimpressive arrival of cereals produced in the Southern Hemisphere, some indices suggest that the global grain supply will diminish. In the Northern Hemisphere, the potential harvest of winter cereals already planted, which will be harvested in 2024, has already begun. The conditions are therefore in place to observe a rise in cereal prices in the coming weeks. All global grain productions are in deficit, except for corn. But without the Ukrainian harvest, the sector would also be in deficit. In France, the Agreste Institute mentions that the acreage of winter cereals planted for the 2024 harvest would decrease by 5.1% compared to last year, reaching 6,395 thousand hectares. The area of durum wheat would decrease by 10.5% to reach 205,000 hectares. It would be the lowest in the last six years. In fact, all Northern European countries have encountered difficulties in sowing their lands. And precipitation has drowned some of the sown cereals. Next spring, more spring
crops will be sown, including corn on plots without winter cereals. In Ukraine, farmers are struggling to buy the inputs needed for their crops. Sugar factories are approaching cereal growers to plant more beets at the expense of cereal cultivation. In the United States, farmers are already tempted to sow soybeans instead of corn, which is not very profitable. The price of a ton of corn has dropped significantly, while soybean prices have remained stable. However, if Russia is again able to export 50 million metric tons next summer, cereal prices will struggle to recover when the new 2023-2024 marketing season begins. They are currently below their 2021 levels.