International Grain Council (IGC) reported that with Russia and Ukraine among the world's largest exporters of grains and oilseeds (and products), the ongoing conflict and resulting spike in agricultural commodity prices has fuelled concerns about potential food security risks, especially in import-dependent countries in Near East Asia and Africa.
1. Ukraine& Russia - Share of world exports (5-year average)
International Grain Council (IGC) reported that with Russia and Ukraine among the world's largest exporters of grains and oilseeds (and products), the ongoing conflict and resulting spike in agricultural commodity prices has fuelled concerns about potential food security risks, especially in import-dependent countries in Near East Asia and Africa. Given the fluid situation, the Council's supply and demand projections are especially tentative and are subject to significant uncertainty.
Immediate threats are mainly centred on the disruption to export flows. Commercial Black Sea port loadings are currently suspended in Ukraine. According to IGC’s report, although there are efforts to increase exports via railway routes through the country's western borders, overall volumes are likely to be limited. An export licencing system was recently introduced for wheat, maize and sunflowerseed oil, while shipments of barley, rye, oats and millet are currently banned. While the extent of infrastructure losses is unknown, potential damage to port facilities, railroads and storage silos could impact shipments over the longer term.
Most of Russia's Black Sea terminals were operational as of mid-March, but with some ongoing restrictions in the Azov Sea. While loadings recently resumed, volumes may be hampered by trade finance restrictions and additional ocean freight insurance requirements.
Additional exports from other origins, including India, the US, the EU and Brazil, will likely only partially offset lower Black Sea shipments over the remainder of the current season, according to the assessment in IGC’report. With high prices expected to ration demand, 2021/22 world wheat and maize trade is forecast to fall short of earlier predictions, while uncertainties prevail for 2022/23.
There are also significant downside risks to Ukraine's 2022/23 grain and oilseed crops, which could exacerbate longer-term export supply shortfalls. In addition to tight availabilities of fuel, farm inputs and labour, access to some fields is currently impossible, leading to mounting worries about farmers' ability to fertilise winter crops and plant spring varieties.
The conflict has heightened concerns about tight global fertiliser supply chains, stoked by restricted shipping operations to the region, as well as latest sanctions on Russia and Belarus, respectively two of the world's leading suppliers of nitrogenous and potash fertilisers. Soaring natural gas prices, a key feedstock for nitrogen fertiliser production, has also contributed to recent price gains. With elevated input prices and tight availabilities already a concern before the hostilities, the rising costs of production could impact upcoming acreage decisions and application rates, with possible implications for global yields and crop quality.
The crisis has already sparked a number of policy responses in other countries, heightening fears about rising protectionism and the potentially adverse consequences for food insecure nations. Additionally, broader market turmoil and downside risks to global economic growth could also affect supply and demand dynamics, while rising crude oil and commodity prices may further fuel inflationary pressure.
HIGHLIGHTS
Mainly tied to an increase for maize (Ukraine, India and the EU), the forecast for world 2021/22 total grains (wheat and coarse grains) production is lifted by 3m t m/m (month-on-month), to 2,284m. Black Sea export disruptions and higher prices are projected to lead to some demand rationing. Consumption is therefore forecast 8m t lower than before, while the global trade figure (Jul/Jun) is cut by 9m, to 415m. Mainly reflecting an anticipated build-up of inventories in Ukraine, cumulative world ending stocks (aggregate of respective local marketing years) are now seen larger y/y (year-on-year). With much hinging on developments in the Black Sea region, supply and demand projections for 2022/23 are unusually tentative.
Tied to further downgrades for South American producers, the 2021/22 global soybean crop forecast is cut by 3m t, to 350m (-5% y/y). With tight carry-ins contributing to a reduction in supplies, prospects for utilization and stocks are trimmed, the latter by 1m t, to 42m, about one-fifth lower y/y. Given dwindling availabilities and elevated values, the trade figure is scaled back and is down y/y. Linked to anticipated supply responses in the three majors, harvested area could expand by 2% y/y in 2022/23.
Largely reflecting an uprated figure for production in India, the Council’s 2021/22 rice output estimate is lifted by 4m t, to a peak of 514m (+1% y/y), with the net m/m increase in supplies channelled to an upgraded outlook for record total use. Including an increase for China’s imports, the 2022 (Jan/Dec) trade outlook is lifted by 1m t m/m and would be steady y/y. Tied to gains in India and other key producers, global acreage is projected at a peak in 2022/23.
The IGC Grains and Oilseeds Index (GOI) spiked by 13%, touching its highest in its 22-year history, as the Russia-Ukraine conflict sparked massive gains across grain and oilseed markets.
OVERVIEW
Linked primarily to a solid increase in maize output, but with wheat and sorghum crops also larger y/y, total grains production is forecast at a record 2,284m t (+3%) in 2021/22. With feed, food and industrial uses all expected to rise, world consumption is pegged 2% higher y/y, at 2,278m t. After four consecutive years of tightening, world stocks are forecast to increase by 1%, but with much of the upswing tied to an assumed accumulation in Ukraine. World trade is projected to retreat by 3%, as lost Black Sea exports are not entirely offset by increases from other origins.
Stemming from poor crops in southern hemisphere producers, the 2021/22 world soyabean harvest is seen dropping by 5% y/y. With expanded use in the US and China contrasting with reductions in South American processors, global utilisation could fall for the first time in a decade, while inventories are expected to tighten, led by a drop in the three majors. Trade is forecast to decline for a second consecutive trade year, by 1% y/y, and would be about 10m t below the 2019/20 record.
Tied to expanded food use, coupled with increased feed sector uptake given high prices for traditional ingredients, such as maize, consumption is forecast at a record. Aggregate inventories are predicted little-changed y/y as gains in major exporters offset reductions elsewhere. World import demand is seen at an above-average 51m t, near-unchanged y/y.
MARKET SUMMARY
Amid significant disruptions to Black Sea export programs, the IGC GOI rocketed by 13% m/m, led by very steep gains in wheat, maize and barley.
With worries about tight exporter supplies compounded by Black Sea shipping disruptions, the IGC GOI wheat sub-Index spiked by 21%, but with activity highly volatile at times.
The IGC GOI maize sub-Index soared by a net 21%, reaching its highest since records began (January 2000), as a halt to Ukraine exports sparked rallies at all leading origins.