WAR IN THE BREADBASKET OF EUROPE: THE EFFECTS FOR GRAIN AND OILSEED MARKETS
On Wednesday the 23rd of February, a full scale war on the European continent seemed an unprecedented and extreme suggestion by many in both the EU and Kyiv.
By Thursday the 24th of February, that suggestion became a reality. Vladimir Putin’s forces poured across the Russian/Ukrainian border for a ‘special military operation’ which would turn the lives and the economy of one of the world’s key breadbaskets upside down. The economic impact of this is becoming apparent and will most certainly be felt going forward.
Ukraine and Russia have reinforced their respective positions as world leading exporters of grains and vegetable oils in recent years as their production recovered and propelled forwards at a phenomenal pace post the fall of the Soviet Union and subsequent years of mayhem. Both countries were on track to add 50Mmt of wheat, 42Mmt of corn and 20Mmt of sunflower seed to global production since 2010 – 2011 (USDA). For wheat alone, this is 40% of the world’s production growth. Ukraine alone was expected to supply 16.4% of the world’s corn exports in the 2021/22 marketing year. Even more amazingly, Russia and Ukraine were on track to supply 78.5% of the world’s sunflower oil exports – used predominantly for human consumption and increasingly as an alternative to first generation bio diesel feedstocks.
The importance of Russia and Ukraine to global markets can be seen in the recent price rallies in grain and oilseed markets in both the US and Europe. CBOT wheat has rallied by more than 70% this year with prices breaking above US$13.50/bu and passing levels not seen since 2008. Corn has also seen support with prices rallying almost 30% this year. The Euronext milling wheat contract also hit new contract highs passing the €400/t barrier and Euronext rapeseed contract surged to new highs of over €900/t. ICE London feed wheat contract passed values of £315/t. Continuing uncertainty moving forward will sustain the risk premium, especially with the unknowns thus far regarding the export potential and supply from Ukraine and Russia this season which will play an impeding factor in this season’s outlook.
RUSSIA IS ESTIMATED TO HAVE PRODUCED CIRCA 75.5MMT IN 2021/22, WHICH IS CONSIDERABLY DOWN DUE TO DROUGHT, AS IT USUALLY PRODUCES IN THE REGION OF 80-85MM.
USDA expectations were for Ukraine to produce circa 42Mmt of corn in the 2021/22 marketing year with an exportable surplus of 33.5Mmt. This would equate to around 17% of global exports which would make Ukraine the world’s fourth largest exporter. USDA put Ukrainian wheat production for 2021/22 at 33Mmt with an exportable surplus of 24Mmt. This puts Ukraine as the world’s third largest exporter with circa 12% of the global export market. But Ukraine holds the crown for the world’s largest sunflower seed producer with USDA estimates pegging production for 2021/22 at 17.5Mmt, equating to circa 30% of global output.
Russia is estimated to have produced circa 75.5Mmt in 2021/22, which is considerably down due to drought, as it usually produces in the region of 80- 85Mm. Exports for 2021/22 were estimated to be circa 35Mmt which firmly places the crown on Russia as the world’s largest grains exporter holding circa 17 – 20% of global export supply. Russia is also the world’s second largest sunflower producer making up circa 27% of global supply.
4 | ADMISI - The Ghost In The Machine | Q1 Edition 2022
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