Plummeting yields in Black Sea region increases commodity price volatility
6th August 2012
Substantially lower-than-expected yields from harvests in Southern Russia, Ukraine and Kazakhstan will considerably reduce exportable surpluses from these countries and drive commodity prices even higher, according to Offre & Demande Agricole UK Ltd (ODA), Europe’s leading provider of independent grain market intelligence services to the farming and agri-food industry.
“In recent weeks most commentators have been focusing on the United States Department of Agriculture’s (USDA) downgrading of estimates for world stocks of wheat, corn and soybeans, but that is only one part of a very complex story,” states Leo von Kameke, market analyst for ODA. “What most people have missed is the dire harvest situation in Eastern Europe, where dramatically lower yields look set to have a serious impact on the exportable surpluses from this region and therefore on wheat prices in Europe.
“In the South of Russia, the country’s largest production area, the harvest is nearly 80% complete, but yields are 25%-30% lower than in 2011. The situation is very similar in Ukraine where conditions have been terrible throughout the growing season and expectations are that production will be approximately 40-50% lower than last year, while Kazakhstan has been similarly affected.
Russia, Ukraine and Kazakhstan have traditionally accounted for around 25% of global wheat exports but this is likely to drop to less than 15% during 2012. With Russia’s exportable tonnage likely to fall by over 50% this year, many people will be comparing the situation to that which we witnessed in 2010 and this has led to fears of another ban on exports. Going into the 2010, harvest carry-over of stocks from the previous campaign were much higher.
“The Russian food security committee meets on 8thAugust and any announcement of an export ban or tariff would spark further price rallies. Although it could potentially tax grain exports, Russia has stated its desire to cooperate with the World Trade Organisation, so it would be difficult for them to ban exports entirely. Implementing export quotas, as Ukraine has done in the past and may do again this year, is a more likely approach. However, the government has still to publically acknowledge a shortfall of exportable surplus.
“Lower production throughout the Black Sea region and a decline in exportable surpluses, which will not be offset by increased production in Europe, will result in an overall deficit and wheat will have difficulty in replacing the shortfall in US maize production.
“Only a few months ago, analysts and market operators were hoping that increased wheat and corn production would replenish world stocks to more comfortable levels. However, ending stocks are now being estimated at 315MT, a reduction of some 50MT (15%) in the last two months alone, which is expected to further support prices.
“Shortfalls in production, combined with continued adverse weather conditions throughout key production areas in Eastern Europe and the possibility of political intervention to protect stocks in individual countries, are making markets extremely nervous and increasingly volatile. We recommend that farmers who produce grain should keep a close eye on the markets and take the opportunity to lock into these higher prices when they are at levels which give them an acceptable margin.”
Offre & Demande Agricole UK Ltd operates from Unit 3, Three Hills Farm, Bartlow, Cambridge, CB21 4EN (T: 01223 894791) and Unit 3, Home Farm, Welford, Newbury, RG20 8HR (T: 01488 608191). Further information is available at www.oda-agri.com
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NOTES FOR EDITORS
1.
Media Contact: Julian Cooksley, Kendalls Communications:
T: 01394 610022 E: julian.cooksley@kendallscom.co.uk
2.
Offre & Demande Agricole was established in France in 1997 and is now the European market leader in the provision of timely, accurate and independent grain market intelligence services to the farming and agri-food industry. A private, independent consulting firm, it aims to help both buyers and sellers of agricultural commodities manage market volatility and price risks.
Through the use of advanced in-house information systems and models based on international sources together with real-time crop data from its own farmer network, analysts and research departments which provide independent, reliable and unbiased information and strategies, the company’s team of consultants advise clients how to market their grain in a clear, straightforward way.
The company has a strong track record of consistently improving clients’ profitability through three strategic activities:
Detailed analysis and research of agricultural and associated marketsThe provision of training courses which give attendees the knowledge and skills to take control of their own marketingAdvice and bespoke consultancy/information services for the farming industry and individual customers
In 2009 Offre & Demande Agricole, opened its first UK office at Unit 3, Three Hills Farm, Bartlow, Cambridge, CB21 4EN (T: 01223 894791). A second office was opened recently at Unit 3, Home Farm, Welford, Newbury, RG20 8HR (T: 01488 608191).
Further information is available at www.oda-agri.com
CAPTION
“Many analysts have missed the potential impact of the dire harvest situation in Eastern Europe,” warns Leo von Kameke, market analyst for ODA.
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