The situation in Ukraine is escalating, affecting not only the wheat supply of Russia and Ukraine, but also the wheat supply in other parts of the world.
According to foreign media reports, driven by the recent rise in global wheat prices, Canadian farmers are considering increasing wheat planting area. “There is no doubt that the current rise in wheat prices is affecting farmers’ sowing plans,” said Stephen vandervalk, vice president of the Western Wheat Growers Association of Canada Neil Townsend, chief market analyst at FarmLink, said farmers would give way to wheat on farmland that should have grown oats and beans. As one of the world’s largest wheat exporters, the planting area of spring wheat in Canada may increase by 2% ~ 3%.
Not only that, EU agriculture ministers will also discuss in the near future whether farmers will be allowed to use 10% of their normally fallow land to increase wheat production.
Wuchan Zhongda Group Co.Ltd(600704) futures senior analyst Xie Wen said in an interview with China business that the situation in Ukraine is an important variable affecting wheat supply and price. If the situation further escalates, there is a high probability that wheat prices will remain strong under the condition of market sentiment and tight wheat supply. However, as the dry weather will continue until May, it is estimated that the subsequent wheat yield is more likely to be injured.
why does the rising price of wheat affect the planting plan
Lu Pin, Shenzhen Agricultural Products Group Co.Ltd(000061) analyst of Everbright futures, said in an interview with China business news that the reason why many farmers intend to plant wheat is not only that the current wheat price has soared, but also that its price has risen more than beans, oats and other varieties. This means that farmers will get more benefits from planting wheat.
The latest data released by the UN Food and Agriculture Organization showed that the food price index hit another record high in February, of which the world wheat price rose by 2.1%. On the 7th, Chicago wheat futures rose to $12.94 a bushel, the highest level since 2008, up nearly 70% from a month ago. In contrast, soybean prices rose only 14%.
Xie Wen said that as the situation in Ukraine is still tightening, it will not only affect the wheat harvest in Russia and Ukraine, but also affect the transportation and wheat export in the Black Sea region, which means that the global wheat supply is difficult to repair in a short time.
According to market research firm uncomtrade, wheat exports from Russia and Ukraine account for nearly 30% of the European (EU and UK) market. At present, the spring grain planting season in Russia and Ukraine is coming, but the sowing progress of wheat crops in Russia in 2022 is less than 30%. At the same time, some winter wheat planted in Europe could not be harvested due to the escalation of the situation in Ukraine.
As of the 7th, Ukraine’s main export ports had not been operated, and major Shenzhen Agricultural Products Group Co.Ltd(000061) traders including Archer Daniels Midland and Bunge still shut down their business in Ukraine.
“I don’t think any shipowners will risk sending their ships to the Black Sea area,” said sizov, managing director of sovecon, a black sea agricultural research company Dennis voznesenski, an agricultural analyst at Rabobank, said exports from the Black Sea region would remain “stagnant” in the short term due to shipping congestion and high ship insurance costs.
In addition, Chris Lawson, head of fertilizer research at crugroup, a consulting firm, also said that affected by inflation and the situation in Ukraine, the price of fertilizer has been rising recently and will approach the historical price in 2008, which will increase the planting cost of Shenzhen Agricultural Products Group Co.Ltd(000061) , “Farmers in many countries around the world are feeling increasing cost pressure, which makes them need to think about how to reset their planting mix.”.
Russia is the world’s largest exporter of chemical fertilizer, and potash fertilizer accounts for about 20% of the global supply. The exports of Russia and Belarus account for about 40% of the total global potash fertilizer exports. According to market research firm Greenmarkets, the weekly index of North American fertilizer prices rose to US $984.72/ton in the week ending on the 4th, up 75% year-on-year. According to S & pgglobal, chemical fertilizer accounts for a high proportion of the planting cost of some crops. For example, the cost of chemical fertilizer for planting corn accounts for nearly 40% of its operating cost.
expert: weather may increase the risk of wheat supply
However, van der wak believes that even if farmers in some areas are increasing wheat planting area, the global wheat supply will still tighten due to the current low global wheat inventory. “Stocks are insufficient to support Canada’s additional wheat exports until growers harvest new crops.” He said.
Due to the extreme high temperature in North America last year, as the world’s major wheat exporter, Canada’s harvest has decreased significantly. Phil speiss, a commodity futures broker at rbcdominion securities, a financial institution, estimates that the dry weather has reduced grain production in western Canada by about 40%.
According to the International Grain Council (IGC), by the end of 2021 / 2022, the inventories of major wheat exporting countries (i.e. EU, Russia, the United States, Canada, Ukraine, Argentina, Australia and Kazakhstan) will fall to a nine-year low of 57 million tons.
David Laborde, a senior researcher at the International Food Policy Research Institute, said that the real test for the global wheat market may still be four months later, as there will be a new wheat harvest season. “If the situation in Ukraine continues, the wheat cannot be harvested, or the port facilities and railways are damaged, the situation will be particularly pessimistic.” He said.
In Xie Wen’s view, in addition to the situation in Ukraine, weather factors will become the biggest risk of wheat supply in the future. If the weather conditions are unfavorable, it will have a great impact on wheat yield.
The weather forecast shows that the drought in the Midwest and western plains of the United States is becoming more and more serious, and the dry weather is expected to last until May. According to my Shenzhen Agricultural Products Group Co.Ltd(000061) remote sensing broadcast by the weather prediction agency, up to now, 79.26% of the sectorau area is in the level of moderate drought to severe drought. Meanwhile, 75% of the winter wheat in Texas in the southern region is rated as “very poor” due to the scarcity of precipitation. This means that there is a greater possibility of subsequent wheat yield injury.
The United Nations World Food Program warned that if wheat supply is greatly affected in the future, wheat importing countries such as Egypt may be the most “injured”. Last year, the agency purchased less than 1.4 million tons of wheat for distribution to poorer countries. Among them, 70% of these wheat come from Russia and Ukraine.
Alexander karavaytsev, senior economist at IGC, said that in view of the shortage of wheat supply, Kenya and other countries are considering establishing a wheat reserve system to avoid supply risks.
