Global wheat harvest levels are falling. Currently, the total value is 780,59 million tons, which is 2 million tons lower than forecast in November. The leading countries (Argentina, Australia, Canada, the EU, Russia and Ukraine) will total only 328,72 million tons Wheat collect against the planned 330,8 million tons. Will the current situation affect the agricultural market in Russia, the cost of grain in the Russian Federation and the world?
Risks and Opportunities for Russia
The reduction of wheat harvest leads to a reduction in global supply. Experts from the US Department of Agriculture explain the drop in wheat yields in Argentina by 3 million tons with drought and a reduction in acreage - the worst result since 2014-2015. Canada will collect 1,2 million fewer tons. But Australia is likely to report a 2,1 million tonne increase in forecast yield to 36,6 million tonnes. Yield assessment in Russia (91 million tons), Ukraine (20,5 million tons) and EU countries (134,3 million tons) remained unchanged.
Based on the forecast of the US Department of Agriculture, it is difficult for Russian exporters to call it positive, says IVA Partners expert Artem Shahurin.
“Concurrently with the decline in wheat harvest forecasts in Argentina and Canada, US analysts have upgraded the numbers for the top exporters overall. And exports from Russia grew relatively less than from Australia, Ukraine and the EU. At the same time, the forecast for demand on the world market has been lowered, mainly by consumers from North Africa, who are traditionally large consumers of Russian wheat. Given that the delivery of Russian grain through European ports remains complicated, this could be adversely affected by a drop in Russian grain export prices. However, the general adjustment of the US Department of Agriculture's forecasts is insignificant and there will be no significant effect on the world market,” said the expert.
Nevertheless, against the background of the bumper harvest in Russia, the risk of surpluses in the domestic market is increasing, which in the future can lead to a reduction in the area under cultivation, the expert believes.
“But given the fact that a number of foreign suppliers of grain processing products have left the Russian market, this offers good opportunities to build up internal grain processing in the country. The advantage of our agricultural sector remains the relatively low energy prices and fertilizers, which should also support the sector in the coming years. We also believe that the growth of supplies from Russia to Asian countries will continue with the debugging of logistics chains, but restrictions in the western direction will decrease after some time,” predicts Artem Shahurin.
risk of excess
In the current year, a record harvest and a grain surplus are expected in Russia, says Anna Bujlakova, an analyst at Finam.
“The excess on Grains is also exported. But the export volume could be higher if it weren't for the various limiting factors in the form of indirect sanctions, export tariffs and a strong ruble. The excess product lowers sales prices, making production less profitable, which is negative for manufacturers,” she adds.
According to the analyst, by maintaining this situation, some growers can shift their focus to higher-margin crops.
Benefits for consumers only
“The US Department of Agriculture analysis is about a drop from the forecast a month ago — in November 2022,” argues Doctor of Economics, senior scientist at the Center for Agricultural Policy at the Institute for Applied Economic Research, Denis Ternovsky.
“If we talk about the forecast compared to last year's harvest — the 2021/22 season — slight growth (+ 0,2%) is expected. The future crop of 2023 in Russia is already 2023/24 an agricultural year, which is not included in the current forecast of the US Department of Agriculture,” explains the economist.
In his opinion, there is currently no reason to expect both a record-breaking and a weak harvest: industry forecasts show that it should be close to mid-level.
“The size of the wheat crop has little effect on the domestic market — even in the worst-case scenario, domestic needs are closed and the surplus is exported. What is more important is not the size of the harvest, but the dynamics of world prices. Global grain prices in November were down 1,3% from October, but were up 6,3% from a year earlier, according to the FAO. With the strengthening of the ruble and the continuation of pending export tariffs, business activity in the Russian market is now more favorable for consumers than for manufacturers. Wheat prices are almost 30% below last year's level and approaching 2019 prices,” notes Denis Ternovsky.
Diversification is necessary
The main conclusion of the US Department of Agriculture is that in the world there is a tendency to reduce wheat production, comments Catherine Kosareva, managing partner of the analytical agency «OT Consulting».
"According to the laws of the market, with a decrease in supply, an increase in price will inevitably follow — demand will remain at the same level," she believes.
According to the expert, the reasons include the reduction in acreage and natural anomalies.
“At the same time, Russia is one of the best-equipped countries in terms of food security. In 2022, 150 million tons of grain were collected in Russia, 2/3 of the harvest fell on wheat of different varieties. For the first time, all sunflower processing capacities have been filled. This is in many ways a credit to the support of the agro-industrial complex. From the latter: the maximum size of the so-called short credit has increased from 500 to 800 million rubles, support for citizens running private housekeeping is being actively worked on, brands from the Russian market through suppliers from China, India and Turkey to replace. The share of seed harvest is gradually increasing and the share of imports is decreasing — this is traditionally a weakness of Russian agriculture. The country's domestic needs are closed, the surplus, depending on the harvest, is sent for export. Among the stable buyers of Russian grain is China, and sanctions are practically non-existent for wheat.”
However, according to the interlocutor of "Izvestia", another factor is at work: due to the excessive strengthening of the ruble, the sale of wheat can be disadvantageous for growers.
“The exit for such and any kind of poorly processed products is one – to invest in the development of processing and to sell already processed products for export. In my opinion, it is quite appropriate to consider an option with a mechanism for exchanging investment quotas, which has worked so well in the fishing industry,” summarizes Ekaterina Kosareva zusamm.
Source: Zerno.ru (Russian)