Global grain markets in disarray after Russia-Ukraine conflict

 

The Ukrainian export forecast for grains (mostly wheat and corn) wassharply revised down this month , but the Russian coarse grain export forecast was not revised
.
The sharp reduction in Ukraine's corn exports is bound to trigger substantial changes in the global corn market
.
The decline will be partially offset by higher exports from other major corn suppliers, with U.
S.
corn exports rising the most, up 2.
0 million tons from the previous month
.
But this also cannot make up for the loss of all Black Sea corn exports, leading to lower global corn trade, which, combined with fairly low global corn inventories in major exporters and geopolitical uncertainty, has sent grain prices soaring
.
A sharp rise in prices would result in a rationing of demand, reducing imports in some countries
.

 

This month's USDA adjustments to U.
S.
corn supply and demand for 2021/22 include higher exports and higher ethanol industry usage
.
The annual average price for 2021/22 is raised $0.
20 to $5.
65 per bush
.
Average annual prices for U.
S.
sorghum, barley and oats were also raised from last month
.

 

　　Global Trade Outlook

　　Global grain market volatility intensifies as geopolitical disruption

 

　　The most important development affecting the global feed grain market in recent weeks has been the outbreak of military conflict in Russia and Ukraine, two important grain producers and exporters, disrupting physical, logistical, human and market assets in the Black Sea region, home to the global wheat, An important source of feed grain and sunflower seed products
.
The conflict has raised uncertainty about the state of agricultural supply and demand in the region and globally
.
Russia is less affected, but the Russian economy is being hit by Western economic sanctions
.
Our forecasts for trade, domestic use, and inventories of grains and other agricultural products this month are based on an update on current economic and agricultural conditions in Russia and Ukraine
.
Future developments will continue to be reflected in future supply and demand reports
.

 

　　Coarse grain exports for Ukraine are lowered, but no adjustment for Russia

 

　　A pressing concern is Ukraine's ability to export surplus grains for the remainder of the 2021/22 season (October-September)
.
Under normal (peaceful) conditions last month, we expected Ukraine to export 33.
5 million tons of corn
.
Ukraine has exported more than 17 million tonnes of corn so far this year, with another 16 million tonnes available for the remainder of the year
.

 

　　We lower Ukraine corn exports to 27.
5 million tons this month, down 18% from the previous month
.
There are at least three reasons for the downward revision in exports
.
First, military operations are expected to damage some grain stocks - such as reports of grain silos being hit by artillery fire
.
Second, Ukrainian infrastructure was damaged by artillery fire, making it difficult or impossible to transport stored grain to export ports in the Black Sea
.
The third and most important reason is the closure of Black Sea ports, which Ukraine shut down to commercial shipping almost immediately after the conflict broke out
.
Insurers see the Azov and Black Seas, including waters close to Romania and Georgia, as high risk, causing premiums to soar
.
The ports themselves also became front lines, with Russian ground forces and navies blocking (and bombing) the ports
.
Most of Ukraine's grain is exported from the Black Sea
.
Fewer exports mean more corn will remain in Ukraine, half of which is not expected to be exported anytime in the future as some supplies are either destroyed or become unfit for consumption
.
Other corn is expected to be put into storage
.
Ukrainian barley exports are expected to decline in line with lower production, down 0.
2 million tons from last month to 5.
8 million
.
The small reduction is due to the fact that Ukraine has shipped 95 percent of its barley exports since the season began in July, leaving only 300,000 tons to ship
.
Exports of the remaining coarse grains -- sorghum, oats, and rye -- are lowered slightly
.

 

　　Forecasts for Russian corn and barley exports are unchanged this month
.
Despite tensions and rising insurance rates for navigating the Black Sea, Russia can (in the short term) export corn and barley to Iran via the Caspian Sea (actually a large lake that doesn't lead to the ocean) and to nearby Turkey
.
Small changes in the supply-demand balance for corn and barley in Russia reflect an eventual adjustment in production
.
One factor that has helped Russian and Ukrainian exports is the devaluation of their currencies
.
By early March, the Russian ruble had lost more than a third of its value against the dollar year-on-year
.
The Ukrainian hryvnia depreciated 9% against the dollar over the same period
.
The currency devaluation has made the products of both countries more competitive relative to the United States and other rivals
.

 

　　Global corn market is adjusting to lower Black Sea exports

 

　　A sharp drop of 6 million tons in Ukrainian corn exports is set to trigger substantial changes in the global corn market, which is expected to be partially offset by higher exports from other major corn suppliers
.
But any increase in other exporters won't fully make up for lost Black Sea exports, so this month's global corn trade has been revised down by 2.
4 million tons.
Combined with fairly low corn inventories in major exporters and geopolitical uncertainty, the Cereal prices soared, which in turn restrained demand and reduced imports in some countries
.

 

　　Before the Russian-Ukrainian conflict erupted, Ukraine was expected to be the world's third-largest corn exporter, after the United States and Argentina
.
Ukraine is expected to account for 17% of global corn trade
.
In recent years, the main markets for Ukrainian corn have included China, the European Union, Egypt, Iran and Turkey; in addition, small amounts of corn have been exported to North Africa, the Middle East and other countries in Asia
.

 

　　While China and the European Union are the top destinations for Ukrainian corn, imports are not currently expected to decline
.
Iran, another major importer of Ukrainian corn, has also not lowered its corn imports this month because of the potential for Iran to get more corn from Brazil and Russia (as mentioned above, Russia can export to Iran through the Caspian Sea, thus avoiding encounters in the Black Sea).
to any trouble)
.
But corn imports are expected to fall the most in price-sensitive developing countries such as Egypt, Algeria and Turkey
.
Tunisia and Lebanon were also lowered
.
Israel's corn imports are also lowered, resulting in about half of the corn normally imported from Ukraine
.

 

　　Coarse grain exports from all other major corn exporters (the United States, Argentina, Brazil and South Africa) are expected to increase after a sharp drop in Ukrainian corn exports boosted global prices soaring
.
With global corn prices rising this year, India will join the ranks and export more corn
.
The US, currently the only major corn exporter with sufficient stocks, raised its export forecast this month by 2 million tons to 63.
5 million (equivalent to an increase of 75 million bushels to 2.
5 billion)
.
Argentina and Brazil will return to export markets later this year, with Argentina starting in April and Brazil starting the second crop in July
.
Corn exports from the two countries are expected to increase by 500,000 tons in 2021/22
.
South Africa will harvest corn in May-June, and although the corn production forecast was lowered this month, the export forecast was raised by 300,000 tons
.
India's corn production is raised sharply this month, and exports are up 300,000 tons
.
Despite lower exports from Ukraine, global barley trade is raised this month as exports from Australia and Canada are expected to rise
.

 

　　In terms of imports, Saudi Arabia is expected to import an additional 500,000 tons of barley
.
Thailand's barley imports are lowered 0.
4 million tons based on data through February
.
U.
S.
barley imports are raised 50,000 tons (from Canada)
.

 

　　U.
S.
Domestic Outlook

　　Global grain prices are high, and domestic spot prices in the United States are soaring

 

　　The U.
S.
corn and feed market is highly integrated with the global agricultural market
.
Since the Russian-Ukrainian conflict on February 24, global grain and oilseed prices have risen sharply, both in spot prices and in financial derivatives markets such as futures contracts
.
Moreover, market movements have been highly volatile, changing sharply on a daily or even hourly basis, as geopolitical uncertainty exacerbates the relative strain on global food supplies
.
Export prices of Ukrainian corn rose 12 percent between February 1 and March 1, according to the International Grains Council
.
But price increases were not confined to the Black Sea, with Argentine corn (+15%), French wheat (+26%) and Australian barley (+7%) all rising over the same period, reflecting broad geographic and cross-commodity effects
.

 

　　Spot offers for domestic feed grains in the United States are also rising sharply
.
Corn prices at U.
S.
Gulf export terminals have risen above $8.
00 a bushel in March
.
Spot prices for corn and other feed grains have followed suit in many inland markets
.
Global market factors are now expected to be an important factor affecting the market outlook in 2021/22 as the market reacts to the changing situation in Ukraine
.

 

　　Spot movements across the country are currently not in lockstep, as reflected in the divergent basis reported by the USDA Agricultural Marketing Service (AMS)
.
Due to different market fundamentals (such as proximity to major consuming areas such as crushing plants and livestock farming), coupled with volatility in the futures market, prices have reacted differently in different parts of the United States
.
Basis movements at the U.
S.
Gulf Export Terminal are closest to global market trends, resulting in stronger basis in the U.
S.
Gulf, but have weakened sharply in many markets in the Midwest Corn Belt as local market fundamentals become a more important factor in price action
.
While prices have risen since the Russian-Ukrainian conflict, price increases have been mixed across the United States
.

 

　　2021/22 U.
S.
corn use forecast raised on higher demand for U.
S.
corn

 

　　The USDA this month raised its forecast for U.
S.
corn exports in 2021/22 (September-August) by 75 million bushels to 2.
5 billion
.
The U.
S.
had shipped 863 million bushels of corn to overseas markets as of January, up slightly from 861 million bushels during the same period in 2020/21, according to the Commerce Department's Bureau of Statistics and Investigations
.
However, the peak period for U.
S.
exports usually occurs between March and June
.
Export sales released by the U.
S.
Department of Agriculture's Foreign Agricultural Service showed that the amount of corn sold but not yet shipped was lower than a year earlier
.

 

　　The USDA also raised its use of corn for fuel ethanol production to 3.
35 billion bushels this month, up 25 million bushels from February
.
Starting in 2021/22, U.
S.
ethanol production has increased significantly, mainly due to higher supply in 2021 and a steady recovery in U.
S.
domestic gasoline demand
.

 

　　In the early 2021/22 season, lower corn prices and higher fuel prices led to strong operating profits for dry-milled ethanol plants in the fall
.
But gasoline and ethanol inventories have risen sharply since January, coinciding with the increase in the rate of new crown infections caused by the Omicron mutant strain
.
While the surge in inventories could lead to lower profit margins, global crude oil prices have risen sharply since February 24, 2022, when the Russian-Ukrainian conflict broke out
.
Therefore, despite the short-term disruption to gasoline demand caused by the recent rise of the new crown epidemic in the United States, the underlying fuel and energy demand helps ethanol production profits remain attractive
.

 

　　Food, seed, and industrial use (FSI) of U.
S.
corn in 2020/21 is projected at 6.
470 billion bushels, with ethanol industry use estimated at 5.
032 billion bushels, both figures raised 4 million bushes from February
.
Feed and other use is lowered 4 million bushels to 5.
598 billion with ending stocks unchanged
.

 

　　2021/22 corn ending stocks lowered, prices higher

 

　　U.
S.
corn ending stocks for 2021/22 are projected at 1.
44 billion bushels, down 100 million bushels from February due to higher use and unchanged supply forecasts
.
The 2021/22 U.
S.
annual farm average corn price is forecast at $5.
65 a bushel, up $0.
20 from February
.
The average price of corn sold by U.
S.
farmers in January 2022 was $5.
47 per bushel, according to the NASS Agricultural Price Report released on February 28, 2022
.
Historically, most U.
S.
corn was marketed between September and January
.
The average corn farm price was raised this month in a rush to historical sales patterns and the potential for farmers to sell for higher prices
.

 

　　2021/22 sorghum supply and use forecast unchanged

 

　　This month, the 2021/22 sorghum supply and use forecast remained unchanged, with sorghum production at 448 million bushes, use forecast at 435 million bushes, and exports at 310 million bushes, unchanged from last month
.
For the first five months of 2021/22, U.
S.
sorghum exports totaled 96 million bushels, down from 164 million bushels in 2020/21
.
The 2021/22 U.
S.
sorghum exports are mainly to China, followed by Mexico
.
While still on track to meet the target, year-to-date exports are lower than a year earlier as competition intensifies due to higher production from rivals, mainly Argentina and Australia
.

 

　　U.
S.
sorghum FSI use for 2020/21 is lowered 3 million bushels to 6.
8 million bushels
.
Feed and other use is raised 3 million bushels to 92 million bushes
.
Feed and other use for 2021/22 remains unchanged at 115 million bushels
.

 

　　The 2021/22 U.
S.
sorghum farm average price is forecast at $5.
80 a bushel, up $0.
35 from February
.
Monthly farm prices for sorghum have continued to increase since the beginning of the year, with the national average price of $6.
05 per bush in January 2022
.

 

　　2021/22 U.
S.
barley supply and demand unchanged, prices hiked

 

　　U.
S.
barley supply and demand for 2021/22 (June-May) have not been adjusted
.
U.
S.
barley production is forecast at 118 million bushels, unchanged from February but well below 2020/21
.
The total U.
S.
barley supply of 198 million bushels is also the lowest in at least four decades due to dry weather in key barley producing regions during the summer of 2021
.
Barley use in 2021/22 is unchanged at 130 million bushels
.

 

　　The average farm price for barley in 2021/22 is forecast at $5.
25 a bushel, up from $5.
15 forecast in February and the highest since 2015/16
.
Strong demand for feed grains amid tight barley supplies, coupled with recent global geopolitical tensions, have supported spot barley prices so far this year
.

 

　　Oat prices increased for 2021/22

 

　　The U.
S.
oat supply and demand forecast for 2021/22 has not been adjusted this month
.
U.
S.
oat ending stocks in 2021/22 are expected to be 127 million bushels, down from 150 million bushels in 2020/21, with an annual average price increase of $0.
20

 

　　Cereal consuming animal units lowered for 2021/22

 

　　U.
S.
grain consuming animal units (GCAUs) are forecast at 100.
5 million in 2021/22, down from 101.
2 million in 2020/21 and the lowest since 2018/19
.
GCAUs in 2018/19 were 100.
7 million
.
The GCAU high before 2018/19 was 98.
8 million
.
From 2018/19 onwards, developments in the pig and cattle industry led to a jump in GCAU
.
Despite this year's decline, it remains at an all-time high
.

 

　　Feed and other supplies of feed grains and wheat are forecast at 149.
5 million tonnes, down slightly from 149.
6 million tonnes in 2020/21
.
Supplies are raised for corn, sorghum, and barley, but lower for wheat and oats
.

 

　　International Outlook

　　Global coarse grains production expected to rise in 2021/22

 

　　This month, the forecast for global coarse grain production in 2021/22 was raised by 1.
5 million tons to a total of 1,498.
9 million tons
.
Improved corn production prospects in India and Russia, as well as improved barley and sorghum production in Australia, more than offset lower corn and barley production reductions for Argentina and South Africa, as well as small reductions in the European Union and Ukraine
.
U.
S.
coarse grain production data is not adjusted for this month
.

 

　　The biggest production adjustment this month is a 2.
5 million-ton increase in India's corn output to 32.
5 million
.
The second forecast released by India's Agriculture Ministry showed that corn production reached a record level on the back of record yields and an increase in harvested area
.

 

　　Australia's barley production forecast was raised 700,000 tonnes to 13.
7 million, on higher plantings and a record yield, in line with the latest report from the Australian Bureau of Agricultural Resources Economics and Sciences (ABARES)
.
The outlook for Australian sorghum production is good, with a 300,000-ton increase this month to 2.
3 million, close to the 2007 record
.

 

　　South Africa's coarse grain production was lowered this month, in line with South Africa's first official production forecast, with small adjustments for corn, barley and sorghum production
.
The country's two consecutive years of "La Niña" have resulted in dry weather in some areas and excessive rainfall in others
.
This unusual weather phenomenon usually affects South African corn production
.
South Africa's corn production is lowered 0.
7 million tons this month to 16.
3 million, while barley and sorghum production is also down slightly
.

 

　　Argentina's corn production is lowered 1 million tons this month to 53 million
.
Continued high temperatures and limited soil moisture reserves have a great impact on the corn crop currently in the flowering and heading stages
.
Argentina's corn yield is set to fall to its lowest level in four years
.
Rainfall in northeastern Argentina helped to alleviate some of the poor growing pressure
.
Lower yields were partially offset by a higher corn area this month
.

 

　　No adjustments have been made to Brazil's 2021/22 corn production this month
.
Brazil's first season of corn (-about a quarter of the total annual corn production) is planted in September-October
.
However, hot and dry weather during the critical pollination/grain filling stage significantly deteriorated the outlook for the first corn crop
.
At present, about a quarter of the first season corn has been harvested, and some is used to make silage
.
Brazil's second-crop corn (safrinha) planting progress is at an all-time high and is now nearing completion, especially in areas such as Mato Grosso, where planting progress is far ahead of the previous year
.
Second-crop corn planting progress in the rest of Brazil is higher than last year and above the five-year average
.