May 14, 2012

Ukraine, Russia surging in global wheat, corn export markets
 

 

In the coming years, Ukraine and Russia, fuelled by record harvests, are expected to surge to the top ranks of the global export markets for wheat and corn, a development that will open up new investment opportunities in commodities and equities.

 

The surge in Russia, which will see its exports of wheat explode to more than 20 million tonnes this year from four million in the 2010-11 year, is powered by robust production and inventory, rising global demand and lower domestic prices. Meanwhile, Ukraine will jump into the top ranks of corn exporters thanks to favourable climate changes, rising demand and higher prices. A weaker US harvest is also expected to help.

 

"We'll split the export markets between us a bit as Russia will sell more wheat, while for Ukraine, it'll be barley and corn," said Volodymyr Lapa, the general director of the Ukrainian Agrarian Business Club, the nation's leading agricultural lobbyist.

 

"In the midterm perspective, the share of Ukraine, Russia and Kazakhstan in seven to 10 years will grow to 30-35% of global wheat exports," as compared with 12-17% currently, he said.

 

The resurgence of Russia and Ukraine is expected to have a significant medium-term impact on the dynamics of the world's grain markets, including the launch next month of a futures contract for Black Sea wheat. It could also help drive investment to Russian and Ukrainian agriculture-related equities and trigger a round of IPOs in the sector.

 

Russia's agricultural sector has rebounded from a disastrous 2010-11 grain-growing season, ruined by drought, and will export a record 20.5 million tonnes of wheat in the 2011-12 year after only four million in 2010-11, according to the Institute for Agricultural Market Studies. This would return Russia to its 2009-10 rank as the world's second-biggest wheat exporter behind the US Officials projected total wheat production at 56 million tonnes, a strong year, but not a record.

 

Competition will be harsher in the 2012-13 season, with wheat prices expected to suffer from increases in US and EU production that are projected to produce the third largest harvest in history.

 

Global wheat inventory is already at record levels. Yet the Russians say they are confident they will surpass their recent record with exports of 22-25 million tonnes in 2012-13 and remain competitive, even amid a potential supply glut.

 

"We are capable of offering the global market less expensive wheat than competitors," said Arkady Zlochevsky, president of the Russian Grain Union, adding that he expected demand to grow.

 

"Many countries, even the US, have begun using wheat rations as feed, which will boost demand," he said.

 

Also working to the advantage of Russian wheat producers is a Ukrainian government that routinely restricts wheat exports. Keeping domestic bread prices low is among several reasons for the policy.

 

"We essentially gave all our export markets to the Russian Federation and we're seeing that this isn't stopping," said Lapa of the Ukrainian Agrarian Business Club.

 

Ukraine exported 23% of its wheat in 2011-12, compared with 44% in 2009-10, before the export quotas were imposed. As for the 2012-13 marketing year, Russia has suffered far less damage to its winter wheat crop than Ukraine did, which should allow it to maintain its surge in production and exports, Zlochevsky said.