Drought and Russian export tax cloud Kazakh trade flows…

By Peter McMeekin

This season’s winter crop harvest in Kazakhstan is all but complete, with a dry seedbed at planting followed by an abnormally warm and dry growing season and numerous dust storms culminating in lower-than-average yields but above-average grain quality in most regions.

As of October 22, Kazakh farmers had reportedly harvested 15.8 million hectares or 99.7 per cent of the forecast harvested area. The Ministry of Agriculture stated that 16.1 million metric tonnes of grains and pulses had been reaped with an average yield of 1.02 metric tonne per hectare.

In the October World Agricultural Supply and Demand Estimates, the USDA pegged Kazakhstan wheat production for the 2021/22 season at 12MMT, down from its September forecast of 12.5MMT. However, this is almost 16 per cent lower than the USDA’s 2020/21 wheat production figure of 14.256MMT. The harvested area is expected to end up at 12.7 million hectares, putting the average yield at around 0.94 metric tonne per hectare.

The season started poorly with an unusually low soil moisture profile, forcing producers to plant deeper than usual in many regions. This resulted in late and irregular emergence in many fields. High temperatures and low rainfall in June led to poor tillering, weak plants and abbreviated stem elongation.

While the result was much lower production year-on-year, 90 per cent of the harvested wheat made food-grade quality, up from 83 per cent last year. The volume of high protein wheat with gluten content exceeding 28 per cent amounted to 74 per cent, up significantly from 60 per cent in 2020. 

The USDA pencilled in Kazakhstan barley production at 2.5MMT in this month’s WASDE update, unchanged from its September number but 31.7 per cent lower than 2020/21 output of 3.659MMT. The harvest area is forecast at 2.2 million hectares, putting yield at 1.14 metric tonne per hectare.

Like wheat, barley production was challenged by a poor soil moisture profile through most of the growing season, with late sown crops performing the best. The practice of “snow fixing” or piling snow in ridges along the high end of paddocks so that it melts and runs into freshly sown fields pushed yields as high as two metric tonne per hectare in some districts of the Akmola oblast in the north of the country.

Domestic consumption of wheat is estimated at 6.3MMT in the 2021/22 marketing year, up from 6.25MMT in 2020/21. Food, seed and industrial use are forecast to be unchanged year-on-year at 4.8MMT, with the balance of 1.5MMT going into the stockfeed sector, up from 1.45MMT last season.

On the barley front, total domestic consumption is forecast to be 2.1MMT. At 1.8MMT, the stockfeed sector is the primary consumer in Kazakhstan, in particular the poultry industry. An additional 0.3MMT goes toward food, seed and industrial uses, with malt production for the beer industry a key end-use.

Lower production means lower exports to ensure domestic demand is satisfied. The Kazakh government has resisted calls from the grain milling industry to introduce export duties on wheat in a bid to limit exports and take the heat out of domestic prices. Nevertheless, Russian imports will certainly be required to meet export forecasts.

According to the USDA, wheat exports will reach 7.4MMT in the 2021/22 marketing year, based on imports from Russia of 0.8MMT. Much of these imports will come from Siberia, where the costs of shipping across the border into Kazakhstan are substantially lower than trucking to ports on the Black Sea or in the far east of the country.

However, the USDA export estimate is much higher than local government and the Foreign Agricultural Service forecasts of around 6.5MMT, both based on imports from Russia of around 1MMT. But that import number is overshadowed by the 2MMT estimate from leading agricultural consultancy firm Sovecon.

The introduction of the Russian export tax has undoubtedly increased the cross-border trade between Russia and Kazakhstan, but it has also led to widescale underreporting of grain movements. There is no requirement for trade within the Eurasian Economic Union (EAEU) to be inspected or weighed when transiting borders, and several Russian news agencies are saying wheat exports to Kazakhstan could exceed 4MMT this season. This led to a recent announcement of plans to inspect and weigh grain shipments transiting the Russia-Kazakhstan frontier.

Taking the USDA import number of 1MMT means that there is potentially an additional 3MMT of 'tax-free' Russian wheat that could be ‘unofficially’ exported out of Kazakhstan as whole grain or as flour to traditional trade partners in the region. Uzbekistan, whose own harvest was 8 per cent below the five-year average, is traditionally the nation’s biggest wheat export customer. It is forecast to import 3.5MMT in the current marketing year, up 20 per cent on the five-year average. They also mill Kazakh wheat for re-export to Afghanistan.

Afghanistan is usually the second-biggest customer, but despite government assurances, the clearing of financial transactions is a big concern under the recently established Taliban regime. Tajikistan and Iran, which we know has a higher-than-normal import requirement this year due to domestic drought, are other likely destinations.

China shares a 1,783 kilometre border with Kazakhstan and is a critical emerging market for Central Asia’s biggest grain producer. However, persistent Chinese limits on rail and truck transport at the Kazakhstan-China border and unilateral COVID-19 quarantine restrictions on incoming trade are frustrating the Kazakhstani government.

In August, Kazakhstan’s rail authority reportedly announced restrictions on accepting cargo bound for the Chinese border, except in containerized shipments through the new transhipment terminal at the Dostyk-Alashankou border crossing. This significantly increases export costs, not to mention the global shortage of containers for such purposes.

There is nothing like a drought, global pandemic, artificial trade barriers and an indignant neighbour to disrupt trade flows. While Kazakhstan will undoubtedly have enough wheat to meet its domestic requirements in the 2021/22 marketing year, the picture for grain imports and exports, in particular wheat, is opaque at best.

Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.