It's early days but this seasons Black Sea Crop is unlikely to beat last years

By: "Farm Tender" News
Cattle News
May 10, 2018
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The pressure placed on Australian growers from international competitors such as the Black Sea, which operates with the benefit of more favourable grain-growing conditions and access to increasingly efficient and lower cost supply chains, are well documented.

For some time now, we’ve been talking about the increasing significance of producers from the likes of Russia and the Ukraine, operating with the benefit of more favourable grain-growing conditions and access to increasingly efficient, lower cost supply chains.

As crops from the Black Sea region emerge from winter dormancy in what many industry commentators anticipate will be in generally good condition, it’s worth taking a closer look at the region and the implications for global markets.

At this stage, we’re anticipating plantings in Russia will be up slightly on previous years driven by strong global demand and generally positive returns - particularly for growers in southern regions. These are the grain growing provinces with excellent soil conditions and located closer to all-important export terminals. And a lower rouble may encourage growers to increase their ‘sprint planting campaigns’ (over and above winter wheat already in the ground) in the lead up to the harvest period.

For the Ukraine, while there are reports of some shift to corn or barley, particularly for growers’ spring plantings in order to capitalise on strong demand from the European Union and China, we’re anticipating generally similar production volumes to previous years.

To give you a sense of context, favourable weather conditions saw Russia produce a record 85 million tonne wheat crop for the 2016/17 season, compared to 72.2 million tonnes in 2015/16.

It’s a little early to be making any bold predictions for the 2017/18 Black Sea crop but talk of less than favourable conditions in isolated areas of Russia suggest beating last year’s record is unlikely. Initial estimates for the Russian wheat crop are for around 75 million tonnes and 26 million tonnes for the Ukraine.

However just like the August-September period is critical for the Western Australian crop - weather conditions in the Black Sea throughout May-June will be critical in determining final yields.

So, what does that mean for Australian growers?

With Black Sea production in recent years being surplus to domestic requirements, volume out of Russia and the Ukraine has captured an increased share of global markets from traditional origins of supply out of the United States, European Union and Australia. Its lower pricing point is providing a compelling case for flour millers, already familiar with using Black Sea wheat in their production processes, to continue sourcing wheat from the region.

The pricing spread between Black Sea wheat and other origins of supply is becoming an increasingly relevant marker of whether a certain origin is over, or under-valued. And a continued program to enhance on-farm practices throughout Russia and the Ukraine coupled with ongoing improvements in supply chain infrastructure means wheat from the region will continue to provide formidable competition into our traditional markets across Asia.

The months ahead are likely to see increased volatility in agricultural commodity pricing as markets consider the weather and its effect on both northern hemisphere crops and seeding conditions in Australia.

And the back and forth between the US and China on trade will have further implications for market sentiment creating a broader level of unpredictability. It’s worth therefore keeping an eye on things over the coming weeks.

In the meantime, have a chat with your local CBH Business Relationship Manager if you have any questions regarding what this might all mean for the 2018/19 season.

https://www.cbh.com.au/