The Black Sea region has started a campaign to contract new 2021 crops. Ukrainian farmers seem to be the most active in coming into forward businesses on the Climate Predictability Tool (CPT) for the new harvest, despite the difficulties in covering forward contracts in 2020 due to lower production and soaring domestic prices. They want to benefit from record high purchasing prices. Russian farmers are not actively involved in the new crop sales so far. Svetlana Malysh, Black Sea Agriculture Market Analyst, explains.
- The Black Sea region began selling new 2021 crops, but Russia stepped in to limit grain exports and hold farmers off entering the forward business.
- Record high forward prices for new 2021 crop attract Ukrainian farmers, but not traders.
- Black Sea wheat production prospects in 2021 seen favourable so far with winter crops conditions and spring weather forecast in focus.
The Black Sea region has started a campaign to contract new 2021 crops. Ukrainian farmers seem to be the most active in coming into forward businesses on CPT for the new harvest, despite the difficulties in covering forward contracts in 2020 due to lower production and soaring domestic prices. They want to benefit from record high purchasing prices. Russian farmers are not actively involved in the new crop sales so far.
Bids for Ukrainian 11.5% protein wheat were seen at $230-235 per tonne Free On Board (FOB) for July-August deliveries, while there were few offers exceeding $240 per tonne. Forward FOB prices for Ukrainian 2021 crop are at least 20% over the 4-year average. However, many exporters were not ready to come into forward deals for the new crop, preferring to wait for a clearer picture of the future harvest and willing to avoid the situation in 2020 when they experienced difficulties to cover export contracts due to delays in harvest by over a month.
Farmers have found CPT-Odessa forward prices at $225-230 per tonne (for milling wheat) and $205-210 per tonne (for corn) very attractive. Both of which are at 5-year highs, according to Refinitiv data. Forward prices for the 2021 Ukrainian crop are at least 30% above the 4-year average.
But just a few farmers are ready to conclude deals and provide exporting companies with additional documents to guarantee deliveries in the deferred periods. Ukrainian exporters, who have faced difficulties in covering forward contracts in the current season of 2021/22, are also choosing their supplier for the new crops carefully.
Ukrainian farmers have started new 2021 crop barley sales extremely early – even in December 2020. Farmers are not only captured by the possibility to sell their barley at a price over 40% above the 3-year average, but also to get even higher price with a decent premium as of round $10 per tonne for barley that could be shipped to China.
China’s demand has driven barley prices for the 2021 Ukrainian crop. Contracting of new crop barley to China tends to start only in February, traders said. China has already purchased around 1.8-2 million tonnes of Ukraine’s 2021 barley crop, according to market sources. During July 2020 – January 2021 Ukraine shipped over 2.2 million tonnes of barley to China, which represents over 50% of total shipments in 2020/21 season (July-July) (nearly 4 million tonnes, according to official data). Last 2019/20 season Ukraine barley shipments to China amounted to 350 thousand tonnes, according Refinitiv Trade Flows data.
Ukrainian farmers started to sell 2021 new crop sunflower seed. Bids were seen at $515-520, including VAT, per tonne for October-November deliveries, compared to bids for the 2020 crop, which were reported below $400 per tonne when the purchasing campaign started. Offers for 2021 sunflower seed were reported at $570-580 per tonne.
Although forward prices for new crop sunflower seed were extremely high, just a few farmers could benefit from them.
“High prices for new crop sunflower seed are offered only to those suppliers who have fulfilled their contracts in the current season, and there are few of them”, said one trader from Kiev.
Offers of Russian new crop wheat (2021) are rare in the market due to uncertainty about the size of the export duty after June 30, 2021. Basically, Russia’s steps to limit grain exports in the 2020/21 season already forced many exporters to take wait-and-see positions regarding new crop sales. Many farmers are not considering the possibility to come into forward business for the new 2021 crop yet.
Russia is putting a $25 export tax on wheat since February 15 and export quota for 17.5 million tonnes grains until June 30, 2021 to curb domestic prices. The wheat tax doubled from 1 March 2021. A new floating export tax for Russian wheat was announced starting from July 1, 2021 which already forced Russian farmers to opt for holding off sales of the new crop grains.
Initial forecasts for wheat crop in the Black Sea region in 2021 look quite favourable. Winter crop conditions are good, Ukrainian market operators, polled by Refinitiv analysts, said, but it still requires monitoring.
Thanks to abundant precipitation during January-February 2021, top-soil moisture in some Ukrainian regions improved and exceeded levels seen during the same period last year, when it was seriously lacking. But some southern regions in Ukraine are still experiencing soil moisture deficit.
The main wheat producing regions in Russia are still experiencing a lack of soil moisture. Thus, soil moisture reserves in the South Russia, including Rostov region and Krasnodar Krai, were seen at a 5-year low in the beginning of 2021, and the winter crops conditions concerned if yield potential could reach its maximum after mostly snowless winter there.
Refinitiv analysts currently expect wheat harvest in 2021 for Russia at 78.4 [68.5-91.0] million tonnes, and for Ukraine at 26.7 [21.6-32.3] million tonnes. According to preliminary official data, in 2020 Russia harvested 85.8 million tonnes of wheat, while Ukraine gathered 25.1 million tonnes.
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