Poultry and livestock farmers are being advised to keep a close eye on the grain markets and make judicious use of futures to secure their raw materials purchases during any dips in prices.
Substantially lower-than-expected yields from harvests in southern Russia, Ukraine and Kazakhstan will considerably reduce their exportable surpluses and drive commodity prices even higher, warns independent grain market analysts Offre et Demande Agricole.
“In recent weeks, most commentators have focused on the US Department of Agriculture’s downgrading of estimates for world stocks of wheat, corn and soya beans, but that is only one part of a very complex story,” said ODA’s Leo von Kameke. “What people have missed is the dire harvest situation in eastern Europe, where dramatically lower yields look set to have a serious effect.”
In the south of Russia – the country’s largest production area – the harvest is nearly 80% complete, but yields are 25%-30% lower than in 2011. The situation is very similar in Ukraine – where expectations are that production will be approximately 40-50% lower than last year – and in Kazakhstan.
“With Russia’s exportable tonnage likely to fall by more than 50% this year, many people will be comparing the situation to that which we witnessed in 2010 and this has led to fears of another ban on exports,” said Mr von Kameke. “Any announcement of an export ban or tariff would spark further price rallies.”
Russia has already stated its desire to cooperate with the World Trade Organisation, so it would be difficult for them to ban exports entirely. Implementing export quotas, as Ukraine has done in the past, is a more likely approach.
“Lower production throughout the Black Sea region, which will not be offset by increased production in Europe, will result in an overall deficit and wheat will have difficulty in replacing the shortfall in US maize production.
“Only a few months ago, analysts and market operators were hoping that increased wheat and corn production would replenish world stocks to more comfortable levels. However, ending stocks are now being estimated at 315m tonnes, a reduction of some 50m tonnes (15%) in the past two months alone, which is expected to further support prices.”