Season 2021/22 for early grains has ended in Ukraine. In the first half of the season, there were news about a record production of wheat and a high barley crop as well as about plans to achieve new records in exports, while, in the second half, the military invasion of Russia on the territory of Ukraine changed everything dramatically. Disruption of supply chains of agricultural products on the domestic market, significant increase of transportation costs, shutdown of Ukrainian seaports, which accounted for about 99% of total grain export resulted in the paralysis of the supply of grain to the foreign markets, significant decrease of wheat and barley prices on the domestic market and expectations of high wheat carry-over stocks. Additionally, in the conditions of martial law, planted area under spring crops has been decreased, which would further lead to a significant fall in grain production and export potential in 2022/23 MY.
The article will reveal how the difficulties listed above affected the results of 2021/22 MY for early grains as well as how Ukrainian farmers are adapting to new realities and what market participants can expect from the new season.
Wheat: results of 2021/22 MY
In 2021/22MY, Ukraine produced record 32.2 mln tonnes of wheat, up by 29% y/y. The higher crop was based on extension of a planted area by 8% to 7.1 mln tonnes as well as significant improvement of wheat yields to a record 4.53 t/ha, up by 19% y/y. It was expected that Ukraine would export record high volume of wheat. However, the war started by Russia against Ukraine on February 24, 2022 prevented the plan from realization. Russian shelling resulted in closure of Ukrainian ports of Azov and Black seas, and wheat supply to the external markets virtually stopped, as the main buyers were North Africa, Middle East as well as Southeastern and South Asia, where grain should be transported by sea.
According to APK-Inform, Ukraine exported only 18.7 mln tonnes of wheat in 2021/22 MY compared to 22.5 mln tonnes expected in early February. However, the final volume of export turned to be higher by 13% than in 2020/21 MY (16.6 mln tonnes).
Egypt and Indonesia have been the largest importers of Ukrainian wheat for many seasons. In 2021/22 MY, their shares totaled 16% and 14% correspondingly in the overall export of Ukrainian wheat. Egypt increased purchases by 19% y/y, and Indonesia by 2%.
Turkey took the third position in the list of TOP importers of Ukrainian wheat in 2021/22 MY. It more than doubled purchases to 1.9 mln tonnes, and its share increased from 5% to 10%.
Pakistan imported about 1.5 mln tonnes of Ukrainian wheat in 2021/22 MY (8% share). It increased import by 5% y/y.
Moreover, Ukraine sizably raised supplies of wheat to Saudi Arabia (up by 5 times) – form 154.4 thsd tonnes in 2020/21 MY to 750.8 thsd tonnes in 2021/22 MT.
TOP-5 importers accounted for 52% of the total export of Ukrainian wheat in 2021/22 MY.
However, inability to perform wheat export potential in a full way resulted in formation of high carry-over stocks of the grain in Ukraine in 2021/22 MY. We estimate the stocks at 5.3 mln tonnes, up by 2.5 times y/y. Thus, high wheat stocks will continues pressuring prices, Ukrainian farmers will not get full revenues as well as storing capacities for next crop will be limited.
Barley: results of 2021/22 MY
In 2021/22 MY, Ukraine harvested good barley crop at 4.9 mln tonnes, up by 24% y/y. A planted area increased by 3% y/y to 2.5 mln tonnes, and the yields grew by 19% to record 3.82 t/ha.
Barley export potential was performed almost in a full way before the Russian invasion in Ukraine (95% out of expected in February 6 mln tonnes). In 2021/22 MY, Ukraine shipped 5.8 mln tonnes of barley, up by 37% y/y.
China was the largest importer of Ukrainian barley for the second season in a row. Its share totaled 45% in the overall shipments. China bought 2.6 mln tonnes of Ukrainian barley last season, down 10% y/y. Turkey took the second position in the list of importers with the share of 19%. The country increased purchases by 48 times – from 22.9 thsd tonnes to 1.1 mln tonnes. Libya imported 443 thsd tonnes if Ukrainian barley (8% share), up by 50% y/y. Shares of other destinations for Ukrainian barley were less than 7%.
As Ukraine managed to perform barley export potential almost in a full way, we estimate its carry-over stocks at 5 years average of 1.1 mln tonnes at the end of 2021/22 MY. Thus, the stocks will not have significant influence on barley distribution next season.
What to expect in 2022/23 MY for early grains?
Traditionally around 42-43% of grain harvest in Ukraine account for winter crops. The biggest share in total production of wheat amounts to winter wheat (over 95%), and spring barley production in recent years was higher than winter production. Thus, areas under winter grains totaled 7.6 mln ha for crop-2022 (-7% year-on-year), including areas under winter wheat – 6.5 mln ha (-5% y-o-y), winter barley – 969 thsd ha. Unfortunately, despite the fact that these plantings were formed before the war, the military activity in Ukraine can lead to considerable decrease in harvesting areas under winter grains.
Speaking of spring grains, under shelling and with great difficulties in the supply of planting material and basic resources, according to our estimates, in 2022 farmers planted 6.4 mln ha with spring crops (-17% compared to 2021), of which 190 thsd ha with spring wheat (+1% y-o-y) and 955 thsd ha with spring barley (-29% y-o-y).
As of today, in the majority of regions in Ukraine the harvesting campaign has started. Before the harvesting campaign, in May-June, APK-Inform has conducted a survey among Ukrainian farmers to know what difficulties they have already faced or will have to face to harvest crop-2022 during war, as well as what is the condition of wheat and barley crops.
According to the survey, despite the difficult situation in the country the lion’s share of farmers left the structure of sown areas under earlier grains unchanged, and 9% of respondents, who planned to plant spring wheat, and 11% who planned to plant spring barley even increased the areas under these crops.
Many agri-enterprises at the beginning of war gave their stocks of fuel for the Ukrainian Army Forces, and taking into account current deficit and high price for the fuel, 62% of respondent have problems with purchase of fuel and 27% respondents replied that it is quite difficult to buy fuel and lubricants but they will manage. Also, due to damaged logistics and lack of finances 68% of agriproducers had difficulties with the supply of fertilizers, 62% - with the purchase of plant protection products, and 46% - with the supply of spare parts.
We should note that the surveyed farmers had the lest difficulties with the supply of spare parts (54% of respondents) and plants protection products (38%), since most of them had purchased them in advance and were in warehouses.
As for the harvesting and further storage of new crop, most of the respondents noted that they may have problems with harvesting, and in particular many enterprises have the acute problem with the purchase of fuel for harvesting. Also, it is important to promptly solve the problem with storage of new crops, because the facilities the enterprises have are full with crop-2021 due to limited exports (the carrying capacity of the railway systems of Ukraine and neighboring countries is significantly inferior to the sea ports, which remain blocked).
The condition of wheat and barley plantings in Ukraine before the start of harvesting campaign: favorable weather conditions during winter and spring made it possible for winter crops to overwinter well, and also to accumulated the necessary amount of moisture in the soil for spring wedge. Thus, according to the survey, before the harvest 46% of wheat plantings and 62% of barley were in good and excellent condition, and 53% of wheat and 38% of barley in fair condition. Such indicators give hope for a good harvest of early grains.
Taking into account all the above mentioned, APK-Inform analysts forecast wheat production in 2022/23 MY at 18.2 mln tonnes, down 43% compared to previous season. Domestic consumption of the grain is forecasted at 8.5 mln tonnes, which corresponds to average amount of the previous three seasons. Due to forecasted decrease of production and lack of opportunity to deliver grain to the foreign market by sea, using Ukrainian ports for this, the export potential may total 12.0 mln tonnes, which is 41% below the result of 2021/22 MY.
In 2022/23 MY barley production is expected to reach 5.3 mln tonnes which is 44% lower compared to previous MY. It should be noted that this volume of the crop will be enough to cover domestic demand (3.5 mln tonnes) and to export 1.5 mln tonnes (-74% y-o-y).
Thus, the decrease of Ukrainian wheat and barley exports as a result of lower production will reduce the presence of our country on the markets of main importers, and buyers will have to look for alternative grain suppliers to cover import needs.