“The latter half of the current marketing year promises no surprises because the Black Sea region has already realized the lion’s share of its export potential. More interesting is to look into the next season 2019/20. Quite mild winters observed in recent years along with the use of up-to-date growing practices gives every reason to believe that the Black Sea region will not only get another good wheat crop but also sell it at good prices.”
Dr. Sergey Feofilov
General Director, Ph.D,
The Black Sea region plays an increasingly substantial role in the world wheat arena. In the past season 2017/18, the Black Sea countries (Ukraine, Russia, and Kazakhstan) met roughly 35% of the world’s demand for wheat.
The first half of the season has ended, and its export results allow making quite optimistic forecasts. In the first six months, according to UkrAgroConsult’s estimates, the three countries shipped abroad some 39 MMT of wheat (including flour in grain equivalent). This is up 5% year-on-year and 25%more than in the same period in MY 2016/17.
For Ukraine, four out of the five top destinations are distant. The ranking looks as follows: Indonesia, Philippines, and South Korea. Meanwhile, Egypt, Bangladesh, Thailand and India have reduced purchases of Ukrainian grain this season compared with the previous one. In addition, Ukrainian exporters managed to offset the loss of the Indian market, which was the biggest consumer of Ukrainian wheat in the 2016/17 season: India has been replaced with other major buyers, also mostly Asian ones.
Particularly important is the presence of Indonesia on this list. The country is the world’s second biggest wheat importer after Egypt. Indonesia has been the top buyer of Ukrainian wheat for a second straight season.
However, the leading global importer – Egypt – also consumes mostly Black Sea wheat. Egypt and Turkey continue to be the main export markets for Russia. However, over the last two or three seasons, Russia has been stepping up wheat shipments to distant markets as well: the top five buyers include Vietnam and Bangladesh, while Philippines and Indonesia are in the top ten.
A clearer delimitation was seen before: Ukraine ceded Egypt, Turkey and switched to Southeastern Asia, while Russia enhanced its position in the Near East and Africa. This pattern has changed by now: Russia is competitive in distant Asian markets as well. Remarkably, the competition will intensify following the development of Russian port infrastructure.
What could happen next?
The latter half of the current marketing year promises no surprises because the Black Sea region has already realized the lion’s share of its export potential. More interesting is to look into the next season 2019/20. The market situation is now advantageous for the Black Sea region: more than 80% of winter wheat crops are in good and fair condition. Winter crops in Ukraine are in their best condition in five years. Meanwhile, the Black Sea region enters the new season with expanded wheat plantings in both Russia and Ukraine.
Quite mild winters observed in recent years along with the use of up-to-date growing practices gives every reason to believe that the Black Sea region will not only get another good wheat crop but also sell it at good prices.
Another supposition is further enhancement of the region’s position in the global wheat trade next season. Moreover, the Black Sea countries will likely continue strengthening their role in global pricing as well.
Some kind of risk is posed by further aggravation of competition between the countries within the region. It was mentioned above that the export markets of Russia and Ukraine overlap. For Kazakhstan, the strategic markets are Central Asian countries and Iran. The wheat boom in Russia may lead to keener competition in this region, too. In addition, taking into account the expansion of wheat planted areas in the key producing countries, intraregional competition will be accompanied by continental competition. The winner will be determined based on the price/quality ratio.
In the medium term, a similar scenario will probably unfold in the corn market, too. The Black Sea region’s share in this segment is small now: 19% compared with the United States’ 37% and South America’s 34%. But it should be pointed out that this share is accounted for solely by Ukraine. Russia with its 5 MMT of exports (roughly 2.5 MMT this season) is not yet taken as a serious player in this market. Moreover, Russia has ambitious plans for increasing oilseeds production over the long run.
The Black Sea region now accounts for some 78% of the global sunflower oil trade. Undoubtedly, sunflower oil exports are predicted to further increase, mostly due to rising supplies from Russia.
So, it is obvious that the Black Sea region becomes more influential on global development trends in both grain and oilseed markets.