Miller Magazine Issue: 125 May 2020

75 INTERVIEW MILLER / MAY 2020 Coronavirus lockdowns across the world slow global food supply chains, leaving some farmers unable to get their products to consumers and major producing coun- tries restricting exports. As companies and governments are stockpiling grains and pulses, some exporting countries have limited their sales abroad to prioritize domestic supply. Russia and Ukraine have taken protective measures and set an export quota for wheat. Vietnam has suspended new rice export contracts. Wheat prices have gone up after a price drop in March. Rice has become more expensive, and corn has lost market due to decreased interest in biofuels. We asked the short/medium impacts of the coronavirus and the changing grain market dynamics to Ms. Andrée De- fois, President of Tallage and Managing Editor of Stratégie Grains, an agro-economic research and analysis consultan- cy. Specializing in European and world grain and oilseed markets, Stratégie Grains is one of the most reliable sources for market information. With more than 25 years of experi- ence in agricultural market analysis, Ms. Defois is a sought after speaker in international grain events. Her comments and reports are frequently quoted in international media like Reuters and Bloomberg. Here is Ms. Defois’s analysis and forecasts regarding the grain markets. The coronavirus pandemic has had a significant im- pact on agriculture, as the lockdowns have severely dis- rupted the global supply chain. There are some concerns that this health crisis would transform into a food crisis. Do you think coronavirus measures could cause a global food shortage? What the world should do to avert a global food crisis? The supply of grains will be affected by the coronavirus pandemic: This is already the case in China, where farm- ers have been hit by fertilizer supply problems. It will also be the case on the Indian subcontinent, which is experi- encing labour shortages for agricultural work. Our forecast for world wheat production in 2020 has therefore fallen by more than 10 Mt since last month to close to 735 Mt last month vs 730 Mt in 2019/20, largely as a result of these problems – to which must be added the damage caused by overly dry conditions in April in the Black Sea (but which now seem to be improving) and North African countries and an even larger reduction than we estimated last month to wheat-growing areas in the EU. Our estimate for the 2020 barley crop has also been reduced this month (by 1 Mt), although this is mainly due to adverse weather. However, for the short term, we do not think that the health crisis will transform into a food shortage. Most of the world's crops are still expected high this year, close to that of 2019 for wheat and barley and much higher for corn. For the medium term, depending on the way the pan- demic is managed and the remedies that will be found, it is possible to see production plunge more sharply, in Asia and Africa in particular where the effect of the coronavi- rus comes to combine with severe locust attacks. Rice pro- duction could be affected. However, there are currently no large concerns among the main world exporters of wheat, barley and corn where the measures taken to combat the virus do not prevent the crops from growing and field work to be carried out. Some grain exporting countries are imposing export restrictions to safeguard their national food security. How do these measures affect the grain market? How these restrictions will affect the wheat supply over the coming months? Should we worry about wheat supplies and prices? Russia, Kazahkstan and Ukraine have decided to con- trol their grain exports by the end of the current cereal season. These measures result mainly of lower supplies than last year in Russia and Kazakhstan (lower harvests in 2019) and a booming wheat export campaign in Ukraine in 2019/20. Russian measures were mostly taken to limit the rise in Russian domestic prices at a time when the ruble collapsed as a result of oil price reduction. These export re- strictions were taken while several countries in the Middle East and North Africa (Arabia, United Arab Emirates, Iran, Egypt among others) have been recently accelerating their purchases, partly to ensure stocks in face of the pandemic crisis. It can, therefore, be said that the coronavirus crisis is also for a small part responsible for the export limitation decisions taken by the three major countries of the former Soviet Union. Romania had tried to follow in mid-April but had to reverse its decision because this measure does not comply with EU rules. In the rice segment, Vietnam has also announced that it will block exports, but here too the country has reversed its decision and its Prime Minister announced in late April that exports would resume normally in May. For the coming months, the world of cereals will be marked by a good har- vest in Russia and a huge corn harvest in the USA, except in case of climatic accidents. At the same time, because of stocks built up by certain importing countries on the one hand, and also because of the drop in world consumption forecast for 2020/21, world wheat trade will contract, es- pecially for soft wheat. We now forecast world soft wheat trade at 154 Mt compared to 162 Mt in 2019/20. With this reduction in trade expected for 2020/21 and a good harvest in Russia (weather permitting), there will be no problem of wheat supply in the coming months and this should press prices down during the summer months and the beginning of the autumn. For the remainder of 2020/21 (from winter 2020 on- wards), once harvest clearance pressure has subsided, pric- es could start to recover in response to the fact that project- ed 2020/21 carryout stock held by the main exporters will not be particularly heavy. World wheat stocks are expected to recover slightly in 2020/21 but will remain low as shown in the graph below and this is why prices may firm up in the second half of the season. However, this firming of prices will only be moderate as wheat will face strong competition