Miller Magazine Issue: 126 June 2020

62 63 INTERVIEW INTERVIEW MILLER / JUNE 2020 MILLER / JUNE 2020 rather sluggish. Though a significant increase in wheat stocks was forecast, wheat values went down quite a bit only. Does the market not believe the estimates? Most likely the market now thinks how to get rid of uncertain- ties and is looking for the most important and long-last- ing factors. No doubt, climate, weather factor is one of the most influential. The weather reports say that everything is not so healthy-looking with the coming harvest. The wheat market is now the weather market. The weather and other uncertainties generate great gaps in the 2020 grain production estimates - sometimes the figures rush to extremes – like wheat production es- timates in Ukraine – from 23 up to 28 mmt. For Ukraine officially released loss figures indicate the South of Ukraine suffered the most. But it is quite clear that wheat harvest in the South of Ukraine has not com- pletely died - at least a third, or even half, will be collect- ed. The total area of losses as of May 14 is estimated at 400-550 Th ha (drought plus April frosts), that is just 4-5 % of the total winter crops area. Quite far from disaster, and this is quite in line with UkrAgroConsult forecasts. Wheat harvest this year most likely will be at 26 mmt as May showers improve the soil moisture and crop con- ditions impressively. Wheat yields will be lower as they are damaged by drought-like weather of the previous 6 months. In Russia – Krasnodar and Stavropol territories suffered the most – but again the losses are local. In Europe, 2020 soft wheat areas in the two top ex- porters – France and Germany- are at record low levels due to a strong deficit of showers last fall during sowing. So most likely wheat production and export from there might drop. USDA said in 2020/21, EU wheat exports will be under the five-year average and less by 6.5 m mt y/y. So UkrAgroConsult projections look more pessimistic for the Black Sea and the EU. Wheat production and ex- port rise in Russia will not be enough to offset weakness in Ukraine and the EU. Wheat export from these two key exporting regions will decline by 3.5-4 mmt. These projections are in contrast to the progressively declining wheat prices. This might be explained by the USDA forecast of large grain stocks and by demand drop due to lockdown. One more factor to pressure the prices - high wheat stocks of the old crop and coming harvest- ing in the US. I am sure that now prices win back the expectations of high supply, but later wheat prices will go up earlier than usual. For the 2 seasons out of the previous 3 sea- sons wheat prices started to go up in August-Sept but in 2018 – wheat prices strengthened considerably yet in July. That year spring weather was also unfavorable in the Black Sea and in the EU and US. We expect price recovery in the wheat market starting from July. This sce- nario is highly likely also for 2020. Ukraine's grain exports have reached a record in the 2019/20 season. Will Ukraine be able to repeat this success in the new season? How the coronavirus in Russia could impact the wheat supply? Do you think Russia would continue the wheat export restrictions in the coming period? I think any extensions\resuming of export restrictions are out of consideration currently. Though May weather has postponed wheat harvesting in the Black Sea against its earlier coming expectations, key suppliers have their own experience of wheat market regulation through restrictions or taxes and the aftereffects of these actions. They realize the stop of wheat supply from any region might be filled by other suppliers (if there is enough supply). A drop in oil prices, and a fall in ethanol production and feed demand, have led to sharp drops in maize demand. Do you see any signs of a recovery in de- mand? How the uncertainty in the corn market did influence the planting in Ukraine? In Ukraine, corn area and production are another un- certainty. In prevail, forward prices are higher or close to last year's levels, but corn is 15-20% cheaper. Note corn market is now one of the most competitive markets and I do not exclude that corn prices keep falling as crude oil prices have not still recovered enough and demand for ethanol production is sluggish. If so ex-farm corn prices might be at a level of $100-110 after harvesting in Sept -October. It is at level of just to offset the corn produc- tion costs. Farmers have already realized the possibility of such corn price behavior and some of them at the very last moment decided to replace corn with soy. So it is unlikely corn area will be officially forecast at 5,4 m ha and will be less by 200-250 Th ha. Why this - the main areas to be planted are in the South of Ukraine where soil moisture is not enough high for corn vegeta- tion so plant sunflower is much less risky. Corn prices lower than US$150 were registered in the 2008/09 season just after the severe financial crisis. Cur- rently, the demand for corn is about the same as it was that time. Further corn price decline is possible due to strong competition both in the season of 2019/20 and in the next season of 2020/21. Anyway corn production and export from the Black Sea region for next season are projected actually at the same level as last season. Production and export of corn from the EU will likely go down but the EU has never been big player in the corn market from the supply side. Less clear are prospects of European corn imports. Eu- rope is one of the biggest buyers of Ukrainian corn – there is a great gap in import demand estimations. European Commission forecasts a decline in the corn import while USDA increased its forecast of corn import to EU as USDA expects growth in hog meat production and a decline in feed wheat consumption. The gap be- tween USDA and Commission figures is about 6,5 m mt. There are concerns that Covid-19 will have lasting impacts on international grain trade. Do you share these concerns? What would be the potential changes and 'new normal' in the global grain trade system? I think the COVID -19 impact will be long-lasting both over the global economy and agri-sector and commodity trade. The new format of the economy depends on too many factors and to clarify key features of the future need in fundamental studies. I guess any long term fore- casts made currently are not reliable enough to answer to a simple question – how to adjust a business strategy to the aftereffects of the lockdowns? UkrAgroConsult has begun to hold webinars on the grain markets. What feedback have you received from the followers? Will you continue to organize the webinars? UkrAgroConsult has launched a new project – online webinars to keep our customers, subscribers and all the trade community informed about the most urgent mar- ket insights. I am pretty sure the disruptions caused by the coronavirus are something to watch for thoroughly. The webinars enable everybody to benefit from up-to- date and accurate viewpoints from the best grain market experts. Even preliminary estimates give a good idea of what’s to come, while we try to predict the market turns with the highest possible accuracy and in view that op- timism rules.