Farmers have harvested the first million tons of grain of the new crop. The flywheel of the harvesting campaign is gathering momentum. The Ukrainian farmer was not broken by air raids, missile attacks and even low grain prices. Manufacturers persevered. Despite the war, Ukraine expects to have a good harvest, about 50 million tons of grain. Yes, this is less than last year’s 53.8 million tons, but it is not the worst option. For comparison: back in 1945, Ukraine had a harvest of 12 million tons, and in the postwar year of 1946, only 8.5 million tons were harvested.
Agricultural areas are reduced, but export is a priority
In general, the harvest in Ukraine is now evaluated and forecast by everyone: officials, politicians, traders, producers, analysts, scientists, etc. It is interesting that the initial data are the same in all of them, but the forecast figures for grain production in 2023 are different.
In autumn, for the 2023 harvest, farmers reduced the area for wheat to 4.2 million hectares. We will not repeat the reasons. Let’s limit ourselves to the comprehensive word “war.” Add 270,000 hectares of spring wheat, and voila: we have 4.5 million hectares of wheat to harvest, or 0.9 million hectares less than in 2022. Compared to 2021, this year’s area to be harvested is smaller by as much as 2.5 million hectares.
Analysts conducted a survey among farmers based on the operational data of the Ministry of Agrarian Policy and Food of Ukraine regarding the areas of winter and spring crops. And now, using yield calculations per region, they announce a possible gross harvest of wheat at the level of 23.5–24 million tons (in mass after finishing). This is significantly higher than current market expectations.
Analysts of the American NASA Harvest (a food security and agriculture program) are also optimistic. Based on satellite data, they are sure that wheat production in Ukraine can be from 25 to 26.5 million tons, of which 4 million tons are grain in the fields occupied by the Russian Federation.
And here is the official version (from the Ministry of Agrarian Policy and Food of Ukraine): 46 million tons of grain, of which wheat is about 17 million tons.
The version of the American colleagues, whose data is mostly trusted by the general population, is 17.5 million tons of wheat (USDA June report).
But the approach of agricultural scientists is most impressive. They have as many as three scenarios. Optimistic: harvest — 55 million tons, in particular wheat — 19.5 million tons. Average: harvest — 51.5 million tons, wheat — 18.4 million tons. Pessimistic: harvest — 47.8 million tons, wheat — 17.3 million tons.
Meanwhile, let us remind you that there were worse years in Ukraine (2000 — 10 million tons of wheat) and better years (2021 — a record 32 million tons).
An interesting memory: in 1990, Ukraine received 51 million tons of grain, of which 30 million tons were wheat. The yield then was 4 t/ha, and the current world record, by the way, is almost 18 t/ha.
Currently, the average crop capacity in the country is 4 t/ha. Although there are farms where the yield is at the level of 3 t/ha, there are also those that harvest 8 t/ha.
As always, nature and the weather remind us from time to time that they are treacherous ladies. Sometimes no technology can handle their vagaries: rain/drought/hail/freeze. True, this year the winter crops overwintered more or less, but let’s note that the reality is reflected only by the grain collected from a specific field.
Public-trade version: there will be more than enough wheat in Ukraine in 2023 to ensure domestic demand and food security. Meanwhile, a message from traders is somewhat alarming: more than 7 million Ukrainians have left, so the demand for food wheat is lower. The rest can be safely sold to Africa, EU markets, and the rest of the world. The war and the vagaries of nature (as in 2000) seem to have been forgotten.
Of the three export grains, barley fell the most. The harvest is not very high, so there is little to sell.
It is a little early to talk about corn, although the total harvest may be 26 million tons (the average version from scientists).
The trading community talks about slightly smaller cobs (24 million tons) and estimates possible exports at the level of 20 million tons. Regarding wheat - 15 million tons due to the lower yield.
The trend of the season: no one cares that the harvest is much smaller. Everyone says that there will be enough bread both to feed the domestic market and to satisfy foreign consumers.
They gave way in the markets
In the conditions of a full-scale war, blocked ports, conflicts with EU border countries for markets, Ukraine managed to grow and sell a lot. In general, more food was sent to foreign markets in the 2022/2023 marketing year (MR) than in the 2021/2022 MR.
For reference, 49 million tons of grain were exported. Ukrainian wheat — 16.8 million tons, or 80% of the 2022 harvest — not only fed people in Africa but was also able to strengthen Ukraine’s position in certain European markets.
Meanwhile, the Ukrainian wheat of the wartime 2022/2023 MR made it possible to make good money for Turkish producers. Let’s add here that grain from Ukraine caused protests by Poles, helped European farmers to get additional subsidies, and even caused the decision of the European Commission to ban the supply of food from Ukraine to five bordering EU countries.
This ban on wheat, corn, rapeseed, and sunflower is valid until September 15. And, by the way, it is not a fact that the situation will change for the better in September. And this uncertainty with exports to the EU and constant trouble with transit are very disturbing to producers and traders, because the so-called grain corridor has been working with interruptions lately.
Trade in the ports of Great Odesa has been rather symbolic in recent times, considering the Russian blockade of several dozen ships with food. After the Russian missile attack on the night of July 19 on grain terminals and infrastructure in the ports of Odesa and Chornomorsk, trade was forced to stop altogether. The grain infrastructure of international and Ukrainian traders and carriers Kernel, Viterra, CMA CGM Group was damaged.
The majority of traders decided for themselves that the grain corridor of 2023/2024 marketing year will not work, so they massively switch to shipments through the ports of the Danube.
What’s more, according to the information of the State Enterprise Sea Ports Administration of Ukraine, it is the ports of Izmail, Reni and Ust-Danube that are planned to be the main ones for export in the event of the final termination of the grain corridor. Accordingly, at the same time as the active trade in the Danube ports, work on the modernization of the port of Reni is moving along in high gear and the expansion of the port of Izmail is progressing rapidly.
Considering the reduced harvest, even if the so-called grain corridor does not work, these two other routes – through Europe and the Danube – will ensure Ukraine a place in the club of global grain traders.
Although, to tell the truth, to some extent, we had to give way to other players in the markets (hopefully, temporarily). After all, due to the drop in production and problems with logistics, part of the markets was lost and will have to be “conquered” again after the victory.
But the issue of price remains relevant.
Logistics at the expense of farmers
2023/2024 will be another year of trials. Average farmers have already recovered from the shock of the war and bet on the always liquid sunflower. Still, strangely enough, a lot of corn was sown too. Although they could have bet on oats or millet, which are usually purchased at early stages.
The priority for farmers remained corn and wheat, which last year they exported as much as they could and at any price (just to sell). So, last spring-summer, when the price of food wheat in the world on physical markets was 330 USD/t FOB, Ukrainian producers had only 150 USD/t. The difference between 330 and 150 was taken up by logistics and expensive transshipment.
If it weren’t for the war and the forced “corridors,” at the beginning of the export season, a Ukrainian farmer would have received 260-270 dollars/ton for a ton of high-quality food wheat (on an EXW-elevator basis).
A huge export machine including the “grain corridor” through ports, “roads of solidarity” through European countries – all this works due to the losses of the local farmer.
In 2023/2024 marketing year, Ukrainian farmers are expecting a better price. But there are currently no special prerequisites for this. The only thing that can be counted on for sure is a relatively brisk demand for food grains against the backdrop of an expected fall in the total stock.
In addition, the potentially low quality of grain can heat up the situation, because the manufacturers have reduced the technological package to a minimum. Therefore, we should traditionally expect fierce competition (for high-quality grain) between exporters and flour mills with bakers.
As of the end of June, against the backdrop of drought in Europe, export prices for large consignments of food wheat (12.5% protein) on terms FOB Port of Constanta (Romania) are USD 261-265/t (USD 234-240/t, DAP Constanta) for delivery in July.
Ukrainian farmers look to the sky with hope and ask for Victory, good weather, maximum yield – and, finally, a decent price for what has been grown.