Column-Black Sea grain exports beating early market ideas by substantial degree -Braun

Column-Black Sea grain exports beating early market ideas by substantial degree -Braun

By Karen Braun

NAPERVILLE, Illinois (Reuters) – Ukraine, particularly in the last few months, has been exporting much more grain than anyone expected despite more than two years of war with neighboring Russia.

This, combined with two bumper Russian wheat crops, has led to an enormous surplus of Black Sea grain shipments over the last two seasons compared with what was initially predicted, a surplus that could easily replace entire export programs of other top suppliers.

Ukraine’s recent success has been limiting for traditional grain exporters like the United States, despite a boost in U.S. supplies versus last year.

The U.S. Department of Agriculture on Friday raised Ukraine’s 2023-24 wheat exports for a fifth consecutive month and corn exports rose for a second straight month. Based on the estimate history, the expanding export pegs are linked with better-than-expected shipment performance and not bigger crops.

Ukraine has been successfully operating its own Black Sea shipment corridor since August after Russia quit the original initiative in July, despite a significant number of Russian attacks on Ukrainian port infrastructure since then. Kyiv reported record February export volumes for all goods.

GROWING BUT PROPORTIONAL TARGETS

USDA’s combined 2023-24 export estimates for Ukraine corn and wheat have risen 35% (10.5 million metric tons) since August, though production is up just 9% (4.4 million tons). This is based on a return to near-normal export volumes versus output, suggesting Ukraine’s export system has somewhat re-regulated.

Ukraine produces significantly more grain that it uses domestically, so much of it goes to exports, which is a huge moneymaker for the country. In the five marketing years prior to the war, Ukraine exported an average of 79% of its annual corn crop and 67% of wheat.

Those shares fell far below normal in 2021-22, the first year of war disruption, then they surged well above typical levels in 2022-23 as shipments thrived but crops were much smaller. USDA’s 2023-24 corn and wheat estimates suggest respective export-to-output ratios of 83% and 68%, though they had been pegged as low as 68% and 49% within the last few months.

Russia is set to export a post-Soviet era record 56% of its 2023-24 wheat crop, up from the five-year average of 48%. The United States is seen exporting just 39% of its wheat crop this year versus an average of 50%, reflecting its recent loss in global market share.

TONS MORE GRAIN

Across the recent two marketing years, major Black Sea grain exports are set to outperform original estimates by a combined 53 million tons (2.025 billion bushels). These days, that amounts to more than 2.5 years’ worth of wheat exports out of the United States, former top wheat supplier.

That combined figure is derived by taking USDA’s initial projections for Ukraine corn and wheat and Russia wheat exports for both 2022-23 and 2023-24 and comparing them with the latest published figures.

Doing the same for production shows original ideas over the two marketing years were 44 million tons (1.65 billion bushels) too low. The entire U.S. wheat harvest in 2023 totaled 49.3 million tons.

One-third of the export surplus comes from Ukraine’s 2022-23 corn exports, which tripled from the original estimate.

Bigger-than-expected production helped in Ukraine, as the last two corn and wheat crops combined were nearly 22 million tons better than first predicted, though Ukraine’s combined grain export potential was underestimated to a larger degree, by about 39 million tons.

The opposite was true in Russia, as the last two wheat crops were a total 22 million tons larger than the initial pegs, though exports are seen larger by only 14 million tons.

Grain and other agricultural exports are considerably more vital to Ukraine’s economy relative to Russia, hence Kyiv’s urgency to keep the critical deep-sea ports online.

By value, corn, wheat and seed oils accounted for nearly 32% of Ukraine’s total calendar-year 2022 exports. Adding barley, sunflowerseed, soybeans and rapeseed brings the share to 41%, up from 31% in 2021.

For Russia, the same commodities, which encompass the country’s largest non-chemical agricultural exports, accounted for between 2% and 4% of all exported value in 2021 and 2022.

Karen Braun is a market analyst for Reuters. Views expressed above are her own.

(Writing by Karen Braun; Editing by Matthew Lewis)