pokemoncryptogame| Russian production areas encounter cold wave, global wheat growth is unpredictable

Source: CFC Agricultural products Research

April this yearPokemoncryptogameDue to record high temperaturesPokemoncryptogameRussia faces a situation similar to drought, with winter crops severely damaged due to lack of water. Then came the cold weather, which led to frost and further worsened the growing conditions of the crops. It intensified in early May, when Russian winter wheat did not wait for nectar, but experienced a severe cold spell, with the lowest temperature reaching a level not seen in decades. This has added to supply concerns in global markets, with Russia, the world's largest wheat exporter, facing irreversible production downgrades.

First, reality: the weather seriously affects the wheat production in Russia.

Southern Russia, an important grain-growing region in the country, accounts for more than 30% of Russia's annual wheat production, and the region has been experiencing extreme weather events in recent weeks, causing damage to wheat and rapeseed crops. Grains are usually more resistant to frost, but heavy snow can damage seedlings. The Agricultural Market Research Institute (IKAR), a Russian agricultural consultancy, lowered its 2023-24 wheat yield forecast to 86 million tons from 91 million tons at the beginning of May. IKAR recently cut its forecast for Russian grain exports to 59.5 million tons from 64.5 million tons in early May. Wheat exports are expected to fall to 47 million tons from the previous forecast of 50.5 million tons.

At the same time, SovEcon, a black sea agricultural market research company, also lowered its wheat harvest forecast for 2023-24 to 85.7 million tons from 89.6 million tons at the beginning of May. It expects that the planting area and per unit yield of Russian wheat will be damaged this time. It is estimated that the wheat harvest area will be reduced by 300000 hectares to 29.2 million hectares, with an average yield per unit area of 3.Pokemoncryptogame.03 tons per hectare reduced to 2Pokemoncryptogame.93 tons per hectare.

The local agricultural department is assessing the extent of the damage caused by the frost, and the damaged crops will be replanted, covering an area of up to 500000 hectares.

Second, fundamentals: why the influence of Russian production situation is significant

From a fundamental point of view, the reason why the production situation of the Black Sea region has attracted enough global attention is not its huge supply, but its increasing share of exports. According to USDA data, China, the European Union and India respectively rank in the top three of the world's wheat production, with output of 100 million tons, but compared with their output, the exports of the three countries account for only 0.4%, 0.6% and 2.6% of the output, mainly to meet domestic demand.

In contrast, Russia, Ukraine, Australia, the United States, Canada and other countries can see that exports account for more than 50% of their own output, and these countries have a more significant ability to price global wheat.

If we quantify the global export volume, we can see that the proportion of Russia and Ukraine in the current global export volume is also increasing year by year. In the 23-24 market year, the two countries accounted for 32% of global exports. As a comparison, exports from the United States and Canada accounted for 9% "11%" 20%, which was slightly stable but showed a slight downward trend.

From the perspective of trade flow, wheat from the Black Sea region (Russia + Ukraine) is exported to Central Asia and North Africa, Africa and Asian countries. In recent years, due to the conflict between Russia and Ukraine, production in the eastern part of Ukraine's main wheat producing areas has been significantly affected. Exports have declined, but the impact on the European grain market is more significant. Therefore, the Euronext flour wheat contract has also become one of the main contracts for pricing in the global wheat market.

Recent extreme weather in Russia has led to a sharp rise in wheat contracts between CBOT and Euronext, while from the perspective of fund positions, CBOT wheat positions also face a large number of short positions leaving the market, gradually turning to net long. Although the weather model shows that the weather in Russia's producing areas is getting wet, the price of Russian hard red winter cabin has also risen by US $7 per ton, continuing to narrow the price gap with the price of US wheat.

From the perspective of the United States, the weekend rainfall is mainly concentrated in the northern plains, the eastern region is very dry, the southern plains is also very dry, the next 6-10 days will continue to produce rainy wet weather. Spring wheat sowing is expected to reach about 76 per cent, compared with 61 per cent last Monday, and winter wheat sowing will remain unchanged, compared with 50 per cent reported last week. From the perspective of other major producing countries in the world, due to the lack of precipitation in the main producing areas of Australia, we still need to pay attention to the impact of production.

Taking the above into consideration, the overseas wheat market will maintain a bull market pattern while supply expectations are still tight, until we see a better-than-expected improvement in the production situation in the Black Sea region.