New Delhi — The recent cut in wheat production estimates for 2019-20 (July-June) in Russia and Ukraine due to dry weather conditions in parts of the Black Sea region are not raising any supply concerns, according to analysts.
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Russia and Ukraine account for a third of the wheat shipments by the top eight wheat exporting countries, according to the data by the US Department of Agriculture. They also account for a major portion of Black Sea wheat exports.
If the dry weather conditions remain for another three to four weeks, there could be further reduction in Russian production estimates, Andrey Sizov Jr, managing director of SoveEcon, a Moscow-based agriculture markets research and consulting firm told S&P Global Platts.
Platts Analytics earlier this month lowered its estimate for 2019-20 Russian wheat production to 78.7 million mt, a tad down from its April estimate. Winter crops in Volgograd (north of Southern district) and Volga districts were the most impacted by the dry weather, it said.
SoveEcon lowered its estimate for the new wheat crop in Russia to 82.6 million mt from 83.4 million mt estimated in May, because of the low moisture content in some regions, Sizov told Platts.
Despite the lower production estimates in Russia "there will be enough Black Sea wheat to fulfill the demand," Sizov said.
The revised estimates for Russia are still higher than the last year's production forecast. The United States Department of Agriculture's latest report projects Russia's production for 2019-20 at 78 million mt, up almost 9% from 2018-19.
For Ukraine Platts Analytics cut its 2019-20 wheat production estimate by 2% to 27.2 million mt. Except western oblasts, temperatures across Ukraine were 3-5 C above normal in the last week of May, according to Platts Analytics.
The USDA has projected Ukraine's 2019-20 wheat production at 29 million mt.
Russian winter wheat areas are dry and warm but soil moisture is adequate following a wet spring, Austin Damiani, a US-based independent commodity trader, said, adding that the situation needs to be monitored closely.
The next three weeks are very crucial for the crop in the region.
Platts Analytics expects moderate yield reduction in Krasnodar and Rostov, where winter crops are in more advanced stages of development. In Volgograd and south of Central and Volga districts, where crops are most likely in the flowering stage, yield reductions are higher and could go further down if heat lingers for much longer, according to Platts Analytics.
"June is expected to be significantly drier than normal in large parts of Russia and in some parts of Ukraine," Sizov said.
Kyle Tapley, a senior agriculture meteorologist with earth intelligence and space infrastructure firm Maxar, expects the hot and dry weather to prevail in the Black Sea region for the next 10-15 days.
IMPACT ON PRICES
Weather conditions in the next three-four weeks can impact prices of Black Sea wheat, however, they will take cues from US wheat in the near term, Sizov of SoveEcon said.
"Since US wheat rallied recently, I expect its price to come down, and Black Sea wheat prices will follow in the current scenario," Sizov said.
Damiani believes that world wheat prices will be driven by updated forecasts for key growing areas including Russia, Canada, European Union, Australia and Midwest US.
Wheat prices are also likely to depend on corn production volume, which is expected to be lower from last season on account of flooding and continued wet conditions throughout the US corn belt. Higher corn prices prompt farmers to substitute corn with cheaper wheat for animal feed.
"If corn production is at risk of further losses, this will likely support global feed wheat demand," Damiani said.
Platts assessed Russian deep port wheat with 12.5% protein content at $195.5/mt on a FOB basis on Jun 14, up 0.26% from its Jun 6 value.
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