THE record 85 million tonne wheat harvest achieved in Russia last season will become the normal production rate from the region in 10 years’ time.
However despite this, there is enough room for world markets to absorb increased wheat supply out of the Black Sea region and Australian export volumes into South East Asia are unlikely to decrease.
This was the view of Rabobank global grains and oilseeds sector strategist Stefan Vogel, who attended the Liebe Group Crop Updates and Trials Review Day at Dalwallinu last week.
Based in London, Mr Vogel has been closely following developments in the Black Sea and the affect of the region’s increased production on global trade.
Mr Vogel said although favourable weather conditions had played a major role in Russia’s consecutive record harvests over the past few years, the Russian agricultural system would mature, leading to production improvements over the next decade.
“In my mind, in 10 years from now the crop size that we have today in Russia will be the standard,” Mr Vogel said.
“It doesn’t mean that next year’s crop will be as big but in 10 years from now that country will produce as a standard the volumes that we’re seeing right now, and the question will be is there enough demand in the world to absorb whatever the Black Sea region has to supply?
“It’s not only around Russia but it is also around the areas of the Danube – so Romania, Bulgaria, Hungary, around the Ukraine – all of these flows are increasing over time.”
Mr Vogel predicted Russian exports to increase by 20mt by 2028, with significant growth in Sub-Saharan African markets.
However, he expected supply to outweigh demand in the country’s traditional markets, leading to its excess wheat competing with Australia for South East Asian customers.
“The traditional market is around Africa, so we see an ongoing increase in Africa, North Africa – an increase by about one per cent or 1.5pc,” Mr Vogel said.
“Sub-Saharan Africa’s a much stronger increase, we expect that in five years’ time to surpass the imports of North Africa, which so far has been the much bigger importer, so that’s good news for you guys.
“On the other side, it is not enough to absorb 20mt of Black Sea wheat coming out into the region, given in my mind, there’s only enough to absorb 15mt.
“So we have 5mt of excess that has to go somewhere else in the world and that will have to probably come into the South East Asian market.”
As a result, Mr Vogel expected price competition into South East Asia to continue to grow in the long term.
However, he said there was still plenty of room for Australian wheat exporters in its neighbouring market.
“Australia will lose market share in percentage, I don’t think you will lose market share in absolute volume terms,” Mr Vogel said.
“If you look at the longer term, I think South East Asia has enough potential to absorb yours and the excess that the Black Sea region will provide, but we will always have a year where suddenly everybody has a good crop and where things will be very, very tight in terms of prices.”
According to Mr Vogel, Russia was on track for another sizeable wheat harvest this year, with favourable weather conditions across most of the grain growing region.
While a cold spell in eastern Europe is expected to have some effect on production, Mr Vogel said “winter kill” was not predicted to be high.
He said it was unlikely Russia would surpass last year’s record 85mt harvest, but wheat stocks carried over from last season would enter the export market and have an affect on prices.
“We expect a more normalised crop next season, but a big problem is that if you have 25mt more production than in the previous normal years, you’re exporting only 10mt more than in those years, you consume about 5mt, you’re still building about 10mt of stocks in Russia,” Mr Vogel said.
“These 10mt of stocks will be available for moving it onto the world market later on in the next season.
“Despite, maybe, a potential lower crop in Russia it doesn’t mean that exports will tank, they will remain at extremely high levels in my mind in the next season, providing a lot of on-going competition into markets where Australia will also go to.”
Mr Vogel continues his tour of Australia this week, after sharing his insights at Albany, Mt Barker and the Make Smoking History Wagin Woolorama.