This week, Senior Analyst Will Osnato spoke at the CFA Society Ukraine Agricultural Market Outlook. He walked through the global wheat and corn outlook, including production, trade and current stocks, and implications for Ukraine. This post has been edited to high-level takeaways.
Although the conversation was wide-ranging, a few central themes drove his outlook - the interconnected and global dynamics, fertilizer and planted area, and impact of drought and climate factors.
Drought in the US and Across Regions
The heightened price reaction to the war was on the heels of an already tight wheat situation. He noted that, "Adverse weather in North America cut 20 million tonnes of spring wheat in 2021. Intense levels of drought, as seen via Gro’s Drought Index as early as April 2021 cut end of season production by 36% in Canada and 44% in the US northern plains."
US hard red spring wheat ending stocks dropped to 3.1 million tonnes (or 113 million bushels), the lowest levels in 14 years.
The Gro Drought Index can be used as a leading indicator of potential crop losses for any crop/region pairing, worldwide.
Ukraine Corn and Wheat Crop and Vegetative Health
"While the start of Ukrainian grain shipments is promising for its buyers, the flow of corn, wheat, and barley will still be lower than pre-war levels." Osnato described. "Production will be significantly lower following last year’s record crop because the war reduced planted acreage, while vegetative health has stayed closer to average."
At Gro Intelligence, vegetative health is mapped by district and is the most direct way to see the impact of in-season growing conditions on projected yields. Looking at the Normalized Difference Vegetative Index (NDVI) maps side-by-side from 2021-2022, you can see that growing conditions are more mixed this year compared to the optimal conditions in 2021.,
"In closing, the export corridor is obviously a big deal - with another 40 shipments this week, including ~600Kmt of agricultural products. The Ministry of Infrastructure thinks port shipments will increase to 3Mmt in September," he concluded.
"We will also be looking forward to winter wheat seeding. Ukraine area is forecast to decline again. Some private estimate are as high as 30-40% from the sharply reduced area this season due to lack of resources."