Dryness risk to Russian wheat crop 'overrated', says SovEcon

05.05.2018

SovEcon raised doubts about the dryness worries in southern Russia which have been credited with spurring gains in wheat prices, saying that moisture reserves from a wet winter are – for now – protecting crops.

Winter wheat in southern Russia – a major source of the country’s wheat exports, and so closely watched by international markets – “in general still looks OK”, the influential consultancy said.

While acknowledging that the region had been “quite dry” in recent weeks “due to sufficient moisture reserves” built up over the winter, “we believe that the drought risk is overrated”, SovEcon said.

‘Crops are looking quite good’

The Moscow-based group is poised next week to revisit its 2018 crop forecasts, which are currently pegged at 128.6m tonnes for all grains, including 77.4m tonnes of wheat – figures second only to last year’s record highs.

However, “I do not think we will see any significant corrections”, Andrey Sizov Jr, the SovEcon managing director, told Agrimoney.

“Crops are looking quite good in the south of Russia, better than previous years,” with the drier weather also allowing speedier spring sowings than last year.

With plantings lagging in Central and Volga Valley regions, because of a “late spring”, the overall progress of Russian spring seedings - at 4.8m hectares completed as of Thursday, out of a forecast total of 31m hectares – is running behind by some 700,000 hectares year on year.

Nonetheless, these slow-starting crops “still have some time at their disposal”, Mr Sizov said.

Market worries

The comments come amid a broad market focus on Russian crop prospects, given the importance of the country – the world’s top wheat exporter this season for the first time – to world trade.

On Friday, Paris-based Agritel said that “the situation in the US, combined with a slight hydric deficit in the Black Sea area, is supporting international prices”.

UK merchant Gleadell said flagged support to values “from dry and warmer-than-normal conditions in the Black Sea region”, besides in Australia, the US and parts of eastern Europe.

On Thursday, in the US, Richard Feltes at Chicago broker RJ O’Brien termed “the dry trend in southern Russia and Ukraine”, as well a lack of rain in Brazilian safrinha corn-growing areas, as “the focus for [grain market] bulls”.

UK-based analysis group CRM AgriCommodities noted that “traders are keeping a close eye on the Black Sea region where dryness is expanding into Ukraine/southern Russia as well as in central/eastern Europe”.

“The driest April in four years is keeping the trade on its toes.”

Rains ahead?

A debate has also emerged from prospects for weather ahead, with SovEcon, quoting data from GFS and European weather models, seeing imminent rains in prospect for southern Russia.

“If it does not rain in the next two weeks, then I think there will be an issue,” Mr Sizov said.

And some other commentators indeed put a drier spin on the outlook, with US-based Radiant Solutions, saying that in the Black Sea while “some slight improvement will be possible in south western Ukraine and north western Central Region this weekend and early next week… dryness will likely persist in the majority of the winter wheat belt”.

“The dry and very warm pattern is allowing moisture shortages and stress to expand,” the weather service said.

Jet stream concerns

WxRisk.com, also based in the US, highlighted a potential threat of Black Sea dryness further ahead too, saying that a “very unusual jet stream pattern” for Europe, which is seeing the phenomenon split into two branches, raises the threat of “much-below normal precipitation” for south west Russia and Ukraine, as well as central and eastern Europe too.

“If this trend in the model data that were seen does in fact verify over the next 25 to 30 days, then it won’t be too early to say that the Ukraine and west and Russia are going to be problems for the summer,” WxRisk.com said.


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