Situation in Ukraine puts pressure on wheat market - sufficient stock but steep price increases

This situation in Ukraine is crucial for international wheat markets, as Russia and Ukraine together produce about 15 percent of the world's wheat. Moreover, about 30 percent of internationally traded wheat comes from these two countries. The escalation in this area may be disruptive for the export flow of wheat from that region. There is sufficient supply for the Dutch bakery sector. Royal Koopmans does not source wheat from the region in question. Most of our wheat comes from Dutch soil, some comes from the better German regions and an other small part comes from other origins. Through the strategic cooperation with the Zeeland CZAV, we have 100% certainty of supply. There would be sufficient cultivation in the Netherlands. We will also continue to process German wheat.

The war-related price rally on wheat exchanges continued this week. The war in Ukraine remains the defining factor in international futures markets. After an initially faltering advance by Russian troops, the war effort has concentrated on key cities such as Kharkov and Kiev. In the south of the country, the country's export ports are blocked. Russian troops are advancing further into the ports of Mariupol and Mikolayiv. Despite the fact that operators of Russian ports on the Black Sea coast say their facilities are still in operation, even these ports are now no longer being called at by commercial merchant shipping.

Because of this turmoil, wheat importers, such as Egypt, are canceling their tenders and this demand is shifting from the Black Sea to Europe, the U.S. and Latin America. Egypt imported 6.1 million tons of wheat in 2021, including 4.2 million tons from Russia. This run on the world's remaining wheat is causing the explosive rise in quotations on futures markets. In the Americas, wheat prices rose to the highest level since 2008.

The physical availability of grain is also becoming a pressing issue. Ukraine is a major exporter of corn. European imports of corn are normally about 11 million tons. So far, 5.5 million tons have now arrived. Corn is normally an important component in the European feed composition. This component will be sought to be replaced by another type of grain, such as wheat. This will contribute to a further tightening of availability. However, at the moment there are no shortages and work is being done up to European level on temporary extensions of import possibilities and other measures that can increase availability. Royal Koopmans always covers all its grain requirements from its regular suppliers in the form of (paneer) flour and flour sales. This means that we are not faced with impending shortages.

The fact that on Wednesday the new crop quotations fell could mean that the market is still somewhat considering a "temporary effect". However, we must remember that the longer this disruption in the grain chain lasts, the longer it will take for it to be resolved as well. In addition, in the coming weeks in Ukraine, summer cereals such as corn, barley and spring wheat must be sown. One can guess why this is now impossible in many places. The weather situation in the United States also remains tense. The quality rating of winter wheat fields in Kansas has been revised downward and also in Oklahoma only a limited portion is currently in good to excellent condition. Based on the fundamental numbers, the 2022 crop could still be seen quite comfortably. However, this dramatic situation in Ukraine brings everything into uncertainty.