Kazakh grain harvest proceeds amidst uncertainties

The authorities in Kazakhstan have been upbeat about the country’s expected yield of cereals this year with the summer harvest now in full swing. However, warnings have spread that harvest assessments might be premature, and in most cases overstated. Market opportunities, however, might well increase since after a long time of strength and growth, the world is now facing dwindling food production levels. To make things worse for the upcoming winter, an old foe of farmers has waken up once more as the notorious phenomenon of El Nino has reappeared in the starting blocks.

by Charles van der Leeuw, KZW senior contributor

Kazakh grain harvest proceeds amidst uncertaintiesThe government of Kazakhstan keeps up its hopes for a good harvest this year, despite climatic setbacks – in particular those inflicted by Mother Nature such as landslides and drought. On Jul9 9, the specialized news agency Agrimarket, based in Kiev, quoted the country’s deputy minister of agriculture Arman Yevniyev as putting his estimate for this year’s harvest at 15 to 20 per cent on last year’s level of 15.6 million tonne (down from 20.1 million in 2007 for all it matters), to the order of 18 million or close to it. Increases in sowing areas, both for the last winter and spring sowing campaigns, have facilitated the output growth margin.

The good outlook could particularly boost Kazakhstan’s position on world export markets for grain, on which it currently occupies the eighth place. This year, the Kazakhs hope to export up to half of its output, plus another 2 million tonne of flour, according to Agrimarket. The agency also quoted officials in a report dated July 20 as putting Kazakhstan’s grain reserve build-up at 3.59 million tonne, most of it, or 3.14 million tonne, of wheat. Kazakhstan’s domestic needs for consumption of wheat stands at approximately 9 million tonne.

What also helps is the fact that disappointing harvest expectations in Ukraine, through which the bulk of Kazakhstan’s grain is being exported, have boosted the country’s transit margins. The fact that Ukraine will be able to export no more than 5.5 million tonne of cereals this year, against 12 million during 2008, frees capacity for third parties to equal proportions. Ukraine’s overall grain harvest this year is expected to stand at 15.6 million tonne, down from a record 20.1 million in 2007. Kazakhstan’s only alternative to the Black Sea ports is the Caspian port of Aktau, which has handling and storage facilities but through which so far this year only 213,000 tonne has been shipped, mainly to Iran and Azerbaijan.

But not all news is that good in Kazakhstan. According to news reports taken from official sources, 30.5 million hectare of land is in the process of being eroded and about to disappear if no emergency measures are being taken – including 1.5 million within a total of just over 88 million hectare of farmland. Ironically, this equals the amount which according to the government has been added to productive crop-growing surfaces in the Republic.

According to foreign and international watchdogs, Kazakh authorities remain too upbeat where harvest forecasts and production targets are concerned. Thus, according to the US Department of Agriculture, Kazakhstan’s harvest of cereals for the year is set to amount to 14.5 million tonne at best. And even then, the USDA’s assessment has been criticised by independent observers. Thus, Citigroup’s commodity market analysis department was quoted by AgResource, an American agricultural news agency, as deeming that both the estimate of 14.5 million tonne for Kazakhstan and that of 60 million tonne for the Russian Federation has been overstated by some 1.5 million tonne each.

An overwhelming majority of farmland in Kazakhstan is owned by the farmers themselves, and rare are those who have the financial resources to take the necessary measures to cope with increasing setbacks of ecological character. The list is well-known, varying from soil and surface water contamination in the plain to the ever-swifter melting process of glaciers up in the mountains. Drought in particular, accompanied by strong winds, has hit Russia’s Grain Belt that stretches from the Crimea to the area of Lake Baikal and includes Kazakhstan’s northern provinces, hard this year. In total, 3.3 million hectare of farmland spread over seven regions and federal republics have been affected, raising fears that 7 per cent of all crops might be lost for the year.

In Kazakhstan, mainly the northern region of Aktobe and the western provinces on the Caspian shore have been affected by water shortages. According to Agrimarket, 16 per cent of Aktobe’s 124.700 hectare, and nearly half of West-Kazakhstan’s 213,000 hectare have been lost during to course weather. Things look better further south, where weather conditions have been favourable, despite heavy rainfall into the month of July raising fears of floods in the run-up of the summer harvest, which increase the levels of moisture in the soil which could make the plants’ roots rot and starve the crops in the process.

Weather and climate conditions not only affect the soil’s productivity in Russia and Kazakhstan, but also the speed at which harvest can be completed. Crops that have not been harvested in the course of the month of November are likely to have to be considered lost – especially in the taigas that cover the surface of most of Russia and the northern half of Kazakhstan. Fears of tight supplies as a result of it have already affected domestic markets, as prices for flour during the first half of the current year in Kazakhstan have witnessed an average increase of close to 8 per cent in comparison to the same period of last year.

It gives both countries all the more incentive to speed up harvests – even if, at least in the case of the Russian Federation, haste tends to press productivity downward. “Russia harvested 32 million tonne of grain in the marketing year that began July 1 at yields below last year’s,” Bloomberg reported on July 29 quoting the Agriculture Ministry. “Farmers had harvested 11.3 million hectare of land as of Wednesday, the ministry said. The average yield was 2.83 tonne per hectare, 0.82 tonne less than last year.”

But speedy it all remains for it. One week earlier, on July 21, Agrimarket reported a yield figure of only 23.2 million tonne, up by 2.5 million tonne from the same date as of 2008, harvested over a surface of 7.6 million hectare, up by 2.2 million on-year. In the middle of the month, the agency had quoted agriculture minister Yelena Skrynnik as stating that as of July 13, Russia had harvested up to 11 million tone of cereals, with an average yield of 32.7 centner per hectare. By comparison, in the fertile plains of southern Kazakhstan yield per hectare remains blow 20 centner per hectare, and further to the north it stands at no more than 12 centner on average. By contrast, Uzbekistan recently reported a country-wide average yield of as much as 50 centner per hectare.

With an expected record harvest of over 6.6 million tonne, the Uzbeks for the first time since the country’s independence in 1991 hope to circumvent the need to import cereals this year and even reserve small amounts for export, according to an Agrimarket report dated July 20. For the former USSR’s current “sales troika” of grains, consisting of Russia, Ukraine and Kazakhstan, this is no major threat as world markets at their feet tend to grow.

The main immediate reason is that the much-feared phenomenon of El Nino, which consists of a so far unexplained reversal of passat winds on the southern hemisphere and is poised to hit it with natural disasters varying from hurricanes and floods to erosion and drought in the second half of this year, has now stirred again after a decade-long pause. Misharvests and subsequent rises in demand for cereals in Australia and the rest of Oceania, Africa and Latin America are to be expected as a result of it.

Even though world grain reserves, according to various observers, remain in the order between 90 and 100 days of world supplies, with 80 days being considered “critical”, markets already jitter on the outlook of eventual shortages, thereby triggering speculation and high sales prices. Estimates of global grain output for this calendar year vary from 640 to 651 million tone – meaning that even in the best case margins remain pretty safe, but markets these days simply do not seem to work that way.

In the first half of this year, wheat prices on LIFFE, Europe’s commodity market with branches in London, Paris, Frankfurt and elsewhere, rose by almost 20 per cent, peaking at 112 Sterling as of July 17. In the course of the second half of July, the price cooled down to hardly more than 100 pound, but the overall trend of increasing volatility has been set. Across the Atlantic, futures trade on the Chicago Board of Trade shows similar trends. This has prompted international aid organizations to knock on doors for more funding, as fears exist that even though there is enough bread for all mouths to feed in the world, prices demanded by haves in terms of food could well get to press on have-nots.

“The world is falling far short in feeding its most critically hungry, pledging only $3.7 billion of the $6.7 billion needed to fund the World Food Programme for 2009,” Reuters reported on July 29, quoting the head of the United Nations relief agency. “More than 1 billion people in the world are chronically hungry, up from 860 million two years ago. The WFP helps feed those deemed most desperate – about 10 percent of the total,” the report continued. “When food prices soared to record levels last year, prompting riots and hoarding in some countries, the WFP raised a record $5 billion in donations – about $2 billion more than in 2007 – to help feed 102 million people in 78 countries. While grain prices have since eased on world markets, food prices in most developing countries have continued to climb at a time when fewer people can afford them because of shockwaves from the economic downturn.”

WHEAT BENCHMARK PRICES ON LIFFE SINCE THE END OF 2008

date LIFFE-pence/tonne СBT-USDc/bushel
31/12’08 10575 610.75
31/03’09 10875 532.75
30/06’09 9750 511.25
17/07’09 11200 541.75
29/07’09 10125 511.50

source: FT/Reuters

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