Export Below Potential On Harvest Delay And Competition
BMI view: We maintain our forecast for Kazakh wheat production to rebound 52.4% year-on-year (y-o-y) to reach 15.0mn tonnes in 2013/14. However, we raise concerns over potential deterioration in the quality of the crop because of delays in the harvesting process. As a result, we maintain our view that exports will be below potential, especially in a context of increased competition with neighbouring countries. We continue to expect the country to develop its own grain export routes, especially towards Asia.
We maintain our forecast for Kazakh wheat production to rebound by 52.4% y-o-y to reach 15.0mn tonnes in 2013/14. This is slightly lower than official estimates at 16.3mn tonnes in 2013/14. However, we raise concerns over potential deterioration to the quality of the crop. Even though 92.0% of the wheat collected so far is of high quality, local industry sources fear that the quality could fall further as the harvesting campaign shifts to the northern part of the country. Kazakhstan has already harvested 7.5m tonnes of wheat from 40% of the sown area with yields at 1.3tonnes/hectare, up from 0.8tonnes/hectare in 2012/13. As of September last season, more than 80% of the sown area had been harvested.
|Select Black Sea Countries - Wheat Production ('000 tonnes)|
The slow pace of the harvest in Kazakhstan has limited export potential from the country in the beginning months of the 2013/14 season. In fact, the country's exports of grain and flour by rail dropped to 1.6mn tonnes between July 1 and October 1 from 2.1mn tonnes in the same period a year earlier. We believe the country's official forecast of 7-8.0mn tonnes of exports in 2013/14 is achievable, slightly higher than 6.7mn tonnes in 2012/13. This will happen as the production surplus will increase from 3.1mn tonnes to 7.8mn tonnes, and as ending stocks for the country remain strong.
We maintain our view that Kazakhstan will struggle to export wheat this season because of strong competitiveness from neighbouring countries, which still dominate the shipping routes to the Middle East and Asia. In the early months of the season, wheat from the US and EU proved to be the most competitive, before Russian and Ukrainian wheat harvest gathered pace. For example, EU export licenses between July 1 and October 1 climbed to 4.5mn tonnes, from 2.1mn tonnes over the same period in 2012 and the most since at least 2004. Over the same period, exports from the US rose to 15.8mn tonnes, from 11.5mn tonnes in 2012/13.
Ultimately, we believe the development of the country's export sector will come from a shift in target from the Middle East, where it competes heavily with its neighbours, to Asia. Even if we believe this strategy will be implemented in most Black Sea countries ( see 'Export Potential Shifting East', 9 July 2013), because of the tremendous demand and growth potential in Asian markets, we believe it will be a crucial choice for the Kazakh grain export industry. In fact, the country's transport subsidies currently support exports to Russian and Baltic ports, in turn directed to Asia, mainly China. However, because of the booming demand for Kazakh grains from China (approximately 160,000 tonnes of grain was shipped to China in 2011/12, compared with just 31,000 tonnes the year before), the country is seeking to develop its own grain routes outside of Russia and Ukraine's influence. Kazakhstan recently launched its own grain terminal in the Iranian port of Amirabad (which it supplies from its port of Aktau), and BMI believes that this will offer Kazakhstan the ability to not only cater for Iranian demand, but also to Asian demand.Grains will be shipped to Amirabad, freighted through Iran, and then shipped out to central and eastern Asia, via Iran's ports on the Persian Gulf.
|Front-Month CBOT Wheat (USc/Bushel, weekly) & RSI (below)|
Ultimately, strong Kazakh export capacity as well as replenished stocks for the region, support our view that global wheat prices will not break above the USc700-750/bushel resistance again in the near term. We called for a short-term rally in prices from a recent bottom at USc640-650/bushel, but we believe prices will top soon and see more weakness at the start of 2013 once more information on plantings for the 2014/15 season is released.
|Notes: e BMI estimates. f BMI forecasts. Sources: 1 USDA.|
|Wheat Production, '000 tonnes 1||22,732.0||9,841.0||15,000.0||16,200.0||17,010.0||17,350.2|
|Wheat Consumption, '000 tonnes 1||7,400.0||e||6,815.8||7,156.6||7,163.7||7,171.7||7,180.6|