The winter wheat crop in Ukraine is looking eerily similar to that of autumn 2011, and that is not a good thing for the world’s sixth-largest wheat exporter.
This year’s winter sowing campaign was drier than that of 2011, which a Ukrainian agrarian noted at the time coincided with the “third-largest drought in 200 years.”
As such, recent winter crop planting progress and condition reports have been similar to or worse than those from late 2011 of the 2012-harvested crop.
Ukraine went on to harvest a disappointing 15.8 million tons of wheat in 2012, when final harvested area dropped well below the amount that had been planted. Much of the tonnage loss was also based on huge yield penalties from a late-winter freeze followed by heat and dryness in the spring.
The area under wheat is already threatening to fall considerably this year, and the pronounced dryness and slow emergence puts additional strain on this year’s harvest, leaving winter and spring weather to either make or break the crop.
Upcoming rainfall could help the situation a lot. Regardless, production is expected to fall on the year, and based on some of the industry estimates, export volumes out of Ukraine in 2016/17 could be cut by up to 50 percent.
SOWN AREA IS UKRAINE’S ACHILLES HEEL
Lowered area has been a main concern lately, and as of this week, Ukraine has planted only 5.6 million hectares of winter wheat. They had planted 6.5 million by the same time in 2011.
Further, only 5.6 million hectares of wheat were harvested in 2012, down close to 18 percent from what they had planted. Taking the 2012 area loss as worst-case scenario, Ukraine could harvest less than 5 million tons of wheat in 2016, which has not happened since the catastrophic 2003 harvest.
Under relatively dry conditions, Ukraine was able to plant about 0.5 million hectares of wheat during November 2014, meaning that this year’s winter wheat area could still break 6 million hectares under the most optimistic scenario.
Spring wheat is unlikely to aid overall wheat area. Spring wheat area has been on a steady decline for the past 10 years as areas sown with competitor crops such as corn, sunflowerseed, and soybeans have been rising along with profitability.
Ukraine has sown under 0.2 million hectares of spring wheat for the past three seasons, meaning that together with the optimistic winter wheat target and harvested percentage in a normal year, Ukraine is likely to harvest under 6 million hectares of wheat in 2016.
But lowered sown area is not the only factor. As of Nov. 9, only 59 percent of planted winter crops had sprouted compared with about 88 percent on the same date last year.
By Nov. 18, 2011, 71 percent of Ukrainian winter crops had emerged, so this year’s crop has some serious catching up to do on more than one front.
CROP PERFORMANCE-TO-DATE VERY LACKLUSTER
Even though vegetation indexes derived from satellite imagery (NDVI) during the autumn are not a good predictor of final yield, they seem to be a pretty good indicator of current conditions.
Low NDVI values suggest that the landscape is not as lush, often resulting from the lack of moisture. As such, current NDVI is battling 2014 and 2011 for record low values at this time of the year across many areas of Ukraine.
Low autumn NDVI is indeed telling because in November 2011, 30 percent of winter crops were reported to be in weak condition, roughly the same as what is being reported today. In November 2014, 18 percent of winter crops were in weak condition.
The percentage of weak winter crops during the 2012 and 2015 harvests never pushed higher than what was reported the prior November. Timely spring rains pulled weak crops out of peril for the 2015 harvest, and despite several struggles with weather, only 22 percent of winter wheat was in weak condition as of mid-June 2012.
If we start to see crop ratings worsen, and particularly if the winter is harsh, Ukrainian wheat will have an even steeper hill to climb. However, upcoming weather may provide the break that winter crops desperately need.
The next ten days are expected to be rainy and unseasonably warm, entirely different from 2011, when one of the coldest Novembers on record severely hindered establishment. Temperatures are not expected to drop below freezing over the next two weeks.
The latest NDVI also showed a slight hint of recovery in some areas, and this upcoming period of warmth and rain could lead to even further improvements and could potentially be the differentiating factor between the 2012 and 2016 harvests.
But there is still a long way to go. Even with the upcoming rain, winter and springtime weather are absolutely crucial at this point and will ultimately determine the fate of the harvest. Ukraine is just hoping that come the spring, 2012 is no longer a good analog year.
WHAT DOES THIS ULTIMATELY MEAN FOR UKRAINE?
The impact on exports could be significant. Combining both an optimistic harvested area and a standard trend yield, Ukraine could expect to harvest about 23 million tons of wheat in 2016 if nothing else goes wrong.
Assuming domestic consumption stays flat, a 23 million-ton harvest would leave at most 11 million tons for export, down nearly a third on the year, before factoring in any potential damage from winter or spring weather.
Not many groups offer production estimates this early in the season, though the consensus amongst those currently available is that production will be considerably down on the year. And those estimates at this stage of the game should mostly be driven by variation in planted area.
UkrAgroConsult pegs the 2016 wheat harvest at 19 million tons while Thomson Reuters’ Lanworth group predicts 24.3 million tons. Ukraine’s state weather agency implies a harvest around 21 million to 22 million tons.
If the 2016 crop amounts to only 19 million tons, exports could be slashed by two-thirds without a significant change in feed and consumption from the past couple of years.
But it is important to point out that Ukrainian groups seem to have been overly pessimistic in recent years when it comes to releasing reports, estimates, and potential implications.
In 2011, the state weather agency said Ukraine could lose 30 percent of the winter wheat area, but it turned out to be under 20 percent, even in bad conditions. For the 2015 harvest, many agencies were underestimating the wheat crop by nearly 5 million tons even in late spring.
So perhaps there is some comfort in the fact that the optimistic viewpoint has recently been dominant in Ukraine, but based on how things have gone up until this point, people are probably not crying wolf right now.