What Disruptions Will the Black Sea Corn Market Cause to Your Trades?
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Corn is the second-largest agricultural product exported from the Black Sea market after Wheat. It is crucial for livestock feed and food consumption globally. Due to the situation in the area in March 2022, Corn exports from Ukraine completely stopped by sea, and Ukraine exporters can only transport the goods by rail to Romania or Bulgaria to ship them out. Additionally, Russia and its allies are banning exports of agricultural goods to many countries, including fertilizers, on which Latin America (LatAm) relies heavily. LatAm also suffered from a lasting La Niña during the Austral Summer, which decreased yield and production of Soybean and potentially also Corn. This could lead to a global supply crisis for the commodity. Therefore, what will the consequences of the Black Sea Corn market be?
Jump straight to the conclusion
Why Is the Black Sea Market Important for Corn?
The Black Sea Corn market is a significant region as Russia, Ukraine, Bulgaria, and Romania produce and export substantial amounts individually, representing a significant portion of the global supply.
Read also: What Should You Be Expecting if You Are Selling From the EU Or US Corn Market in 2021/22?
Figure 1: 2021 Global Corn Export Shares
In 2021, global Corn exports displayed in Figure 1 relied on three major producing regions:
- North America, with the United States being the single largest exporter of Corn globally
- South America or Latin America, which is the central exporting region with primarily Argentina and Brazil
- Black Sea, comprised of Ukraine, Romania, Russia, and Bulgaria
The Black Sea represented almost 22% of the world export supply, of which Ukraine is the essential origin. In 2021, Ukraine exported more than 27 Mmt of Corn, nearly the entire expected export supply. However, due to the conflict, USDA estimates that production will decrease 30% YoY in 2022/23 (S&P). Moreover, in its March 2022 issue of the WASDE report, USDA also increased its estimated Ukraine and Russian Corn ending stocks for 2021/22 due to exports cuts (Farm Progress). The first to be impacted by this are the main Black Sea Corn market importers.
Figure 2: 2021 Black Sea Corn Imports by Volume (More than 1 Mmt)
The largest Black Sea Corn market importers in Figure 2 are various, with China the leading country by a large margin with more than 7.5 Mmt. In 2021, China massively imported from Ukraine as it remained the best execution thanks to low prices and a bountiful crop against Brazil and the US. Additionally, the Black Sea market heavily supplied the EU with almost 9.3 Mmt of Corn and the Middle East with 12.69 Mmt. Therefore, the Black Sea is a crucial origin for these three markets, which will have to turn to one or several of the three other major global producers shown in Figure 1.
Read also: Ukrainian 2022 grain crop to decline substantially
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What Are the Consequences of Black Sea Corn Market Disruptions?
In 2022, the disruptions in the Black Sea market will impact the new crop production. Thus global producers are competing over shares of the Black Sea Corn market importers.
Figure 3: Argentina, Brazil, and US Corn Exports to Black Sea Importers Growth 2021 v. 2020
In 2021, Argentina, Brazil, & US Corn exports’ growth featured in Figure 3 shows that the US expanded its presence in the Middle East and China with a staggering 939% increase of Corn exports YoY in Egypt. Meanwhile, Argentina increased its support in the EU with Spain, and Brazil was an increasingly demanded origin in Egypt in 2021. Therefore, LatAm is occupying more and more Black Sea Corn market shares, while the US reinforced its presence in strategic countries with large volume capacities.
Nonetheless, Russia’s export cuts also impact the fertilizer supply chain LatAm relies on for its Corn crops. Brazil is dependent on imports for around 87% of its fertilizer usage. Russia represents 21% of its Nitrogen, 15% of its Phosphate, and 44% (including Belarus) of its Potash imports (source: Farm Policy News – Illinois University). This, in conjunction with the current long La Niña effect, could threaten LatAm Corn 2022/23 production and create a global food & feed crisis.
Read also: Here is Why Turkey and Iran Grain Imports Surged in August 2021
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In a Nutshell
The Black Sea Corn market represents just under a quarter of the global Corn export market. Due to the region’s situation in March 2022, most of the leftover 2021/22 supply is hard to access or inaccessible, and Ukraine’s 2022/23 crop production (which represents just over 69% of the total Black Sea Corn market supply) is expected to decrease 30% YoY.
Major Black Sea Corn market importers will undoubtedly have to diversify their sourcing to LatAm or the US. In 2021, these origins grew exports to China, the Middle East, and the EU and could occupy more of these markets’ Corn import shares in 2022/23. Nonetheless, Russia banning fertilizer exports will severely impact Brazil and Argentina’s Corn production, which could create a global food crisis.
All in all, the Black Sea Corn market disruptions are currently impacting global Corn Supply & Demand. Importers will have to source their Corn mainly from the US and LatAm. However, the growing competition over these sources and the energy market pressure due to an increasing interest in Bioethanol will make sourcing Corn challenging as prices are surging and volatility is growing.
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