ANALYSIS: Spanish drought could drive higher grain imports

Unseasonal heat and drought in Spain have driven concern about this year's crop production and a potential increased need for imports, at a time when there is also growing concern about the Ukrainian grain corridor.

The April EU Monitoring Agricultural Resources report (MARS) said no meaningful rainfall had occurred in Spain's main cropland area since January.

Soil moisture is now critically low for winter crops and spring barley with negative impacts on growth and development, the Mars report said.

“The drought is already suffocating 60% of the Spanish countryside and has caused irreversible losses to more than 3.5 million ha of non-irrigated cereal crops," the Spanish agricultural union COAG warned last week.

"Weather is dry and untypically hot in Spain, we might see a really bad crop this year," a Europe-based broker meanwhile told Agricensus.

The European Commission April crop forecasts call for soft wheat production in Spain to fall to 4,952,000 mt in 2023 from 5,388,000 mt in 2022, itself a sharp fall from 7,455,000 mt in 2021.

There has also been concern that production of other crops could be affected.

MARS already warned of "an impact on areas and type of spring sowing in the southern provinces of Spain, where maize and rice will partly be replaced by sunflowers and other water stress resistant crops and part of the land might not be sown at all.”

The Spanish government has requested that farmers get support from the crisis reserve fund of the EU’s Common Agricultural Policy (CAP) because of the exceptional circumstances. 

Trade expects increased imports

Trade sources have suggested that lower production may cause an increase in feed grain imports, including those from Ukraine, but also from Brazil which is expecting a large corn harvest.

“Spain experienced a dramatic drought that sharply reduced grain crops, increasing the country’s grain shortfall,” the US Department of Agriculture’s Grain and Feed Annual noted, adding that this, in turn, drove Ukrainian imports.

Fastmarkets data shows that in 2022 Ukrainian wheat exports to Spain grew 627% to 1,154,273 mt from 158,681 mt in 2021.

The USDA also said Spain had benefitted from the implementation of the Black Sea grain corridor, which came in time to help it during last year’s drought.

Spain has been the second biggest beneficiary of the grain corridor after China, with official data showing it has imported 5.1 million mt of products under the corridor since it opened last August, of which 1.9 million mt was wheat.

Trade sources have expressed their concern to Agricensus about the current uncertainty around the grain corridor in the Black Sea, with Spanish buyers looking to Ukraine as a backup in the likely event that Spanish production is again affected by drought.