BELGRADE - It may be worth keeping a closer eye on the Serbian grain market, but the reasons may not be immediately obvious.
Serbia, located on the Balkan Peninsula, borders four European Union countries - Romania, Hungary, Croatia and Bulgaria - but is not an EU member itself. Therefore it often gets overlooked in the European grain picture.
In recent years, the former Yugoslavian nation has broken the top 10 in terms of largest exported corn volumes by country. In terms of trade, Serbia is basically considered a Black Sea country and competes directly with Ukraine, Romania and Russia.
Last week, Thomson Reuters travelled across the major grain belt of Serbia with Agroglobe and MK Commerce, leading agriculture companies in the country. The group interviewed a range of industry participants and checked field conditions.
For Serbian grain, production volume is tied closely with export volume. Everything looks good so far for this year's harvest, but there is a ways to go on the corn and other spring crops.
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PRODUCTION BASICS
About 2.2 million hectares (5.4 million acres) are sown per year with grain and oilseed crops in Serbia. Roughly half of this area is dedicated to corn and a quarter to wheat. Soybeans, sunflower and sugar beets occupy most of the rest ( http://tmsnrt.rs/1XRqlR2 ).
When it comes to planting decisions, cash and futures prices may cause Serbian farmers to devote a bit of extra area to one particular crop, but rotations usually win out. Above all, crop rotation practices help farmers achieve the best potential for their crops, which is why they rarely veer from this procedure.
Crop rotations are also part of the reason why large year-on-year area swings in one crop relative to another are unlikely. The planted area of primary grains and oilseeds in Serbia has not fluctuated noticeably in recent years and is fairly predictable from one year to the next.
It is rare to find a farmer in Serbia who does not grow multiple types of crops, as land diversification is one of the most important risk-management strategies. Farmers particularly want a certain amount of more drought-tolerant crops, such as wheat or sunflower, to protect themselves in a worst-case drought scenario.
Serbian crop fields are much smaller than those in the United States or South America, for example. Fields can be as small as a few hectares, and it is uncommon to see fields in Serbia that are much larger than 100 hectares. Only about 12 percent of fields have irrigation systems.
The Balkan country produces more than 10 million metric tons of grain and oilseeds in a normal year. Most of the production resides in the Vojvodina region, the northernmost part of the country, which lies just north of the capital, Belgrade.
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The "black earth" soil found across most of this region is about the most desirable soil type in the world, comparable with soils in the central parts of the United States and Ukraine.
Fertile soil is part of the reason why wheat yields can be quite large in this area. In a good year, wheat yields can approach 8 metric tons per hectare in parts of Vojvodina. This is similar to wheat yields found in northern France.
However, less favourable ground in central Serbia lowers the national wheat yield to just over 4 metric tons per hectare. This yield is at least 1 metric ton per hectare above the world average, and is higher than many of Serbia's Black Sea competitors, such as Romania and Ukraine ( http://reut.rs/1U3DmAa ).
Summer weather can be tricky in Serbia, which contributes to corn yields being less consistent from year to year. National yields are slightly below the global average of near 5.5 metric tons per hectare, but similar to wheat, corn in Vojvodina generally yields a couple of metric tons per hectare higher than the rest of the country ( http://reut.rs/1U3CDz0 ).
TRADE BASICS
Although Serbia can export up to 1 million metric tons of wheat in any given year, corn is the country's major commodity crop export and competes directly on the Black Sea market.
The vast majority of traded Serbian corn is loaded onto barges at ports along the Danube River and transported to Constanta Port in Romania. On average, each barge carries between 1,200 and 1,500 metric tons of grain.
The amount of corn exported in any given year is directly related to the production volume. Serbia's yearly domestic corn consumption is around 4 million metric tons, so any additional quantity produced is available for export.
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Serbia's bumper 2014 harvest of 7.7 million metric tons of corn allowed for a record volume of nearly 3 million metric tons to be exported. Serbia has ranked 10th by export volume among major corn-exporting countries for the past two seasons and is expected to do so again in 2016/17 ( http://reut.rs/1XRiFOL ).
The top four corn-exporting countries - the United States, Brazil, Argentina and Ukraine - account for about 85 percent of global trade. But the remaining 15 percent is up for grabs between Serbia and its competitors.
France generally takes the fifth spot at around 3.5 percent of global corn shipments, and spots six through 10 include Paraguay, Russia, Serbia, Hungary and Romania. The latter two are major regional rivals to Serbia in the corn arena, though they often receive more international attention than Serbia.
But Serbian corn has an advantage over the competition because of the country's strict laws against genetically modified organisms, or GMOs. European countries largely produce non-GMO crops but most of them do not outlaw the practice outright, as Serbia does.
Therefore customers of Serbian corn are guaranteed a GMO-free product, which not only raises demand but has also created a somewhat niche market for the grain.
CURRENT CROP
So far, the 2016/17 Serbian harvest is shaping up to be a good one, especially for wheat. But for the spring-planted crops, the season is far from over.
Many farmers across the main wheat-producing part of the country expect their wheat yields to be as good, if not better than, last year's near-record result. Harvest begins on July 1 in the core grain belt and the only threats that remain are the off-chance of hail or flooding rains.
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At this point, the scenarios for the corn crop are wide open, and the success or failure of the crop will ride primarily on the weather. Planting was timely and the area sown with corn is very similar to recent years, including the record-setting 2014 season.
Although it is still early, Serbia's corn looks just about as good as it can for the time of year. But the same thing could have been said in 2012 at the same point, just before a devastating drought hit during pollination, which is about the worst possible timing.
Serbian agronomist Nedeljko Nenadic perhaps summed up the weather risk to the current corn crop best when he told Reuters last week that "corn cannot be trusted. July and August are very dangerous."
