Monday, October 24, 2011

Black Sea dominates wheat trade, while Australia lags.

After much huffing and puffing the export duty for Ukraine wheat exports is finally destined for the scrapheap. And now Egypt the world’s largest wheat buyer has placed them on the approved wheat destination list. Ukraine will now be making as much hay as the sun shines, or getting as much wheat shipped before the government tries to implement another tax to bolster their pockets! They will find that much of the nearby demand is covered, so would potentially be in the market for grain into the New Year, smack back in the middle of Australia’s traditional busiest export period.

They could also have most of the trade during this period, if Russian ports don’t freeze or logistics bottlenecks appear in Russia or Kazakhstan. Recently the Kazakh ministry confirmed bumper crop at 22mmt, more then double from last year. Nevertheless, logistics will be key on determining how much of this crop actually reaches the export market.

"Russia will approximately export 24-25mmt grain, and after that we will introduce certain limits in order not to leave the country with no bread and for us to accumulate reserves that will make up next year's reserves," Putin warned recently. This should not cause any nearby problems, especially with Ukraine and nearby Kazakhstan chomping at the bit to have a slice of the action in 2012.

Ukraine aggressive selling can also keep a cap on the Russian prices increasing too much. The government does not want higher domestic prices, ruffling feathers internally and secondly, Russia doesn’t want to again tarnish their reputation as a reliable supplier of grain. It regained its positions with its main buyers quickly this year, though at a cost to its farmers, by undercutting competitors at key tenders. Some may say this was a throwback to the days of the Tsars….!

Australia, Canadian or United States origin wheat hasn’t had any volume being shipped to Egypt on GASC tenders since the end of June. Since then and when Russia re-opened ports for wheat exports, it has been all Black Sea origin.  Since the start of June, 3.6mmt has been exported, of this 80% was Russian 5% Romanian, 7% Kazakh, 9% Ukraine.

This surge in Black Sea origin wheat, is hurting international values. Not only is EU volume down but US and Australian exports also. Especially shipments from the US, have declined 24% to 26.5 mmt this season, the biggest drop in a quarter century..! Before the Russian export ban, average Australian exports from July – Sept were sharply lower then the Oct ‘10 – June ’11 period. A trend that was reversed compared to the previous four years.

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