Global Markets: Wheat – Turkey and Kazakhstan Top Global Flour Exporters

Most of the world’s wheat trade is in the form of grain due to the greater perishability of flour as well as the desire to mill in-country and capture value-added benefits domestically. Some countries even have disproportionately higher tariffs on wheat flour to encourage wheat grain imports.

Still, there are a few countries that import large volumes of wheat flour, often due to limited domestic milling capacity. Kazakhstan was the largest flour exporter for several years following the removal of EU wheat flour export subsidies. Turkey surpassed Kazakhstan in 2012/13 and has been the world leader ever since.

Kazakhstan’s largest markets are mainly in Central Asia – Afghanistan, Uzbekistan, and Tajikistan. Afghanistan, which accounts for most of these exports in the last 2 years, continues to import flour as its recently expanded milling capacity remains insufficient to meet demand. Kazakhstan has a well-established relationship with these markets, which together account for more than 90 percent of its flour exports.

Turkey, on the other hand, exports to a wider variety of markets. Turkey’s flour exports have become globally relevant due in part to its Inward Processing Regime (IPR). This policy improves the competitiveness of Turkish flour exports, as high domestic wheat prices would otherwise make exporting economically difficult.

Under the IPR, flour exporters are able to import wheat (for processing and re-export) without the 130-percent duty that would otherwise be assessed. Milling by-products such as bran are valuable in the domestic market, which further contributes to the profitability of flour exports. These exports have been challenged in the last few years by importing country policies.

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For example, the Philippines and Indonesia were once major flour markets for Turkey, but have since imposed duties to prevent economic harm to their domestic millers. As exports to those countries have declined, Turkey has expanded shipments to Iraq, Sudan, and Syria.

Turkish wheat flour continues to find a home in growing markets where milling capacity is underdeveloped or where domestically-milled flour is higher in price. Turkey is expected to continue dominating global trade in wheat flour for the foreseeable future.

Barley Prices Fail to Curb China’s Demand

China’s resurgent demand and lower global barley production are driving prices to their highest point in nearly 3 years. Demand has particularly surged in the Chinese province of Guangdong (the origin for half of China’s imports) where imported barley is used as a profitable energy component relative to other feedstuffs.

Robust malting demand in interior provinces has also contributed to resilient imports. In addition to China, Saudi Arabia’s relatively inelastic demand and the lowest projected global stocks in more than 30 years are also driving prices upward.

Saudi Arabia, typically the world’s largest barley importer, is expected to continue its strong presence by accounting for nearly a third of world imports this year.

China’s imports began to surge at the start of 2017/18 with low global prices, as a record Australian barley crop drove prices downward (see last year’s report here). The combination of Australia’s record 2016/17 crop and a free trade agreement with China (effective December 2015) made the feedstuff a lucrative import.

Since that period, however, Western Australia’s March FOB prices for barley have surged almost $80/ton (while wheat climbed $50/ton). Ever so, China’s imports are raised this month as its demand has shown little signs of waning but are still forecast lower than last year amid tighter global supplies.

As a result of robust global demand and lower world production, ending stocks in all major exporting countries are projected down by year’s end. Current projections have global stocks down more than a third compared to 2 years ago. China’s resurging presence has greatly influenced barley prices since last year, even as they fail to deter its robust imports.

Full report.

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