Global Markets: Wheat – Ukraine Exports Lowered Slightly but on Track for a Record

    Amid a bumper crop and competitive prices, Ukraine wheat exports are forecast at a record 24.0 million tons, with over 17.0 million exported between July and the end of January. Ukraine harvested a record crop of 33.0 million tons and has followed its typical pattern of strong exports in the first half of the year. Exports are usually brisk in the first few months given the limited storage infrastructure and the pressure to ship other grains, especially corn, later in the season.

    Ukraine directly competes with Russia in nearby markets such as Egypt and Turkey and has been very price competitive thus far. Ukraine has significantly expanded its wheat exports to Turkey in the first 5 months of the year and aims to deepen that trading relationship with the signing of a bilateral free trade agreement this month. Pakistan has been a recent global importer and has relied once again this year on price competitive Ukraine wheat.

    The forecast was lowered slightly this month on trade to date and more competition from India, Australia, and Argentina for supplying feed-quality wheat to Asian importers. Exports to Indonesia are now challenged by large Australian exportable supplies. Meanwhile, Bangladesh is sourcing most of its imports from India, which is now forecast at its highest exports since 2012/13. Record Argentina production is forecast to lead to record exports, some of which will compete in Asian feed markets.

    The current export quota MOU between the Ukrainian government and wheat industry is set at 25.3 million tons and therefore does not present an impediment to the current forecast. For more detailed information on the Ukraine wheat situation, see the latest Ukraine Grain Update.

    Ethiopia Shifting to Flour Imports Amid Wheat Shortage

    Due to several factors, Ethiopia has emerged as the largest wheat flour importer in Africa. Population growth and shifting dietary patterns, linked to urbanization and rising incomes, have driven consumption of wheat and wheat products to rise over the past decade. Wheat now represents 14 percent of the total caloric intake in the country, making wheat the second-most important food behind corn (20 percent) and just above teff (10 percent), a local grain.

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    Despite the growing importance of wheat as a food staple, Ethiopia has dealt with wheat shortages since 2020, exacerbated by both weak production and insufficient imports. Production in Ethiopia has been hampered over the past 2 years by political tensions displacing thousands in the farming community.

    As a result, Ethiopia remains a net importer of wheat, satisfying around 25 percent of the local demand with imports. Most is imported by the Ethiopian government, though a portion is imported as food aid, including from the United States. The Ethiopian government has issued multiple tenders but has had to cancel several of them. Higher global wheat prices have only exacerbated the supply issue further.

    Ethiopia has been importing and distributing wheat to flour mills at subsidized prices (currently at 30 percent of the prevailing domestic price) for a decade to stabilize the market. Millers would then sell the subsidized flour to bakeries to make bread. This has put pressure on the government’s foreign currency reserves. With global prices now almost double what they were 2 years ago, the government cannot afford to purchase enough wheat to satisfy domestic demand.

    In December 2021, in an effort to more efficiently stabilize wheat markets and reduce misuse of subsidized flour, the government announced a new distribution scheme for imports, where the subsidized flour would be sold from millers directly to consumers.

    With both a smaller crop and reduced imports, the Ethiopian Millers’ Association estimates its affiliate members are operating below 50 percent of their available capacities2. In April 2021, to facilitate trade in order to make up the shortage of wheat flour, the government removed a value-added tax and turnover taxes on imported food grains and flour.

    Ethiopia has become the largest wheat flour importer in Sub-Saharan Africa, importing 300,000 tons in 2020/21, mostly from Turkey, Egypt, and India. Given Ethiopia is completely landlocked, most has been low-priced Turkish wheat flour informally imported from Djibouti and Somalia through the northern border and eastern part of the country.

    There have also been reports of informal bartering occurring at the border, with farmers trading cattle for wheat flour.

    Drought in Middle East Causes Spike in Wheat Imports

    Below-average rainfall and high temperatures have dramatically weakened wheat yields in Iran, Iraq, and Syria. Wheat production in Iran is estimated down 3.0 million tons this year to 12.0 million. Production has been adjusted lower to 3.5 million tons in Iraq and 2.0 million tons in Syria this month to reflect the impact of severe drought.

    Production shortfalls have led to tightening domestic supplies and prompted a surge in wheat imports for the region in 2021/22. Russia has been the primary supplier given its transportation advantage and relatively lower prices compared to other major exporters.

    Iran is projected to import 7.0 million tons of wheat this year, up 4.8 million tons from the previous trade year. Russia, which dominates this wheat market, has already shipped 4.0 million tons to the country from July to January. Smaller amounts have been purchased from the European Union through government tenders.

    Syria wheat imports have also expanded. Beginning in February 2021, Russia began shipping large amounts of wheat grain to Syria. Russia sent over 800,000 tons in 2020/21 and has shipped over 400,000 tons so far this trade year. The Syrian Economic Minister recently stated that the annual wheat import requirement is at least 1.5 million tons due to drought and production shortfalls.

    With that in mind, Russian shipments to Syria are expected to continue throughout the year as Syria rebuilds stocks. Iraq, meanwhile, is typically an importer of wheat flour and products, mostly from Turkey. This year, however, Iraq began importing more wheat grain to supplement its tighter domestic supplies. Unlike Iran and Syria, Iraq’s wheat grain is likely to be supplied by Australia. The state grains buyer made two purchases of wheat grain from Australia through an international tender, totaling 650,000 tons.

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