The conflict in the Black Sea has disrupted the flow of grains from the region and caused great uncertainty in global grain trade. Ukraine has suspended port operations for commercial activities since February 24. Russian grain movement through the Black Sea is also affected by exceptionally high insurance premiums for vessels.
In addition, the sanctions that have been applied make commercial transactions challenging. In response, grain prices have soared for all major exporters. This month’s forecast represents an initial assessment of the short-term impacts as a result of this action.
Wheat, corn, and barley are the major grains supplied by Ukraine and Russia.
Wheat: Ukraine accounts for 10 percent and Russia for 16 percent of global wheat exports in marketing year 2021/22, which began in July. The majority of Ukraine’s exports are shipped in the first few months of the marketing year, but the closure of ports is currently limiting additional exports.
Russia had already been taxing exports and implemented an export quota on February 15. Russia exempts neighboring Eurasian Economic Union (EAEU) countries from the export quota and maintains access to ship out of the Caspian Sea. In addition to strong exports from the European Union, India and Australia are expected to ramp up exports to record levels since both have record crops and competitive prices.
Meanwhile, global trade is adjusted slightly lower this month as sharply higher wheat prices are trimming demand with importers reducing and deferring purchases and relying on existing stocks.
Corn: Ukraine and Russia combined account for about 16 percent of corn exports to the world. This month, exports for Ukraine are forecast lower reflecting port closures in the Black Sea since the start of Russia’s invasion. Russia corn exports remain unchanged with the assumption that corn will be shipped via the Caspian Sea to key markets.
U.S. corn exports are boosted, partially offsetting the reduction for Ukraine. New crop supplies from Brazil and Argentina are expected to come onto the market in a few months and both export forecasts are raised this month.
Barley: Though Ukraine and Russia account for about 30 percent of barley exports, global barley trade is up slightly this month due to larger supplies from Australia and a slight increase to Canada. Ukraine barley exports are generally front-loaded after harvest and a majority of the most recent crop has already been shipped, so the effect of port closures on exports is expected to be less severe for barley than for corn.
Australia barley production has been revised upward, increasing exportable supplies, and Canada’s export volume has been stronger than expected despite its drought affected production. Both forecasts are raised this month.
Higher Australia and India Wheat Exports Partially Offset Cuts to Black Sea Exports
With record production, Australia’s 2021/22 export forecast is hiked up 1.0 million tons to 27.0 million, an all-time high for the July-June trade year. Disruptions from Black Sea suppliers has left the world’s biggest importers searching for wheat.
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With two consecutive bumper crops, Australia has ample exportable grain supplies. Although typically focused on key Asia markets, Australian exporters will likely seek out customers in the Mediterranean and Africa this year.
Australia has exported 13.2 million tons of wheat year-to-date (July-January), which means exports will have to average 2.7 million tons per month to reach the revised forecast. Historically, 2.7 million tons has been the maximum per month, but exports have been at very high levels since December 2020 and exceeded 2.7 million in January.
A few smaller ports have come online in the past couple of years in South Australia. Additional export capacity is being opened in Western Australia, which should allow an accelerated export pace in final 4 months of the trade year.
Reports from major Australian traders indicate that buyers are covering purchases further out than typical. Australian shipping slots are fully booked for months in advance and shipments for new-crop wheat are being booked already.
India exports are also forecast higher, raised 3.0 million tons this month to 10.0 million, which would also be a record. With the Russian invasion of Ukraine, export demand for India’s wheat has accelerated. In the new marketing year (MY) 2022/23 beginning in April, fresh supplies will be available in addition to the exceptionally large stocks in the country.
While exports have tended to be mostly to neighboring countries including Bangladesh and some markets in the Middle East, India is likely to find buyers across Africa and other parts of the Middle East. Transit time to the Middle East would be longer compared to Black Sea exporters, but India is well positioned to step in as a low-cost supplier.
From July through January, India has exported 5.2 million tons, primarily to Bangladesh. Exports since October have averaged over 900,000 tons per month and India is expected to maintain this pace.
Notwithstanding the conflict in Ukraine, tightening global supplies and high prices from major exporters have made India wheat competitive for the first time in several years. After five consecutive record crops and rising government wheat inventories, India has ample exportable supplies.
Indian wheat export prices averaged an attractive $312/ton in January and have the advantage of low freight rates to markets in the Middle East and South Asia. Exports are forecast to be more than double last year’s volume and 20 times levels from 2 years ago. The last time India was a significant exporter was in 2012/13 when Russia and Ukraine had production shortfalls from drought.
Egypt and Turkey Wheat Imports Trimmed Amid High Prices and Export Challenges for Key Suppliers
The ongoing conflict in Ukraine and Russia has caused wheat supply and food security concerns for many major wheat importers that depend on Black Sea supplies.
Egypt, the largest wheat importer in the world, consistently purchases large volumes of Russian and Ukrainian wheat to satisfy its consumption needs. In the first half of the trade year, nearly 80 percent of Egypt’s imports have been supplied by Ukraine or Russia. This includes private sector purchases, which account for nearly half of total annual wheat imports.
Egypt’s state buyer, General Authority for Supply Commodities (GASC), purchases wheat through international tenders and a large portion is directed towards its food subsidy program that distributes bread to vulnerable populations. While GASC normally purchases from Russia, Romania and Ukraine have become top suppliers this year as global prices climbed.
Following Russia’s invasion of Ukraine, however, GASC is attempting to diversify its wheat suppliers. The wheat moisture limit specification, normally set at 13%, will be raised to 13.5% to encourage these efforts. Furthermore, the Deputy Supply and Internal Trade Minister has stated Egypt’s intention to consider wheat supplies from the United States, Kazakhstan, and the European Union.
Even with additional measures to diversify its wheat supply, rising global prices will impede Egypt’s ability to purchase large volumes of wheat from international sources. In February, GASC canceled two tenders due to lack of participants and escalated bid prices. Egypt, a price-sensitive market, may rely more on the wheat it has already stocked for the remainder of the trade year.
Currently, government wheat reserves for the food subsidy program account for 4.5 months of consumption. Egypt has continued to build new silos and expand its storage capacity, which may eventually allow Egypt to limit imports to withstand price spikes. Furthermore, additional reforms to the bread subsidy program could lower import demand.
Given the volume imported thus far and the challenges with high prices and alternative suppliers, Egypt imports are lowered 500,000 tons this month to 12.5 million. Turkey is another country that is largely dependent upon these two countries for imports. While Turkey produces wheat, its 2021/22 crop was down by more than 10 percent from the year before, while its consumption is forecast to rise 3 percent.
Food price inflation has been a key concern in Turkey. Imports are set to rise to offset the tighter domestic supplies. To facilitate this trade, the government made imports duty-free in September 2021, and in January 2022 extended the duty exemption until the end of 2022.
Because of proximity and competitive prices, Turkey has come to depend heavily upon Black Sea wheat, particularly from Russia. Russia has consistently been Turkey’s largest supplier, and meanwhile Turkey has ranked as Russia’s first- or second-largest export market for the past several years.
Ukraine has been the second-largest supplier to Turkey. The Turkish state grain board TMO regularly purchases wheat via tenders. While it was able to purchase for $341- $351/ton in January, by early March, the purchase prices rose to $409- $517/ton. Its purchases were lower than the initial tender amount because of high prices.
Some of what was purchased was already in free trade zones waiting to be officially imported. Fortunately, Turkey does have some domestic stocks from which to draw upon and its new marketing year begins in June. Typically, its imports wane toward the end of the marketing year.
Turkey also imports a significant amount of wheat grain to re-export wheat flour and products such as pasta. Turkey is the top exporter of wheat flour to the world, with more than 30 percent exported to Iraq, followed by Yemen and Syria as major destinations. Turkey’s pasta exports are roughly the same quantity as the European Union, and its top destinations are Venezuela and numerous African countries.
Thus far there have been no disruptions to Turkey’s wheat product exports, although on March 4, the Ministry of Agriculture and Forestry has added wheat products to its list of items for which it has the authority to regulate exports. Turkey’s imports are lowered 1.0 million tons this month, reflecting the deferment of purchases and increased reliance on wheat that is already in the country. Its exports are unchanged this month.