Russian wheat seeks new markets
IOL Business - Sep 21st 2011, 10:15
Russian wheat exporters aim to ramp up sales to nascent markets such as South America due to their cheap price edge, which may also give a boost to freight rates which are struggling with a ship glut.
Millions of tonnes of low-priced Russian wheat have surged onto global markets since Russia ended a near year-long grain export ban in July, sweeping aside competitors including those from Europe and the United States.
While top quality Russian milling wheat is making inroads into non-traditional markets for food-grade wheat, lower grades of Russian wheat are also emerging as alternatives to high-priced corn in animal feeding rations.
“There is very little doubt that Russian wheat will again be sold way beyond its traditional markets in the Middle East in the coming months. I think we will see more sales to Asia and the Far East and more sales to Central and South America,” a European trader said.
“We saw this process developing pretty spectacularly in the first half of 2010 with sales from the Russian 2009 crop suddenly being sold to Japan, the Caribbean and consumers in the Americas like Peru and Central America where it had not been seen before,” he said, adding that a grain export ban by Moscow that lasted nearly a year had stopped that drive.
Another trader expected sales to Asia to pick up especially to poor countries such as Bangladesh due to cheaper prices.
“In the coming months we will see increasing Russian sales to big importers like South Korea, Thailand and Indonesia,” the trader said.
“Australia and Canada could find they will suffer. Several Asian countries such as Japan and Taiwan are suspected of buying US wheat to keep their trade deficits with the US down so the US might have a little advantage here.”
US grain players said they were keeping an eye on Russian grain exports, but were not overly concerned about shipments from the low-cost supplier cutting into US market share in Latin America and the Caribbean.
Russian milling wheat prices at Black Sea ports were at a discount to US wheat prices, but the higher cost of shipping the grain from Russia to the Americas more than offsets that cost savings.
Competitive prices for feed wheat shipments from Russia have prompted talk of potential sales into Mexico or other regional importers of US corn, but no deals have been confirmed.
“It's been talked about for some time because it works on paper right now. But like everything, it's going to come down to the phyto issue,” a US corn trader said, referring to the quality approval needed for imported grain.
Feed wheat prices at Russian ports were around $255 to $260 per tonne FOB, while corn at US Gulf Coast export terminals was near $300 per tonne FOB, traders said.
Traders in the US estimated the cost of shipping to many Latin American markets would be about $15 to $20 per tonne cheaper from the United States.
“If they could capture those markets from the US, clearly there would be a tonne mile effect,” said Mark Williams, research manager with broker Braemar Seascope, referring to the indicator of shipping demand, measuring transported cargo volume multiplied by distance.
“You might see some shipments on a spot basis, but I don't think Latin America will give away a reliable business partner directly to the north.”
While Russian stocks could eat into demand for Brazilian corn in European markets in the coming months, the seasonal differences in export pick-up times were unlikely to pose a real challenge, traders in Brazil said.
“The season time to export for Brazil is different from Russia. I think Russia will dispute the market with US,” said Informa Economics FNP analyst Aedson Pereira.
Shipping analysts said if Russian exports were unable to make inroads into longer haul destinations, they would provide only modest freight rate support in their traditional markets in the Middle East and North Africa due to shorter distances.
“During the previous marketing season, due to limited wheat from the CIS countries, the gap in supplies for Egypt and sub saharan Africa had to be filled by exports from the US and Canada, which lead to longer tonne-miles,” a shipping source said.
“This year, grain trade should return to pre-2010 patterns, with these markets being supplied by their usual sources and therefore negative on tonne miles.”
Andrei Sizov Sr, president and chief executive of SovEcon agricultural analysts, said Russia had already shipped around two million tonnes of wheat to Egypt, with active Russian wheat purchases by Jordan and Iraq.
“(Russian) traders, who have signed supply contracts for October, are now in a difficult position, as domestic prices have risen,” he said.
“The euphoria, which started after the non-extension of the ban will pass. Russia has started with very low prices and used not only its own ports, but also ports of neighbouring Ukraine and Ventspils in Latvia. But Russian grain is already becoming less competitive.”
Sizov Sr said traders would honour contracts even without a profit in order not to lose markets.
“But they will be very careful signing contracts for the end of this year and the beginning of the next one.”
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