The conflict in the Black Sea has disrupted the flow of grain from the region and caused great uncertainty in the world grain trade. Ukraine has suspended port operations for commercial activities since February 24. The movement of Russian grain across the Black Sea is also affected by exceptionally high insurance premiums for ships.
In addition, the sanctions that have been applied complicate business transactions. In response, grain prices soared for all major exporters. This month’s forecast represents a first assessment of the short-term impacts resulting from this action.
Wheat, corn and barley are the main cereals supplied by Ukraine and Russia.
Wheat: Ukraine accounts for 10% and Russia 16% of global wheat exports in the 2021/22 marketing year, which started in July. The majority of Ukrainian exports are shipped in the first months of the marketing year, but port closures are currently limiting further exports.
Russia had already taxed exports and implemented an export quota on February 15. Russia exempts neighboring Eurasian Economic Union (EAEU) countries from the export quota and maintains vessel access out of the Caspian Sea. In addition to strong exports from the European Union, India and Australia are expected to increase their exports to record highs as both have record harvests and competitive prices.
Meanwhile, global trade is adjusted slightly lower this month as sharply rising wheat prices reduce demand as importers reduce and postpone purchases and draw on existing stocks.
But: Ukraine and Russia together account for about 16% of maize exports to the world. This month, exports to Ukraine are expected to decline due to port closures in the Black Sea since the start of the Russian invasion. Corn exports from Russia remain unchanged with the assumption that corn will be shipped via the Caspian Sea to key markets.
US corn exports are boosted, partially offsetting the reduction for Ukraine. New crops from Brazil and Argentina are expected to hit the market in a few months and both export forecasts are raised this month.
Barley: Although Ukraine and Russia account for about 30% of barley exports, world barley trade is up slightly this month due to increased supplies from Australia and a slight increase to Canada. Ukrainian barley exports are generally shipped after harvest and the 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 But.
Australia’s barley production was revised upwards, increasing export availabilities, and Canada’s export volume was stronger than expected despite its drought-affected production. Both forecasts are raised this month.
Higher wheat exports from Australia and India partially offset reductions in Black Sea exports
With record production, Australia’s export forecast for 2021/22 is raised by 1.0 million tonnes to 27.0 million, an all-time high for the July-June marketing year. Disruptions to Black Sea suppliers have left the world’s biggest importers scrambling for wheat.
With two consecutive bumper harvests, Australia has abundant reserves of exportable grain. Although generally focused on major Asian markets, Australian exporters are likely to seek customers in the Mediterranean and Africa this year.
Australia has exported 13.2 million tonnes of wheat year-to-date (July-January), meaning exports will need to average 2.7 million tonnes per month to meet the revised forecast. Historically, 2.7 million tonnes 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 last two years in South Australia. Additional export capacity is being opened up in Western Australia, which should allow the pace of exports to pick up in the last 4 months of the trading year.
Reports from major Australian traders indicate that buyers are hedging purchases further than usual. Australian shipping slots have been sold out months in advance and shipments of new crop wheat are already booked.
Indian exports are also expected to increase from 3.0 million tonnes this month to 10.0 million, which would also be a record. With the Russian invasion of Ukraine, export demand for Indian wheat accelerated. During the New Marketing Year (MY) 2022/23 starting in April, fresh supplies will be available in addition to the exceptionally large stocks in the country.
While exports have tended to go mainly to neighboring countries, including Bangladesh and some Middle Eastern markets, India is likely to find buyers in Africa and other parts of the Middle East. Transit time to the Middle East would be longer than Black Sea exporters, but India is well placed to step in as a low-cost supplier.
From July to January, India exported 5.2 million tons, mainly to Bangladesh. Exports since October have averaged over 900,000 tonnes per month and India is expected to maintain this pace.
Despite the conflict in Ukraine, tight global supplies and high prices from major exporters made Indian wheat competitive for the first time in several years. After five consecutive record harvests and rising government wheat stocks, India has ample exportable reserves.
Indian wheat export prices averaged $312/tonne in January and benefited from low freight rates to Middle Eastern and South Asian markets. Exports are expected to be more than double last year’s volume and 20 times greater than 2 years ago. The last time India was a major exporter was in 2012/13, when Russia and Ukraine had production shortfalls due to drought.
Wheat imports from Egypt and Turkey were reduced amid high prices and export difficulties for major suppliers
Ongoing conflict in Ukraine and Russia has caused wheat supply and food security issues for many large wheat importers who depend on supplies from the Black Sea.
Egypt, the world’s largest wheat importer, constantly buys large volumes of Russian and Ukrainian wheat to meet its consumption needs. In the first half of the trading year, almost 80% of Egyptian imports were supplied by Ukraine or Russia. This includes private sector purchases, which account for nearly half of total annual wheat imports.
Egypt’s public buyer, the General Authority for Supply Commodities (GASC), purchases wheat through international tenders and much of it goes to its food subsidy program which distributes bread to vulnerable populations. While GASC normally buys from Russia, Romania and Ukraine have emerged as major suppliers this year as world prices soar.
Following Russia’s invasion of Ukraine, however, the GASC is trying to diversify its wheat suppliers. The wheat moisture limit specification, normally set at 13%, will be increased to 13.5% to encourage these efforts. In addition, the Deputy Minister of Supply and Internal Trade declared Egypt’s intention to consider sourcing wheat from the United States, Kazakhstan and the European Union.
Even with additional steps to diversify its wheat supply, rising world prices will hamper Egypt’s ability to purchase large volumes of wheat from international sources. In February, the GASC canceled two tenders due to lack of participants and rising bid prices. Egypt, a price-sensitive market, could rely more on the wheat it has already stored for the rest of the marketing year.
Currently, government wheat reserves for the food subsidy program represent 4.5 months of consumption. Egypt continued to build new silos and expand storage capacity, which could eventually allow Egypt to limit imports to weather price spikes. In addition, further reforms to the bread subsidy program could lower import demand.
Given the volume imported so far and the challenges of high prices and alternative suppliers, Egyptian imports are reduced from 500,000 tons this month to 12.5 million. Turkey is another country that is heavily dependent on these two countries for imports. While Turkey produces wheat, its 2021/22 harvest is down more than 10% from the previous year, while its consumption is expected to increase by 3%.
Food price inflation is a major concern in Turkey. Imports are expected to increase to compensate for the tight domestic supply. 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.
Due to proximity and competitive prices, Turkey has become heavily dependent on wheat from the Black Sea, especially from Russia. Russia has always been Turkey’s largest supplier, and meanwhile, Turkey has ranked as Russia’s first or second largest export market in recent years.
Ukraine is Turkey’s second largest supplier. The Turkish National Grain Board TMO regularly buys wheat through tenders. While he was able to buy for $341-351 a ton in January, at the beginning of March buying prices reached $409-517 a ton. Its purchases were less than the amount of the initial tender due to high prices.
Some of what was purchased was already in free zones waiting to be officially imported. Fortunately, Turkey has some domestic stocks to draw on and its new marketing campaign starts in June. As a rule, its imports decrease towards the end of the marketing year.
Turkey also imports a significant amount of wheat grains to re-export wheat flour and products such as pasta. Turkey is the leading exporter of wheat flour to the world, with more than 30% exported to Iraq, followed by Yemen and Syria as the main destinations. Turkey’s pasta exports are roughly equivalent to those of the European Union, and its main destinations are Venezuela and many African countries.
So far, there has been no disruption to Turkey’s wheat product exports, although on March 4, the Ministry of Agriculture and Forestry added wheat products to its list of items for which it has the power to regulate exports. Turkey’s imports fell by 1.0 million tonnes this month, reflecting the postponement of purchases and increased reliance on wheat already in the country. Its exports are unchanged this month.