Exports from both Russia and neighbor Ukraine are expected to rebound strongly in the 2011/12 season as production recovers following last year’s drought, the worst in decades.
Both Black Sea producers are looking to win back customers although some importers may be wary after being forced to scramble for alternative supplies after Russia imposed a ban on exports in August 2010.
Top wheat importer Egypt was initially reluctant to allow Russia, by far its most important supplier in the pre-drought 2009/10 season, to participate in tenders called by the main state buyer but allowed them back last week and could not resist the low prices offered.
“Russian exporters need to re-establish their positions in their traditional markets... If not for the aggressiveness, Russia would not have won the Egyptian tender,” said Andrei Sizov Sr., chief executive and president of agricultural analysts SovEcon.
France and the US were Egypt’s key suppliers in the 2010/11 season.
“Russia’s presence with large quantities in the market this year will reduce prices and lead to bigger participation from the Russian side. We are also very keen on having other origins take part but at more competitive prices,” said Nomani Nomani, vice chairman of Egypt’s main state wheat buyer, GASC.
Macquarie analyst Alex Bos said major buyers would be reluctant to become too dependant on one supplier.
“You would expect them (Egypt) not to go 100 percent in favor of Russia even if they have the cheapest price. For buyers like Egypt it is about mitigating your risk,” Bos said.
Food inflation and security are hot issues in many countries following tumult in the Arab world sparked in part by anger over food prices, which saw the president of Egypt toppled earlier this year.
Analysts said Russian wheat has been priced particularly aggressively this month as shippers look to move old crop grain out of silos ahead of the upcoming harvest and the price gap is likely to eventually narrow.
Estimates for the Russian harvest this year range to as high as 92 million tons of grain, although official estimates put the crop at 85 million, up from 61 million tons in 2010.
Jordan last week became the first major buyer of Russian wheat since the end of an export ban on July 1, purchasing 150,000 tons. Egypt followed with 180,000 tons.
“I think there is a view that they (Russia) want to move some of their old crop stocks in July and August and make room for new crop storage. I think that is part of the reason they have been willing to offer wheat at a lower price than international values,” Bos said.
Ukraine, which is currently excluded from Egyptian tenders, has the potential to offer tough competition to Russia in some markets, undercutting Russia at a Lebanese tender in early June.
Nomani said GASC was also looking into including Ukraine and Romania into the list of origins under conditions that ensure good quality of their harvest.
The main challenge for Ukraine may, however, be quality with recent rains likely to result in the downgrading of a significant proportion of its crop to animal feed.
“There indeed may be issues with quality (due to rains). Before (the rains) we expected a 60/40 breakdown between milling wheat and feed wheat. The latest data suggests a 50/50 breakdown,” said UkrAgroConsult analyst Yelizaveta Malyshko.
“I think it will worsen somewhat, probably to 40/60 (by the end of the harvesting campaign),” Malyshko added.
SovEcon’s Sizov did not expect Ukraine to be able to compete with Russia in markets such as Egypt and Jordan which demand high quality grain.
“Ukraine may compete with Russia in Tunisia and in Bangladesh which require lower quality wheat. But the main destination of Ukrainian grain will be South-East Asia, like the Philippines and South Korea,” Sizov added.
Quality will also be the key for the European Union’s top wheat producer France where a drop in exports is likely to be driven by lower supplies not increased competition.
“French exports will be limited by a lack of available supply,” said Alexandre Marie of French grain analysts Offre & Demande Agricole (ODA).
French farm office FraneAgriMer is projecting this year’s soft wheat crop at 32 million tons, down 10.3 percent from a 2010 crop of 35.7 million and the smallest since 2007. ODA sees French wheat exports outside the EU at 7.3 million tons versus 13 million in the prior season.
“Because the quality seems to be there, it won’t be a problem to reach this volume, we could do more (if supply allowed),” Marie said.
