Miller Magazine Issue 108 / December 2018

18 MILLER / DECEMBER 2018 NEWS Russian expansion into traditionally EU, U.S. wheat export markets Russia, already the world’s leading wheat exporter, is bent on taking further market share from the European Union and United States with a new attempt to crack what have traditionally been its most difficult destina- tions, Reuters reports. Successful marketing campaigns in Iraq, Saudi Arabia and Algeria would cement Russia’s leading position in the wheat markets of the Middle East and North Africa. Wheat traders said price is an increasingly decisive factor in securing export deals, with a challenging economic backdrop, caused in part by sliding oil prices. Cheaper oil is playing to Russia’s advantage in grain, keeping prices for Russian wheat relatively low in dollar terms due to lower fuel costs and a weaker local cur- rency. “With crude oil prices remaining low, the Arab countries are asking themselves why they are paying millions of dollars more than they need to for wheat im- ports,” a German trader told Reuters. “In a direct price fight, I would expect Russian wheat to take the main share of markets opened to them,” the trader added. Iraq, a major Middle East grain buyer traditionally re- liant on the United States, wants to allow Russian whe- at in its state buying tenders, its new trade minister, Mohammed Hashim al-Aani, said last month. Negotia- tions to allow Russian wheat into Iraq have been going on for two years, but haven’t concluded due to frequ- ent changes to Baghdad’s negotiating team, a Russian source familiar with the talks told Reuters. “We hope that the situation will change with the appointment of the new trade minister, who has already said that he would send a delegation to study Russian wheat to Russia in December,” the source said, adding supplies could start next year. Quality specifications are a cent- ral issue in the talks, traders said. Russian wheat doesn’t contain enough gluten to sa- tisfy Iraqi importers, but is about $10 to $12 per tonne cheaper than U.S. hard red winter wheat shipped to the Middle East, said a U.S. wheat trader. “It would have to be a quality or financing issue” for the United States to win the business, he added. In grain trade negotiations, quality and price are key issues but politics also plays a role, with countries sometimes prioritizing trading rela- tionships with allies. RUSSIA IS SOLVING ITS PORT CAPACITY PROBLEMS U.S. traders complain that American wheat is too ex- pensive for major global wheat markets in the Middle East and Africa. High rail freight costs to get U.S. wheat to port, as well as a futures mechanism known as vari- able storage rates, combine to keep prices higher than Russian wheat. Meanwhile, Russia is solving its port ca- pacity problems. It aims to speed up and increase grain export capacity by 25 million tonnes to 77.7 million tonnes by 2022, two years earlier than expected. Rus- sia exported a record 52.4 million tonnes of grain in the 2017/18 season, up 47 percent year-on-year, inc- Successful marketing campaigns in Iraq, Sa- udi Arabia and Algeria would cement Rus- sia’s leading position in the wheat markets of the Middle East and North Africa. While Russian success in Iraq and markets like Ni- geria could be a huge blow to the United States, Russian expansion into Algeria and Saudi Arabia would be a significant setback for EU wheat.