Miller Magazine Issue 108 / December 2018

RUSSIA 86 MILLER / DECEMBER 2018 mid-September, pacifying discharges. By Nov 22, Russia exported 23.1 MMT grain (+15% y/y vs. +40% y/y in early Sep), incl. 19.8 MMT wheat (+27% y/y). Thus, Russia has already exported about 60% of all grain surp- lus, awaited by the AgMin at 38-39 MMT. In wheat ter- ms, it is 57% of exportable surplus, officially expected at 34-35 MMT. On the threshold of the second half of the season, starting Jan 2019, on our estimation, Russia will have about 30% of exportable volume ~10 MMT of wheat out of about 35 MMT total export forecast for 2018/19 MY by the USDA and SovEcon. It is compared 46% (18 MMT) in the middle of record 2017/18 and 42% (11 MMT) in the middle of 2016/17. As well, if last season it was Russia pursuing importers with its record crop, this year those are buyers who looking for diversi- fication of their origination on a lack of world supply and in a bid to boost competition to lower prices. Macroeconomics bite Russian wheat is performing its maximum during the first half of 2018/19. As per available statistic, during Jul- Sep of this MY, it increased wheat shipments to key mar- kets. Egyptian sales were raised by 26% y/y, and, as pri- ces bite, at the end-November, Egypt’s GASC has asked suppliers to delay wheat shipments, as they are unable to open letters of credit before January, noted Bloomberg, adding, that it seems suppliers may still be willing to ship without a letter of credit being in place. The total of pur- chases so far in 2018/19 (Jul-Jun) amounts 4.04 MMT out of planned 7 MMT of wheat purchases. Nov USDA forecasts Egyptian wheat imports 2018/19 of 12.5 MMT, almost same y/y with crop forecast of 8.45 MMT, as well same y/y. Thus, Egypt is still need to cover about 5 MMT of wheat import demand. Russia also raised wheat export to Turkey by 33%, even despite higher y/y prices and currency depreciation in Turkey. Platts noted, the USDA forecasts Turkey will buy 4.5 MMT this MY (about 80% of that is traditio- nally coming from Russia), although some market sour- ces have put the number as high as 5.5 MMT. However, Platts added, that not all analysts are optimistic that Turkey will buy as much as 5.5 MMT. Some have put the figure at 3 MMT by the end of the marketing year on June 30, 2019, due to the country’s tough macroe- conomic conditions and the high pri- ce of wheat. Herewith, to preserve its position of number one exporter of flour, Turkey should keep its buying program strong. Due to fluctuations in domestic wheat flour prices, on September 09, 2018, Turkey intro- duced legislation limiting exports of flour produced from domestic grain to 1% of total exports until domestic prices have stabilised. Iran could replace Turkey as a bu- yer of Russian wheat – myth or reality? In the beginning of March 2018, Iran and Russia sig- ned an agreement on the supply of 100 KMT of wheat on a monthly basis. The wheat should be delivered to Iran’s private mills for flour production for exports, as local millers are not allowed to use domestic wheat for flour exports. Thus, competition between Iran and Turkey for Iraq flour market is not in the distant future. Herewith, in September 2018, Reuters mentioned ‘No progress’ on financing of Russia-Iran wheat deal. Apart from flour export purposes, Iran is self sufficient in wheat supplies. As a reminder, on Mar 21, 2016, Iran implemented a ban on Russian wheat import, as some Iranian companies imported foreign origin wheat and sold it to coutry’s re- serve as Iranian crop. China, come back! In February 2018, China lift the ban on Russia’s wheat shipments from six Russian regions (Novosibirsk, Omsk, Altai, Krasnoyarsk, Amur and Chelyabinsk). The ban was set due to Indian and Dwarf smut (Tilletia controversa). And now Russia and China are in talks about more Russian regions being approved to export wheat to China. Russia exported about 18 KMT of wheat to China in 2017. Russia gives way to US, Argentinean and French whe- at, but for how long? In the second half of the season, Russia will ease its wheat export pace on tighter balance, seasonally giving its way to US, Argentina, the EU. The fact that the US wheat came back to the winners in GASC’s tender is a clear sign of this trend. Herewith, Russia does not seem to be upset, as it is focusing on the “quality” side to improve the ground for future and shaking other origins hegemony on their traditional markets. As well, as spee- ding up the increase of its grain export capacity. Accor- ding to Rusagrotrans, the total capacity of Russian ports for handling grain for export in 2017/18 was about 55 MMT. By 2022, due to ongoing projects in the South, North-West and Far East, it may increase by 30 MMT.