Total exports are still down because sales to Egypt, which used to be the biggest buyer, have dropped off this year
Turkey has overtaken Egypt as the top buyer of Russian wheat this year.
Sales to Turkey have eclipsed exports to Egypt for each of the last five months, which is highly unusual, said Andrey Sizov, managing director of SovEcon, a Russian agricultural consultancy.
Shipments to Turkey in July, August, September and October were between 750,000 and 1.1 million tonnes per month. That is about double what they were the same time a year ago.
Sizov believes that is due in part to Russia harvesting a better quality crop than usual. Turkey is typically looking for wheat with 13 to 14 percent protein content.
“Russia became a more preferred supplier this season,” he said.
Sizov’s contacts in the Turkish milling industry tell him there is strong export demand for flour this year, so the Russian wheat is being milled and re-exported as flour to neighbouring countries.
Bruce Burnett, analyst with MarketsFarm, thinks another reason for the strong sales could be the thawing political tensions between Russia and Turkey.
Sizov said one final reason Turkey has become the top export destination for Russian wheat is that sales to Egypt are way down.
They have averaged between 375,000 and 850,000 tonnes per month the last four months versus 600,000 to 1.2 million tonnes during the same period a year ago.
Stiff competition from the European Union and Ukraine have limited Russia’s sales to the world’s largest wheat market.
The EU produced 153 million tonnes of wheat this year, up from 137 million tonnes last year. Ukraine harvested 29 million tonnes, the second biggest crop on record.
“Contrary to previous years, Russia is not the cheapest supplier this season,” said Sizov.
Many of Egypt’s General Authority for Supply Commodities (GASC) wheat tenders have been awarded to countries like Romania, France and Ukraine instead of Russia.
Trade margins in Russia are at the break-even level so they can’t afford to reduce prices any further, he said.
Russia’s total wheat exports are running about 15 percent below last year’s pace as losses in Egypt trump the gains in Turkey. Sov-Econ is forecasting 33.3 million tonnes of exports in 2019-20, down from 35.3 million tonnes last year.
The U.S. Department of Agriculture is forecasting 34.5 million tonnes.
“I think they are being very, very optimistic,” said Sizov.
In fact, he thinks his own projection is optimistic.
Despite the smaller export program he thinks Russia’s wheat supply-demand situation is going to be tighter than the market seems to think.
Russia’s production was bigger than the market was anticipating at 74 million tonnes, the second biggest crop in history.
“But we have very low carry-in stocks and at the end of the season we are likely to have even lower carry-out stocks,” said Sizov.
“I have a strong feeling the market doesn’t take that fully into account and prices don’t take that fully into account.”
Burnett said Russian exporters are currently drawing wheat from nearby regions such as the Caucusus and southern Volga.
“As we move through the year they’re going to have to pull that from further and further away.”
That is going to increase the cost of sourcing the grain in conjunction with less efficient rail transportation in the heart of winter.
“I think it’s perfectly reasonable to say we’re going to see an increasingly tight situation and the prices will continue to appreciate.”
When the world’s largest wheat exporter increases its prices it should help boost prices in other regions of the world like Canada.
But Burnett said Canada’s spring wheat is a different market class of wheat, so the Russian impact will be muted.