A rebound in crop yields in the Middle East and Africa, a currency devaluation and low freight rates could increase Black Sea market share
Black Sea wheat will make in-roads into new markets in 2015-16, keeping downward pressure on wheat prices, say analysts.
The U.S. Department of Agriculture forecasts a record 42 million tonnes of exports from Russia, Ukraine and Kazakhstan.
Russia’s largest markets are in the Middle East and North Africa, specifically Egypt and Turkey.
Ukraine’s wheat is of lower quality and typically sold into feed markets in the European Union, East Asia and Southeast Asia. Its food quality wheat is shipped to Bangladesh and North Africa, according to the USDA.
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Kazakhstan’s wheat is generally uncompetitive because of high transportation costs, but it does export product to Iran and neigh-bouring countries in Central Asia.
Trade flows could be changing this year, according to the USDA. Wheat production in the Middle East and North Africa rebounded from poor crops last year, which means demand will likely fall in that region.
“This will likely shift lower-priced Black Sea wheat into other markets,” said the USDA in its latest World Agricultural Supply and Demand Estimates report.
“Both Russia and Ukraine have already expanded market share in several traditional U.S. markets, such as Mexico and Nigeria.”
Bruce Burnett, a weather and crop specialist with G3 Canada (formerly the CWB), said Black Sea wheat is extremely price competitive because of the currency devaluation in that part of the world.
“Obviously it will force international prices lower because the values that they’re selling at are less than they have been for a number of years now,” he said.
Low ocean freight rates also make it possible for Black Sea wheat to compete in far away markets. Rates are down because of excess shipping capacity and falling crude oil prices.
That will also result in more competition from wheat out of the European Union.
Most Black Sea wheat does not compete head-to-head with the high protein wheat produced in Western Canada, but it still has an influence on high quality wheat prices.
Statistics Canada is forecasting 24.6 million tonnes of total Canadian wheat production, down 16 percent from the previous year.
However, Canadian farmers need to realize that the USDA is forecasting a record world wheat crop in 2015-16, which doesn’t bode well for prices, said Burnett.
“It looks like we’re going to have larger ending stocks rolling out of this year on a global basis, and that basically means wheat prices are going to remain pressured,” he said.
Burnett believes wheat prices will drift lower over the next six months, depending on what happens with other crop prices.
One change that might occur in wheat markets is that Iran may expand its supplier base now that political tensions are easing with western countries.
Burnett said Iran can be a swing buyer of wheat.
“It’s not a consistent market along the lines of Brazil or Egypt, but it’s a market that can be significant in a particular year,” he said.
Iran had been receiving most of its wheat from countries in the Black Sea region, such as Kazakhstan.
Burnett said Iran may be buying more wheat in the future from the European Union if it is price competitive.
