A Black Sea market research firm almost doubles forecast for March wheat shipments despite North American pessimism
Russia is shipping wheat like gangbusters despite many reports to the contrary.
North American grain analysts indicate Russia’s exports have essentially been shut down by the war in Ukraine.
They say shipping lines are no longer servicing Russian ports and insurance costs have climbed so high that it is not economically feasible for the world’s largest wheat exporter to service its markets.
A case in point is a comment made by James Mintert, director of Purdue University’s Center for Commercial Agriculture, during a recent webinar on grain markets.
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“From a world supply and demand standpoint, things were already tightening,” he said. “And now, what has taken place with the war shutting off Black Sea exports effectively, has just really tightened it further.”
But while Ukraine’s ports will remain closed until Russia’s invasion ends, Russia’s ports are open for business and moving a lot of crop, contrary to popular belief, according to SovEcon.
The Black Sea market research firm recently upped its forecast for the country’s March wheat exports to two million tonnes from its earlier estimate of 1.2 million tonnes due to overwhelming demand.
SovEcon managing director Andrey Sizov said in an email that activity at Russia’s ports paused for about a week after the start of the war but there are now vessels going in and out.
Freight rates are substantially higher but so are prices because customers still need Russian wheat. A weaker ruble is also facilitating trade.
MarketsFarm analyst Bruce Burnett said container shipping lines may be avoiding Russian ports but that’s not the case for bulkers.
“Bulkers are more like the independent contractors of the shipping world,” he said.
He believes there are strong incentives for Russian grain companies to ship as much as possible, especially if they are earning U.S. dollars on the trade, because that gives them much-needed foreign currency.
There is plenty of misinformation making the rounds on social media, including a recent erroneous report that Russia is banning all grain exports.
The reality is that it is temporarily banning wheat, rye, barley and corn shipments to neighbouring Eurasian Economic Union states like Belarus and Kazakhstan through June 30.
Sizov said that is “not big news,” although he noted that a broader ban is still a possibility because domestic prices in Russia are surging due to the devaluation of the ruble.
“Domestic consumers are likely to put a lot of pressure on the government to do something about that during the next weeks and months,” he said in a recent video tweet.
“We indeed could see some additional restrictions on exports from Russia in the current season.”
Sizov estimates there are about five million tonnes of Russian wheat remaining to be exported in 2021-22. Ukraine has another six million tonnes.
If there is a ceasefire in coming days or weeks, he anticipates that Ukraine’s exports would “jump rapidly.” His sources in the country tell him there has been no damage to key grain export terminals.
Burnett said a Russian ban “would be a big deal,” noting that buyers like Algeria and Tunisia are desperately trying to replace Ukrainian wheat, driving up f.o.b. prices in the European Union by about US$150 per tonne.
He expects there would be a similar response if Russian wheat was suddenly cut off from markets.
The biggest remaining question in wheat markets is what will happen with the 2022 crop in the Black Sea region.
SovEcon is forecasting a 19 percent drop year-on-year to 26 million tonnes from 32.1 million tonnes last year.
APK-Inform is forecasting a 28 percent drop in the country’s winter wheat, rye and barley production based on “the current map of military activity.”
Sizov said there are no substantial issues for Russia’s 2022 wheat crop at present. Weather has been friendly to the winter crop.
“Our most recent estimate is 84.8 million tonnes, up 9.9 million tonnes year-on-year and I believe there is a good chance we will revise it higher,” he said.
