Grain processing – Newspaper Kommersant No. 227 (7428) dated 07.12.2022

Despite weak performance of grain exports from Russia in the first months of the season amid difficulties of market participants with vessel charter, cargo insurance and payments, shipments reached record levels by the end of the year. According to analysts, 4-4.8 million tons of wheat can be shipped in December, which will be a new historical maximum for the month. But market participants note delays in export due to worsening weather in the south of the Russian Federation. And experts warn of increased competition with Ukrainian grain and a possible loss of price advantage for Russian wheat due to a decrease in its cost in other countries.

In December, Russia can export 4-4.2 million tons of wheat, which will be comparable to the December 2017 record, according to a Sovecon review. The forecast is based on strong recent sales, in particular Algeria, Pakistan tenders and transactions with the Egyptian GASC. For the first half of the season (July-December), exports are estimated at 22.8 million tons, says Andrey Sizov, director of Sovecon. And according to the results of the entire season, the agency predicts wheat exports of 43.9 million tons. Last season, 38.1 million tons were shipped.

The Rusagrotrans analytical center has even more optimistic estimates. They predict that in December a historically record volume of wheat could be shipped – up to 4.6-4.8 million tons. According to analysts, in November Russia already exported the maximum for the month 4.8 million tons of wheat, taking into account deliveries to the EAEU countries. More than 0.5 million tons moved to December due to weather problems in the southern ports. According to Rusagrotrans analysts, since the beginning of the season, more wheat has been shipped and sold to Pakistan, Saudi Arabia, Algeria, Brazil and Mexico than in any of the previous seasons.

Director General of the Institute for Agricultural Market Studies (IKAR) Dmitry Rylko says that initially wheat exports in December were estimated at 4.2 million tons. However, he clarifies, a sharp deterioration in the weather in the Sea of ​​Azov due to strong winds and difficulties in the Black Sea could lead to the fact that the figure will end up below 4 million tons. And delays in the export of wheat put pressure on the domestic market, where there are already difficulties with storage due to a record harvest, the expert adds. A Kommersant source in a major exporter says that “due to the worsening weather in the south, ten days were lost and forecasts of record exports may not come true.”

In the first months of the season, the export of grain from Russia lagged far behind last year’s figures. In July-August, shipments were estimated at less than 6 million tons – at least since 2017-2018 and lower than last year by 27%, in July-October the difference decreased to 4.5%. Since the beginning of the military operations of the Russian Federation in Ukraine and the new sanctions, exporters themselves have noted difficulties with chartering ships, cargo insurance and making payments. In November, however, market participants assured that they were able to adapt to trade barriers along with buyers from the Middle East and Africa.

Sovecon believes that the shortage of wagons for transportation and the revival of competition with Ukraine after the extension of the grain corridor may also hold back Russian exports in December. The deal regulating the export of grain from Ukrainian ports was concluded in Istanbul on July 22 and was valid until November 19. At the end of October, the Russian Federation announced a freeze on participation in the agreement in connection with attacks on the infrastructure of the Black Sea Fleet in Sevastopol. Also, Russian officials have repeatedly said that the unhindered access of Russian food to world markets, provided for by the agreements, is not ensured.

Nevertheless, on November 17, the deal was automatically extended for 120 days due to the absence of objections from the Russian Federation, Ukraine, Turkey and the UN participating in it. In December, the Russian Foreign Ministry said that they continue contacts with the UN on the issue of unhindered supplies of Russian agricultural products. According to the Joint Coordination Center, as of December 4, more than 13 million tons of grain and other foodstuffs left the ports of Ukraine as part of the deal.

Andrey Sizov adds that the ongoing collapse in wheat prices on world exchanges, caused by active sales of hedge funds, carries more and more risks. So, on December 5, quotations in Chicago fell by almost 3%. According to the expert, the active export of Russian wheat in recent months was supported by relatively low prices compared to competitors. In October-November, the nearest contracts for Black Sea wheat were on average $10-25 cheaper than contracts for French wheat, Sovecon calculated.

With falling prices on world exchanges, Russian wheat is losing its competitiveness, which may lead to a decrease in demand and exports in the first quarter of 2023, and possibly by the end of December, Mr. Sizov believes. According to IKAR data cited by Reuters, at the beginning of December, Russian wheat with 12.5% ​​protein cost $315 per ton (FOB), Sovecon estimated the cost at $314-318 per ton.

At the same time, a Kommersant source in the grain market notes that France has almost exhausted its export potential, and shipments from Ukraine are slow, so demand for Russian wheat will continue. According to him, several large batches with deliveries for January-March 2023 have already been sold as part of tenders and interstate contracts. Eduard Zernin, chairman of the board of the Union of Grain Exporters, believes that the fall in world prices may spur demand for wheat, and the weakening of the ruble will increase the profitability of sales. Among the risks of the second half of the season, he notes a possible deterioration in the situation with bank settlements as a result of the expansion of sanctions. Dmitry Rylko points to a record Australian harvest, which is likely to be of good quality, with which Russian wheat will compete.

Anatoly Kostyrev