PARIS: Wheat exporters in the European Union are facing a tougher start to the new season as massive supplies of cheaper Russian grain mop up international demand, leaving the EU reliant on Morocco and China to shift its export surplus, traders said.
The outlook contrasts with a year ago when buyers rushed to book EU wheat amid disruption to Black Sea trade caused by Russia’s invasion of Ukraine.
As the 2023/24 season begins in July, Russia holds large stocks from a record harvest last year and with another big crop expected this year some forecasters see the world’s top wheat supplier reaching a new high in exports.
Analysts also see higher EU exports in 2023/24 given expectations of a bigger harvest, but some anticipate only a modest export bump amid Russian competition.
“Russian wheat is the main threat to EU export sales in the coming weeks and months,” one European trader said. The latest purchase by Algeria, tipped by traders to be mostly sourced from Russia, underscored the challenge.
An unofficial export price floor in Russia, currently thought to be $230 a tonne free on board (FOB), was still around $25-$30 cheaper than western European supplies, traders said. Some blame a recent rally in Euronext futures, fanned by US drought concerns, and argue either futures or physical premiums will have to correct to narrow the gap with Russian prices. Morocco, which surpassed Algeria as the EU’s main destination in 2022/23, is set to be crucial again for EU wheat after announcing a scheme for up to 2.5 million tonnes of subsidised wheat imports for July-September.
Morocco tends to favour EU wheat for shorter shipping distances and milling quality preferences. But even here Russian wheat may gain a foothold, with traders saying the Moroccan authorities have sought to ease importers’ concerns about Western financial sanctions targeting Moscow.
As EU origins, including Romanian and German wheat, vie for Moroccan sales, French supplies remain relatively expensive, making a return of Chinese demand important for French prospects. There was chatter this week about interest from Chinese buyers, after previous French barley sales, but traders said it was unclear if wheat deals had been done yet for the new season.
“We’re in no-man’s land for now,” one French trader said. Overall EU exports in 2023/24 could nonetheless be swollen by increased flows from eastern countries like Romania, which have large stocks after a wartime influx of Ukrainian grain. Some also expect EU exports to eventually gain momentum given a mixed global supply picture and persisting war risks, as illustrated by last weekend’s mutiny in Russia. “But for now, there remains a lot of wheat to move to markets,” Rabobank analysts said.
Comments
Comments are closed.