Big Black Sea crop held back by logistics

Aussie wheat producers boosted by Black Sea logistics woes


Australian grain exporters will continue to supply long-term clients in south-east Asia in spite of increasing competition from Black Sea grain producers.

Australian grain exporters will continue to supply long-term clients in south-east Asia in spite of increasing competition from Black Sea grain producers.

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Australian wheat producers competiting against cheap Black Sea product are helped by logistical constraints at Russian and Ukrainian ports.

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GRAIN exports continue to flow from the Former Soviet Union (FSU) nations following another big harvest in the region.

However, a combination of a logistical squeeze through key Black Sea ports and the downturn in Aussie production may mean the extra stocks on the world market do not drive Australian wheat prices down significantly.

Richard Hall, senior client advisor at Market Check, said it had been another massive year for wheat production in Russia and Ukraine.

“There was a bit of dryness later, which impacted some of the later sown crops, but the wheat was very strong,” Mr Hall said.

He said grain exports in Russia were 20 per cent up compared to the same time for the previous marketing year, with wheat 12pc up.

Mr Hall said Russia, Ukraine and Kazakhstan all had strong presences in nearby export markets.

“They are big into North Africa, the Middle East and can be large exporters into India, which emerged last year as a significant buyer of Australian wheat.”

The international market has been factoring in big FSU tonnages into the wheat market, keeping a lid on world wheat prices in recent months.

Compounding this from an Australian view, some within the Aussie industry have been nervy about the potential for the emerging Black Sea exporters to undercut key Australia into traditional Aussie wheat markets in south-east Asia, especially Ukraine with its devaluing currency.

Mr Hall said Australian prices would not necessarily drop as many predict.

Firstly, he said Black Sea ports were operating at capacity already.

“At this stage all the facilities are working as well as they can, you just can’t physically get any more grain out of there,” he said.

Mr Hall estimated carry-over for wheat in Russia alone would be 20 million tonnes, up from just 6mt just two years ago.

“The limit for Russian exports through their ports is around 47mt of all grain and 33mt of wheat.”

Official Russian government estimates were of a 2017 harvest of 130mt of all grains.

The second key factor that may keep Aussie prices falling too sharply according to Mr Hall was the downturn in Australian wheat production.

The poor season in much of Australia meant certain inelastic domestic and export demand would provide support for sales of much of the wheat produced.

He said Market Check had a national wheat estimate as low as 17.5 million tonnes, less than half of last year’s record production of 35.13mt.

“The dry in northern cropping zones, both on the east coast and in Western Australia will hurt overall production,” he said.

The current factors allowing prices to remain stable may only be temporary relief.

Further out, Mr Hall said the logistical logjam may only be a temporary issue in the Black Sea.

Australia's 2017 winter crop production will be well down, in spite of good yield potential in Victoria.

Australia's 2017 winter crop production will be well down, in spite of good yield potential in Victoria.

“Russia is looking into a rail subsidy to attract grain to port from further afield and there is a lot of investment in logistics in the region which will mean they can process more grain,” he said.

And he said lower prices did not seem to deter Russian farmers from planting.

In spite of an appreciating Russian rouble eating into its competitiveness on the export market, Mr Hall said Russian farmers were happy to continue to plant crop.

“The Russian farmers appear to be making money with prices at current levels, they continue to plant, and they also seem happy to store grain for extended periods of time.”

At present, however, he said Australia’s major low cost threat did not come out of the Black Sea, but rather from the other side of the globe.

“We have seen Argentine wheat turning up in south-east Asia, it is cheap enough to move from their Atlantic Ocean ports to SE Asian destinations at present, which shows how competitive the world market is at present.”

Mr Hall said Australian basis was high, well above export parity as the industry tried to get a greater handle on the shortage of grain.

In particular, northern zone spreads, delivered to Queensland and NSW ports, are well above international values, although the ASX east coast January futures contract has fallen markedly in the past week, sitting at $266.50/t on Tuesday following rain through NSW and Queensland, which will ensure there will be some crops harvested.

Meanwhile, the Black Sea’s charmed run climatically has continued.

There had been reports of autumn dryness, which, if it had continued, would have had ramifications on the plant of the winter wheat crop.

In his daily newsletter, Commonwealth Bank commodity analyst Tobin Gorey said rainfall in Russia pushed into Ukraine over the weekend, alleviating fears of a moisture deficit following a dry month.

"And weather forecasters have added a little more rain to their forecasts for dry Black Sea wheat regions to the east later this week," Mr Gorey said.

However, the dry did knock some of the gloss off summer crop yields, with the International Grains Council cutting 500,000 tonnes off its predicted Ukrainian corn production to 15.2mt due to a late season dry spell.

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