The poor harvest in the EU and North Africa affected significantly the trade flows of grain in the MENA region in 2020/21 MY. In addition, the stratospheric prices of grains and vegetable oils discourage buying at a time when the production of new-crop oilseeds looks optimistic. What will be the realignment of forces in the near future?
Christina Serebryakova, head of the analytical department and broker of Atria Brokers, summed up the results of the current season and outlined the prospects for trade with Black Sea grains and oils in 2021/22 MY in the context of key features and the level of competition.
- Christina, what are the key points regarding the competition on the wheat market in the MENA region you can highlight?
- First of all, I want to say that Russian wheat traditionally dominates the market of the Middle East. At the same time, a decrease of supplies to Turkey was offset by higher export to Iran, Israel and Yemen. The decline of wheat crops in the EU and Ukraine in 2020/21 MY weakened their positions on the Turkish market. Besides, the poor harvest in the EU (particularly France and Romania) allowed Russia became a leading supplier of wheat to North African countries, particularly to Egypt. Head of the analytical center at Rusagrotrans JSC, Igor Pavensky noted that Russia started exporting wheat to Jordan “for the first time since 2018/19 MY”. At the same time, Russian wheat is virtually absent in Algeria and Morocco due to the strict phytosanitary requirements. Let me remind that after a long-lasting negotiations Algeria softened its requirements as to the share of bug-ridden grain from 0.1% to 0.5%. It is still tough requirement for Russia. In turn, Ukraine managed to take over the share of European wheat in Morocco. However, given the recovery in wheat production in Morocco in 2021, Ukraine will not be able to repeat such a success in the new season. As early as May 15, 2021, Morocco has raised the import duty on wheat from 0% to 135%.
- What about the positions of Black Sea corn on the market of the MENA region in the current season?
- Brazil is the key supplier to this market. Argentina takes the second place, Ukraine takes the third due to its poor corn crop in 2020/21 MY. In addition to the fact that South American corn was cheaper, there was higher competition from Russian grain on the Turkish market. However, Russia still cannot supply its corn to North Africa due to the content of ragweed. At the same time, later harvesting of corn in Brazil in 2020/21 MY gives Ukrainian origin a longer time gap to trade at current high prices.
- What key points regarding the competition on the barley market in the MENA region can you highlight?
- The main point is surely the “reshuffle” of the markets of Saudi Arabia and China. Australian barley reoriented toward the first direction, as Australia was forced to look for new markets after the conflict with China. In turn, Ukrainian barley has taken its niche in China, successfully competing with French origin. Rusagrotrans has recently noted that the reduction of supply of Russian barley to Iran happened due to the payment problems and higher shipments from Iraq. The UAE purchased 5 cargoes of Russian barley by April 2021 for the first times since May 2020, and “this season, a record volume of Russian barley would be delivered to this country - over 148 thsd tonnes”.
- What about the competition on the MENA’s market of sunflower oil?
- Russian sunflower oil traditionally dominates on this market. However, the imposition of a floating 70% export duty on Russian sunflower oil for the period from September 1, 2021 to August 31, 2022 the balance of power may change. The duty will be levied on the difference between the base price (1000 USD/t) and the indicative price (the arithmetic average of market prices per month) minus the adjustment coefficient (50 USD/t). Ukraine took easier measures. On April 19, 2021, a Memorandum on mutual understanding was signed between the Ministry of Economy of Ukraine and Ukroliyaprom. It determined the maximum volume of sunflower oil exports in 2020/21 MY at 5.38 mln tonnes that corresponded to the expectations of market operators. According to the Customs Service, as of May 1, 2021, Ukraine have exported almost 3.914 mln tonnes of sunflower oil. Thus, it can ship up to 1.466 mln tonnes of the product in May-August,.
- Apart from export regulation, we should mention price which this year worried every market participant. How did it effect trade policy of the importers?
- In February 2021 the price for Ukrainian sunflower oil was over 1400 USD/t and reached around 1700 USD/t in March 2021 against 635-670 USD/t in March 2020. In the first half of the season the main buyers have formed quite large stocks of the product via import. Thus, Oil World suppose that by the end of 2020/21 MY Ukraine would increase ending stocks, because importers might prefer exhausting the stocks.
In particular, experts expect the import of SFO to Turkey to decline. Besides high stocks, another obstacle for import increase can be import tax for the product, which is to return to minimal rate at 360 USD/t starting July 2021 from current 0%. Moreover, import of sunflower oil to Turkey can be limited because of lower re-export. Oil World experts assume that stocks of sunflower oil in Turkey will total 310 thsd tonnes by the end of the season compared to 150 thsd tonnes last season. In the first half of MY the import was aggressive, but according to line-ups, it is going to decline sharply in May.
In the current season the significant ramp-up of import of Russian sunflower oil by Iran was a high point. In September-February of 2020/21 MY Russia exported to Iran 304 thsd tonnes of the product, up 56% year-on-year. Moreover, this volume exceeds deliveries to Turkey which traditionally is a leading importer of Russian SFO. Oil World experts highlight some of the reasons for this trend, guaranteed by agreements between Iran and the Eurasian Economic Union. Also, Iran's purchases of sunflower oil from Argentina were greatly increased.
- What do you expect from the trade in a new season, taking into account future import and export taxes?
- In terms of wheat we expect further growth of import by Iran, Egypt, Iraq in 2021/22 MY. Trade is expected to improve with Turkey, Algeria, Yemen, Syria. Taking into consideration that USDA expects Russia’s wheat production in 2021 at last year’s record – 85 mln tonnes and in Ukraine and the EU it is to grow to 29 (+3.6) mln tonnes and 134 (+8.1) mln tonnes respectively, the competition for all abovementioned directions will be high. Export tax for Russian wheat introduces uncertainty and worsens its competitiveness, even with good harvest prospects. Evidence of this was the failure of the Russian grain at the first Egyptian tender for the purchase of wheat of the new harvest, when the buyer purchased Romanian grain.
Expected growth of corn in most producing countries in 2021/22 MY will intensify competition for all target markets whereas Ukrainian new-crop barley will be easier to find new markets.
As of end May of 2021 USDA expectations of sunflower seeds production in Ukraine and Russia are quite optimistic. Ukraine can produce another record of 16.7 mln tonnes of the oilseed and Russia – second largest harvest of 14.5 mln tonnes after 15.3 mln tonnes in 2019/20 MY. With such numbers leading importers can decline purchases of sunflower oil in the second half of 2020/21 MY.
Interviewed by Anna Tanskaya
