Turkey is the world's leading exporter of wheat flour. However, domestic wheat production decreased significantly in the 2021/22 season due to the drought that stimulate the country to increase wheat import. APK-Inform Agency talked to Veysel Kaya, the independent expert at SUNSEEDMAN, about the changes on the market of grain and by-products in Turkey in 2021/22 MY and the further development prospects.
- The first half of 2021/22 MY is over. How would you characterize this period for the grain market (production and trade activity)?
- In Turkey, the harvesting season of barley and wheat begins at mid to late May in the earlier fields of Cukurova and southeastern Anatolia and lasts until early to mid-July. Therefore, in my own Turkish S&D balance, I rather prefer to depict the season as June 1/ May 31, i.e. already 7.5 months are over.
Due to lower acreage as well as unfavorable winter and growing conditions, wheat season-2021/22 crop sizes is only 15.5 mln tonnes in Turkey (traditionally around 18-19 mln tonnes range), comprising 13 mln tonnes of others and 2.5 mln tonnes of durum wheat. Turkey consumes over 25 mln tonnes of wheat for seeds, local consumption, around 3 mln tonnes of wheat flour re-exports (global leader) and 1.5 mln tonnes of macaroni (2nd global leader after Italy) etc. This implies that at least 10 mln tonnes of wheat imports to be done in 2021/22 season.
Also, barley season-2021/22 crop sizes is only 4 mln tonnes, as the losses were historically high (traditionally crop is within 7-7.5 mln tonnes range). Turkey consumes around 8 mln tonnes of barley. So, this season, the production covers only a half of required volume and 4 mln tonnes should by imported.
Corn harvestings begins in late July – early August for 1st crop and lasts until January-February for 2nd crop. Albeit significant losses in wheat and barley especially, Turkish corn crop size was fortunately around 6.5 mln tonnes (traditionally 6.5-7 mln tonnes range). The local consumption of corn is around 8.5 mln tonnes, i.e. the import needs are nearly at 2 mln tonnes.
Officially, since the start of 2021/22 MY as of December, Turkey has imported 5.49 mln tonnes of wheat. Moreover, around 800 thsd tonnes of corn were imported in August-December.
On September 8, 2021, Turkish import-duties were zeroed (normally they were at 45/35/25% for wheat/barley/corn respectively). Zero rates will be in force until December 31, 2022.
- On the world market, the prices for the key grains are growing. How will this trend affect Turkey's trade volumes?
- The prices of the major grains are really much stronger during 2021/22 season due to the export restrictions, preliminary in Russia, higher freights, etc. Of course, such trend has been influencing Turkish imports and re-exports unfavorably. Therefore, the market players mostly prefer hand-to-mouth purchasing/sales policies.
- In 2021, wheat prices in Turkey increased by almost 3 times due to rising world prices and a reduction in domestic grain production due to drought. What can you say about the demand o n the domestic market and what factors will influence price formation in the future?
- Nowadays, local wheat prices almost doubled compared to the last year (around 4000 TL/mt for milling wheat compared to 2000 TL/mt). As you also underlined, the main reasons are lower local crop sizes, stronger global CIF prices and solid USD/TL parity that results in higher import costs even with zero import-duties. Local demand is also sluggish as per solid prices.
Turkey is net-importer of wheat, so local prices are mainly driven by import costs and TMO sales prices. Therefore, in the future, 2022/23 season new-crop prospects, CIF prices, USD/TL parity and TMO policies will be followed closely.
- In recent years, the world has seen a progressive decline in wheat flour trade and increased demand for wheat, largely due to the fact that wheat can be stored longer, it has a greater variability of use and is easier to transport. How would you estimate Turkey’s wheat flour export potential until the end of the season, as the country is of the key suppliers of this product to the world market? What trends should be expected in the flour sector?
- Turkey exports around 3 mln tonnes of wheat flour being the global leader. Officially, in June-December 2021, Turkey exported 1.88 mln tonnes of wheat flour and 835 thsd tonnes of macaroni. Whereas Turkish wheat flour exporters will face some difficulties, such as higher freights, lower buying appetite due to stronger prices, etc., the export pace may remain somehow solid and around 3 mln tonnes seasonally may be achieved as well.
- What changes can we see among TOP-3 suppliers of wheat to Turkey this season against the backdrop of the imposed export restrictions in Russia?
- Officially, in Juke-December 2021/22 MY, Turkey imported around 5.5 mln tonnes of wheat being mainly from Russia, Ukraine and Moldova. However, the share of Russian origin is getting lower - 63% in current season compared to around 80% last season, since Turkish importers are also seeking cheaper and more sustainable origins.
- The current pace of wheat imports by Turkey is higher than last year's. Should we expect the further high volumes of grain import in the foreseeable future? What are the domestic wheat stocks in Turkey?
- Due to lower crop size, Turkey will require more imports to meet total requirement of over 25 mln tonnes. This implies around 10 mln tonnes of wheat imports. Local wheat stocks are exhausting seasonally and we may see more active imports until the end of the season. Of course, TMO tender policies, CIF prices and USD/TL parity will be also crucial.
- FAS USDA in its February report reduced the forecast for Turkey's wheat imports in 2021/22 MY to 10.8 mln tonnes due to the devaluation of the Turkish lira. However, expected imports are still higher than last year's results. What can you say about the impact of currency factor on import volumes in the coming months?
- Albeit lower local consumption potential with quite solid USD/TL parity and higher food inflation, Turkey must import more than last season due to lower crop size (around 2.5 mln tonnes less than in 2020/21 season, i.e. 15.5 mln tonnes compared to 18 mln tonnes).
Of course, USD/TL parity is so important for both local buying appetite/inflation and import costs. Reportedly, Turkish government is willing to keep the rate around 13–14 range (now around 13.6), but let’s wait and see whether it’s possible while FED is preparing to hike the interest rates.
- Ukraine and Turkey signed a free trade agreement, which establishes a zero duty on the supply of grains to Turkey from Ukraine. How do you estimate the prospects for trade between the countries taking into account these changes?
- The trade volume in between Turkey and Ukraine has been getting enlarged in recent years and so it’s obvious that such free trade agreements will promote this trend as well.
- The deterioration of macroeconomic situation forced both TMO and private importers to switch to spot purchases of wheat. To what extent does this situation affect the volume of purchases and what development do you see in the future?
- TMO is the flash buyer of 2021/22 season so far via international tenders being already bought of 2.675 mln tonnes of milling wheat, 2.77 mln tonnes of feed barley and 975 thsd tonnes of feed corn. The private importers also try to buy hand-to-mouth with rather limited quantities as per the developments. Since TMO sells those supplies to local markets at cheaper prices (to local millers/feeders as per inflation fights, etc.), the chances and competitiveness of private importers are deteriorated if they do not re-export them.USD/TL parity is also so volatile (even records of over 18 by mid-December 2021 vs 13.6 now) and prevents to take position locally and globally for private importers and exporters indeed.
Summing up, for local consumptions, the imports are mainly revolved around TMO. Of course, global and local economic conditions will be also the main determinant.
- Lastly, do you have any forecasts for 2022/23 season new-crop sizes of Turkey?
- It may be earlier to speak definitely, but I notice at least 5% less acreage for barley and wheat plantings compared to spring 2021 being mainly due to record input prices, foremost those of fertilizers.
However, the weather conditions so far are fortunately better than last season, with more snows and rains. Nevertheless, still the harvestings are 3-4 months ahead and I hope and pray that such favorable conditions are also kept.
Totting up, under normal weather conditions and better inputs, around 16-17 mln tonnes of wheat and 5-6 mln tonnes of barley may be possible for Turkey.
Interviewed by Anna Lysenko , APK-Inform Agency
