Indonesian wheat market: Ukraine vs Australia




In 2020/21 MY, Indonesia will increase import of wheat. High demand from Indonesia let Ukraine to supply more than 2.2 mln tonnes of the grain since the start of the season. At the same time, strong Australia is back to the market this year. Australia is going to gain back its share of Indonesian market is has lost after two years of poor harvest. Is it a real threat for Ukraine? Let us see.

Indonesia remains the second largest importer of wheat in the world. USDA says it may import 10.8 mln tonnes of wheat, up from 10.6 mln tonnes in 2019/20 MY on growing population.

High Indonesian demand for wheat favors Ukraine, as Indonesia is one of the main destinations for Ukrainian wheat. Indonesia was the largest importers of Ukrainian wheat in 2017/18 MY (2.3 mln tonnes) and 2018/19 MY (2.6 mln tonnes). In 2019/20 MY, Egypt moved Indonesia to the second place in the rating. However, the volume of Ukrainian wheat supplied to Indonesia increased last season to 2.9 mln tonnes.

Ukraine maintains massive export of wheat to Indonesia this season. In July-November, Ukraine shipped more than 2.2 mln tonnes of wheat to Indonesian market that nearly matched the result of the same period of 2019/20 MY. Indonesia is the leading importer of Ukrainian wheat in 2020/21 MY so far. Current export dynamics of Ukrainian wheat to Indonesia is typical. Ukraine usually shipped the main volumes of wheat to Indonesia in the first half of the season. 

However, Ukraine will slow down the export of wheat in the coming months due to seasonal decline of supply. Moreover, as of December 1, the country has already exported 67% of the volume set in the Memorandum of mutual understanding signed by the participants of the grain market and the Ministry for Economic Development, Trade and Agriculture of Ukraine (17.5 mln tonnes).

Besides, there will be stronger competition from Australia this year. Indonesia is the main destination for Australian wheat. Ukraine and Australia are strong competitors on Indonesian market supplying the main volumes of the grain. Ukraine strengthened its position on Indonesian market in the recent seasons of poor crops in Australia. However, this year the situation changed.

Australia is continuing harvesting wheat. Current forecasts of production is optimistic. USDA expects the country to harvest 28.5 mln tonnes of wheat that is the third largest crop on record. Australian Bureau of Agricultural and Resource Economics and Sciences gives even more optimistic figure of 31.2 mln tonnes, slightly down from the record high.

Wheat crop declined to 25.2 mln tonnes in Ukraine in 2020/21 MY compared to 28.3 mln tonnes in 2019/20 MY (APK-Inform estimates). Export of Ukrainian wheat will reach 17.5 mln tonnes (down 3 mln tonnes) in the current season, while Australia will export about 19 mln tonnes of wheat (+9.5 mln tonnes). At least 2.5 mln tonnes of Australian wheat will be destined to Indonesia.

However, export statistics shows that the return of strong Australia does not hurt Ukrainian export. Appetite of Indonesia is large. Moreover, marketing season of Ukrainian wheat starts earlier compared to Australia.  Ukraine will face sizable competition from Australia in the second half of the season. However, as it was said, the main volume of Ukrainian wheat has been already shipped to Indonesia. 

Later start of marketing season in Australia allowed Ukraine to supply large volumes of wheat to Indonesia despite significant growth of prices. Currently, Australian wheat is more price competitive. Even the prices of premium hard wheat (APW) is close to the prices of Ukrainian wheat. Generally, Australian wheat is one of the cheapest on the global market at the moment.

Speaking of Australian wheat on Indonesian market we should mention the Indonesia–Australia Comprehensive Economic Partnership Agreement which entered into force on 5 July 2020. The Agreement among other things provides for tax-free shipment of 500 thsd tonnes of Australian feed grains (wheat, barley and sorghum) to Indonesia in the first years of the agreement. In the future, it is planned to increase this volume annually which possibly can influence the deliveries of Australia grain to Indonesia.

If we look at the competition between the main suppliers of wheat to Indonesia, we should mention Argentina. The export of Argentinian wheat to Indonesia fluctuates from year to year, however, in the past three seasons in has significantly increased. In 2019 Argentina shipped nearly 2 mln tonnes of wheat to Indonesia, owing to high production and Australia’s poor export potential.

However, in the current season Argentinian wheat probably will not be able to successfully compete on Indonesian market of wheat because of production losses and respectively the lower prospects of its export and prices rise. According to the last USDA Report, wheat production in Argentina is forecasted at 18 mln tonnes (-1.8 mln tonnes against 2019/20 MY). At the same time, FAS USDA in Buenos Aires has announced lower production forecast – 17.4 mln tonnes and the Rosario Grain Exchange even lower – 16.7 mln tonnes, which is the lowest in 5 years. The decline of production is caused by La Niña, which brought long drought and led to significant plantings losses (around 600 thsd ha).

As a result, the export of wheat from Argentina in 2020/21 MY according to various forecasts can total 11.2-12.5 mln tonnes. USDA forecasts wheat export at 13.5 mln tonnes.

The harvesting campaign of wheat in Argentina started in October and the main volumes of South American grain will be shipped in December-March, when the county will face a strong competitor - Australia.  

I conclusion, we’d like to mention that in 2020/21 MY Indonesia will remain one of the leading target market of wheat on the global market and for Ukraine in particular. The recovery of Australia on the market will damage Argentinian export potential, which is weakened by La Niña. At the same time, Ukrainian exporters have already managed to «ship quite a lot» and the deliveries’ slowdown in the SH of the season is expected.

By Inna Stepanenko

The commentary by Andrei Kupchenko, analyst, head of business projects department with APK-Inform Agency regarding the prospects of Ukrainian wheat deliveries to Indonesia in SH of 2020/21 MY

«The seasonality of Ukrainian wheat export  in general and to Indonesia in particular is becoming more pronounced.  Basically, if in the FH of 2017/18 MY Ukraine exported to Indonesia 78% of total wheat exports, in 2019/20 MY - 82%. In the current season this tendency will preserve. On one hand, the difficulties to form the export batches of corn make wheat the leader among the key items of grain trade in Ukraine. On the other hand, smaller wheat export potential this season and expected high competition with Australia for Indonesia.

The traditional slowing down of deliveries of Ukrainian wheat to Indonesia in the SH of the season started in November. By the end of this period the deliveries of grain are estimated at 103,7 thsd tonnes which is a lowest November volume for 5 years.  Considering the formed export potential of wheat in Ukraine and trends of its export, we expect that in December-June of 2020/21 MY export deliveries to Indonesia can total nearly 550 thsd tonnes. Thus, by the end of the MY the total export to Indonesia can reach 2.7 mln tonnes.