August 2, 2011

 

Russia offers cheapest wheat after export ban

 

 

Russia is offering the largest grain discount in at least four years and is targeting Southeast Asian buyers to regain its world market share after lifting an export ban a month ago.

 

Russian wheat costs at least US$40 a tonne less than North American, French or Australian supplies, according to the Moscow-based Institute for Agricultural Market Studies researcher, also known as IKAR. That makes shipping to countries such as Malaysia viable after freight rates fell 44% in the past 12 months.

 

Russia's grain exports in July probably rose to two million tonnes, the highest monthly shipments on record, according to IKAR and Moscow-based agriculture researcher SovEcon.

 

Russia, the world's second-largest wheat exporter behind the US in the 12 months ended June 30, 2010, fell to eighth in the following period as exports slumped 79% to 3.9 million tonnes, data from the International Grains Council show.

 

The outlook for Russia's wheat production in the 12 months through June next year was raised by two million tonnes to 56 million tonnes, the IGC said July 28, increasing its June 30 forecast. Russia is expected to ship 13 million tonnes of the grain in the 12 months that end June 30, the IGC said.

 

The distance between Russia's southern port of Novorossiysk, the main grain export hub, and Ho Chi Minh City in Vietnam is 6,900 nautical miles (7,940 miles), according to a shipping company website.

 

Egypt, the world's biggest importer, bought 720,000 tonnes of Russian grain since the ban was lifted, while Jordan and Tunisia also made purchases, according to tender results. Egypt had dropped Russia from its list of approved sources after the eastern European country imposed its ban, according to the country's state wheat buyer.

 

The cost of hiring panamax ships, which typically carry grains as well as coal and iron ore, has slumped 44% in the past year to US$11,995 a day, according to the Baltic Exchange in London. When transportation costs decline, it makes it cheaper for traders to move cargoes across longer distances.

 

The discount will gradually narrow as Russia runs out of its exportable surplus and long-haul deliveries may wane in about two months, according to IKAR.

 

Competitors' prices are also falling. Milling wheat fell 16% in Paris trading in the past two months, partly amid concern that Russian exports would reduce demand for European and US cargoes. Prices slid 4.1% in Chicago.

 

Australia, the third-biggest wheat exporter in the 2010-11 season, will ship 18.5 million tonnes by the end of the Australian marketing year, according to the IGC. Deliveries between October and May totaled 12.6 million tonnes, according to the Australian government.

 

In Southeast Asia, Russia has competed with Ukraine, which offers similar quality grain, rather than Australia, said Alexander Korbut, vice president of Russia's Grain Union, which represents the country's biggest producers and traders.

 

Russian grain is gradually becoming more expensive for importers. Egypt paid as much as US$255.25 a tonne for Russian wheat at a July 29 tender, up from US$243.50 on July 7, when it bought the grain for the first time after the Russian ban expired.