September 8, 2011
EU wheat still saleable despite deluge of Russian grain exports
High local demand of wheat and its established African markets benefits EU to easily sell their wheat this season despite flood cheap Russian exports in world markets.
Although it is very unlikely to repeat the hefty sales numbers from last season when it benefited from Russia's pullout of the market after a drought slashed crops, the 27-member bloc could sell its entire surplus this season, provided US grains remain supported by weather problems, analysts and traders say.
Andree Defois, head analyst at France's Strategie Grains, said that French and German wheat is still cheaper than the US wheat.
Russia has dominated the global wheat export market since the start of the July when it returned from a near year-long absence, shipping around five million tonnes wheat in just two months, nearly a third of analysts' forecasts for the whole season.
The floods of cheap Russian wheat, combined with a near 10 % drop in output in France, by far the European Union's major wheat exporter, after severe drought in the spring, will inevitably mean a sharp drop in EU exports this year.
All in all, EU states should ship around 14 million tonnes of soft wheat in 2011/2012, down from 19 million last season, Strategie Grains said. Germany, Europe's number two grain producer was also hit by spring drought and late rains.
Analyst and traders have little doubt that the 27-member bloc will be able to ship its surplus as it benefits from strong internal demand and constant demand from its traditional buyers.
Germany is likely to break its wheat exports this season after heavy rainfall over the summer and into its harvest damaged a chunk of its crop.
France shipped 1.7 million of wheat since the start of the July/June season France, of which nearly one million to Algeria, 385,000 tonnes to Africa and 126,000 Egypt, Reuters port data showed .
Defois said the price situation (of European wheat being cheaper than US wheat and corn) and the fact that EU have a lot of inelastic and regular demand from North Africa mean that EU exports are at a very correct rhythm and that we will have no trouble exporting all of our exportable surplus.
Still, for the whole season, French wheat exports this season should fall to 8 million tonnes, she said, a forecast revised up by nearly one million tonnes as it expects Russian exports to wane later in the season. That compared to last month but down from a record 13 million tonnes last year, when France exploited Russia's absence from the market.
Traders put French exports at 8 to 9 million tonnes.
Although Russian prices are rising fast -- going in Egypt tenders from US$243.50 a tonne FOB early July to US$295/tonne at the end of August -- they are still offered at a big discount versus European and US wheat.
In Egypt's Aug 25 tender for shipment in Oct 21-31, the lowest bid for French wheat was at US$308.87/tonne FOB, Australian was at US$303/tonne and US SRW at US$313.15/tonne
In Egypt's tenders in the first two month of the season, Russia sold 1.74 million tonnes of wheat for shipments until November, or 93 % of total purchases, with the remaining 120,000 tonnes from Romania, a new origin in Egyptian tenders.
Egypt traditionally buys French, US, Canadian, Australian, Argentine and, apart from last season, Russian.
But French prices, supported by good demand, have so far been out been of reach to compete with Russia.
When Russian flows abate and winter conditions make transport difficult EU wheat could regain some markets, but the jury is still out on whether western Europe will benefit or whether it will be mostly Romania and Bulgaria.
But if the final EU crop was lower than expected due to rain damage in Northern Europe, if the United States were to export more than planned, or if Ukraine was to come back in great numbers should it lift export restrictions, EU exports could shrink heavily, analysts stressed.
High imports of feed grains, notably from Ukraine, would increase the availability of exportable milling wheat in France.