According to ProAgro, Ukrainian wheat exports in January 2017 amounted to 1.2 MMT, which is 14% less than the previous month. Although shipments of grain in January traditionally decline because of New Year holidays, it seems that in the case of wheat, the first month of the year will be the “last” month in the current season when grain exports exceeded 1 MMT mark. In comparison, in February, shipments amounted to about 0.9 MMT and the reason for this is the exhaustion of wheat stocks in the country.
According to the results of eight months of MY 2016/17, exports of Ukrainian wheat reached 13.6 MMT, which is 1.7 MMT more than during the same period of the last season when only 16.5 MMT were exported from the country. Currently, export potential for grain is estimated at only 15 MMT, thus, for the remaining four months less than 1.5 MMT are needed to be shipped, that is, about 350-400 KMT per month. However, according to the assessment of the International Grains Council (IGC), Ukraine can still carry abroad 1.8 MMT of wheat until the end of MY 2016/17. Nevertheless, this increased forecast does not fundamentally change the situation.
The high rate of Ukrainian wheat exports in this marketing year is mainly due to India, which in view of the last year”s crop failure of its own grain was forced to purchase the largest grain volume over the past 10 years. At first, India”s demand for imported wheat was estimated at 2 MMT, then at 3 MMT, but the supply of Ukrainian grain alone exceeded this volume for today. However, Indian direction for Ukrainian wheat will soon be closed – the country is approaching a new crop harvesting and its government, which initially abolished the import duty on wheat in order to stimulate purchases from abroad, now intends to introduce it again to protect local producers. Moreover, India already introduces a ban on fumigation of imported grain with methyl bromide, demanding that it must be carried out at the port of shipment. Since the use of this reagent in Europe is prohibited, the European grain on the Indian market will practically become non-entry.
Nevertheless, Ukrainian exporters don”t see any problems with wheat sale abroad, as has been already noted, remaining stocks remain small. In addition, the domestic grain has virtually no competitors – stocks have also been depleted in the EU and even in Russia there is still a lot of wheat, but it is located mostly in remote regions, which at current world prices and domestic transportation rates seriously hampers its exports. Since the beginning of the year, Argentina and Australia have entered the wheat market with a new wheat harvest, but Argentinian wheat is traditionally bought by the neighboring Brazil and Australian grain competes with Ukrainian in the markets of South and South-East Asia.
Meanwhile, analysts consider the demand for wheat in North Africa – previously the main area for sales of Ukrainian grain – still quite far from saturation. In particular, although Egypt reported last week that its reserves will be enough to meet the four-month demand, in fact, the deficit of the grain balance in the country today is estimated at almost 2 MMT. At the same time, Egypt in the current season was mainly focused on buying Russian, Romanian and Ukrainian wheat. In addition to Egypt, there is also Algeria with its needs, traditionally focusing on French grain.
Summing up, we can say that this wheat season coming to an end and probably will not present any unexpected “surprises”. Egypt, which in terms of purchases of Ukrainian wheat, is in the fifth place, is likely to regain its place in TOP-3 along with India and Thailand, outstanding Indonesia out of the list. Moreover, there is a high probability of further growth in export prices, which already reached $190/t FOB for food grain in the Black Sea ports, which will support domestic prices.
