Feed wheat washout rumours dog Black Sea trade amid tight supply

Tight supply in the Black Sea feed wheat market has fuelled rumours that traders are struggling to cover cargo volumes and are looking to buy their way out of their contractual export obligations amid a lack of physical offers, market sources told Agricensus this week.

The process, which is colloquially known as a "washout", comes after market sources have noted a lack of feed wheat on offer for more than a month in the Black Sea region after cold, wet weather late in May and early in June slowed the development of the crop and delayed the harvest.

"I heard that, allegedly, there was a washout for feed wheat at around $199-200/mt FOB Ukraine," one trader said earlier this week, while a second deal believed to be on a FOB CVB basis was said to have been bought out at $202-202.50/mt.

Some traders have sold physical volumes into destination markets such as Asia thinking they have already secured the supply at origin only to find subsequently that they cannot source enough to fulfil the trade, a second trader claimed.

"A lack of feed wheat supply and farmers or growers unwilling to sell... after which, the supplier is unable to get the wheat," the second trader said. 

Last season, hot and dry weather across the Black Sea and especially in Ukraine boosted the protein content in the region's wheat and meant Ukraine harvested more wheat of higher quality.

That limited the supply of feed wheat grades from one of the region's prime suppliers of the product. Consequently, cargoes of nominally lower-protein feed wheat were offered almost at price parity with higher-quality milling wheat for almost all of the marketing year.

For the current 2020/21 year, market observers expect Ukraine to return to the more typical split of around 60% feed wheat versus 40% milling wheat despite similar hot, dry weather through late June and July potentially boosting the protein content again this year.

Even with the protein level likely to be similar to last year, however, the wetter weather earlier in the season means other factors such as bugs and diseases will downgrade it to feed-wheat quality.