Russia’s bumper wheat crop means for ‘northern EU game is over’

Russia's huge upcoming wheat crop is likely to spell 'game over' for Northwest European wheat exports leaving farmers in the region to hold on to supply as they eye Russia's willingness to keep a Black Sea grain export corridor open, the pace of Europe's corn harvest and the quality of harvested wheat, trade sources have told Agricensus.  

“For Northern Europe, the game is over,” one trade source said, with the imbalance likely to keep a lid on any further exports until the Black Sea dominance ends.

Prices for Germany, Poland and other Baltic countries remain uncompetitive in the global market compared to aggressive levels seen in the Black Sea region - a dynamic that is likely to ensure that the imbalance, which has dominated for several months, will continue as the big Russian harvest comes to market.

But trade sources say there are challenges that could yet cut Black Sea supply through a lack of quality wheat or the closure of the grain corridor, or could force European farmers to sell as they need to clear space for the incoming corn harvest.

Invasion

European traders kept their books busy with new crop deliveries in the first and second quarter of 2022, benefiting from high global wheat prices following Russia's invasion of Ukraine in Februay.

But that led to slower farmer selling in the third quarter, as exports from the Black Sea picked up, and ensured that European exporters simply kept themselves busy with execution and were in no hurry to sign new deals at lower levels.

“More than 50% of German new crop grains [mainly wheat and barley] are already sold out,” a Germany-based trader told Agricensus.

Russia’s bumper 2022/23 wheat crop of nearly 95 million mt brought additional pressure and competition to European origin wheat, squeezing the last opportunity out of the trading space and leaving farmers and exporters happy to sit back and watch unfolding dynamics.

But with European farmers sitting on stocks still for the time being and lower quality wheat harvested this year, premiums were broadly stable over the last few weeks, keeping European wheat at around $20-30/mt above Black Sea levels.

During the week, offers for Russian 12.5% wheat were seen in the range of $320-322/mt FOB Black Sea ports for October loading, while selling indications for German and Polish 12.5% were reported at a €15-25/mt and €9-12/mt premium to the December Euronext contract, which equates to around $348-358/mt and $342-345/mt respectively.

German exporters normally compete with Russian origin into such destinations as Iran, Sudan and Saudi Arabia, but market participants expect the upcoming Saudi Arabian wheat tender to be a "purely Russian affair".

When to sell?

Despite low trading activity “farmers should be pushed to sell when the corn harvest starts, to free up some space in their warehouses,” a Poland-based trader said.

“But we hear that some of them have said that if the price is not right, they can sit on it till the next harvest,” the trader added.

That comes despite concerns over the quality of some Russian wheat, with a higher than normal percentage of feed wheat expected in the current harvest.

Since the export corridor agreement was signed on July 22, Ukrainian and Russian origin goods have gained competitiveness in the export market despite war and sanctions risks involved.

But with uncertainty and rumors about the possible closure of the grain corridor circulating around the market, European traders have held off from active selling and prefer to watch the news closely.

Russian media has indicated that their government is not happy with the pace of wheat exports and had hoped that the signing of the corridor deal with Ukraine would boost exports as well as re-open access to Ukraine's market.

Traders are now awaiting further indications on the viability of the deal, with Russian President Vladimir Putin expected to comment on the situation during a meeting with Turkish and Chinese leaders in Uzbekistan on Friday.

“Russians desperately need to sell... France and Germany can only go back to the game if the corridor shuts,” a broker said.

“Selling beyond November-December is risky in these geopolitical conditions as Putin can move the market up €10/mt with one speech. Farmers are still thinking about the peak prices so probably something like €400/mt FOB,” another broker told Agricensus.