Turkish grain market waits on short-lived lira election bounce

Despite a burst of optimism regarding Turkey’s political trajectory that briefly strengthened the lira on Monday, grains traders told Agricensus that wider economic uncertainty means importers are likely to hold out for longer before committing to significant new volumes.

The Turkish lira rallied to its strongest in two-and-a-half weeks in early trading on Monday, touching 5.71337 to the dollar as results filtered in from a hotly-contested rerun of Istanbul’s mayoral election.

The ruling AKP had secured a controversial re-contest after claiming irregularities distorted the first running in March.

But with opposition CHP increasing its share of the vote fiftyfold in the rerun, President Recep Tayyip Erdogan was left with a bloody nose as markets looked to capitalise and punish a leader whose comments have previously spooked investors.

While a stronger lira would typically mean increased buying interest from importers who would see their money go further, cash traders in the grain market that spoke to Agricensus on Monday downplayed the election’s impact.

Indeed, the lira’s early strength proved short-lived and by 1600 London time the currency was trading at a 5.7975 to the dollar, a 0.6% loss on the day.

“There are still so many political and geopolitical risks around … The honeymoon was short when faced with the realities of life,” a trader said.

Issues facing Ankara include an ongoing industrial debt crisis, a dispute with the US over potential Turkish imports of Russian missiles, the aftermath of a war in Syria on its southern border, and increased political isolation from other regional powers in the Middle East.

These factors continue to weigh on the lira, which remains down a quarter against the dollar over the past year, limiting import appetite.

Turkey’s wheat imports dropped 5% to 5.9 million mt in the 2018/19 marketing year, even as domestic output fell, according to the International Grains Council (IGC).

The IGC expects that figure to fall a further 8% to 5.4 million mt in 2019/20.

Grain traders in Turkey expect the trade to continue to look to locally grown crops or rely on state-backed imports and stocks.

“Spot demand is coming from wheat licence owners (who have) suffered for a year … They are happy with the (exchange rate), but at the same time local harvest is speeding up and prices are expected to come down,” a second trader told Agricensus Monday.

“I don’t think Turkey really cares about the lira because they are buying a lot from (state-run grain board) TMO now – both wheat and corn – in lira,” a grains broker said.

“Right now, with current parity, local prices may be a better option,” a third trader said.