Black Sea wheat is getting more competitive

Recent rises in the Euronext wheat futures have increased the competitiveness of wheat in the Black Sea region over EU origins increasing attractiveness of Black Sea origins in the international market.

Euronext March wheat futures were trading at Eur275/mt by 16:30 GMT Jan. 20, Eur12 higher than Jan. 14. The global wheat market recovered from losses over the previous week when wheat futures dropped by Eur12.5 following bearish global wheat balance sheets due to higher world production and lower consumption. In particular, a record crop of 21.8 million mt is expected in Argentina, according to Buenos Aires Grains Exchange, 28% higher than the previous year and meaning that 13.3 million mt of wheat will be available for exports.

The global wheat market also received support from geopolitical tensions revolving around Russia and Ukraine.

At the same time, the Russian wheat market progressed at a lesser extent during from Jan. 14 to Jan. 20. Platts assessed FOB Black Sea 12.5% protein wheat (Russia) protein wheat at $286/mt on Jan. 20, $1 higher from Jan. 14.

This resulted in a lower spread between Russian wheat and Euronext wheat futures which dropped by $10 during the same period to $18.23/mt, the lowest level since Dec. 13, 2021. A narrower spread increased the competitiveness of wheat from the Black Sea region.

Also, the Russian Ministry of Agriculture set the variable export tax amount at $95.80/mt on Jan. 21 for the Jan. 26-Feb. 1 period, $1.70 lower on the week further improving the competitiveness of Russian wheat in the export market. The export tax is expected to decrease even further over the next weeks, according to sources in the market, following a drop in export prices over last two weeks.

The variable export tax was introduced in Russian on June 2, 2021, to limit grains price rise. The export tax is calculated as 70% of the difference between the average of export prices on FOB basis during the 60 days preceding the day of calculation and $200. It is being published each Friday and enters into force on Wednesday of the following week.

The export tax had been rising from September through December and started dropping on Jan. 19 and continue going down the following week. This had a negative impact on wheat exports from Russia. Russia exported 20.4 million mt of wheat from July 1 to Jan. 12, according to Rusagrotrans, Russia's railway operator, 23% less than last year during the same period.

Iran's GTC was heard having booked about 195,000 mt of milling wheat for February-through-March shipment in a tender that took place on Jan. 20. Wheat was of optional origin and may be from Russia and EU, Germany and the Baltic States in particular.

"There are good chances it'll be Russian [origin which will be taken after a rise in Euronext," a trader said.

Iran booked 240,00 mt of milling at the previous tender on Jan. 12 for February through March shipment.