FEATURE: Asian buyers grapple for wheat supply amid Russia-Ukraine conflict

Global wheat prices have sky-rocketed since Russia invaded Ukraine, disrupting supply from the world's largest wheat exporting region while boosting Australia's profile as markets look to shift trade flows.

Australian Premium White, or APW, wheat index jumped by $28/mt since Feb. 23, the day before Russia invaded Ukraine, to $380/mt FOB Kwinana March 2, according to Platts assessments from S&P Global Commodity Insights.

The last time APW hit a record high was on Dec. 6 at $372.5/mt FOB Kwinana on the back of widespread rainfall during peak harvest period.

Australian suppliers were bracing for a surge in export demand as buyers look to replace the loss of Black Sea volumes in the near to medium term.

However, a significant increase in export potential is not expected in the short term as logistics and supply chain from Australia were already under stress from a record-breaking harvest.

In the east coast, grain production has surpassed export capacity and additional carry over from the 2020-21 marketing year (October-September) was straining logistics further. Floods added to the constraints, delaying loading from Brisbane by a week, a trade source said.

The export deficiency stood at about 2 million mt in New South Wales and 1 million-1.5 million mt in Victoria, Graincorp's trading director, Michael Jester, said during the AGIC Asia conference March 2.

In anticipation of a huge surge in export demand, grain supplier CBH will be offering an additional 540,000 mt of shipping capacity March 4, the co-operative's head of trading, Benjamin Tiller, said March 2 during the AGIC Asia conference.

Trade sources said that 120,000 mt will be for canola shipping out of Albany, 120,000 mt for ASW1 shipping out of Geraldton and the remaining 300,000 mt for feed barley or ASW1 shipping from Esperance.

These will be for shipping stem between last half April through to last half September.

The 540,000 mt is on top of the expected record 17.1 million-17.2 million mt of grain to be shipped from Western Australia in MY 2021-22. Previously, the highest volume CBH ever shipped out stood at 15 million mt, Tiller said.

To further strengthen its supply chain, CBH has in the week starting Feb. 27 asked farmers in Western Australia to volunteer trucks to help transport grain from farm to ports.

Asian buyers emerge

As the price surge showed no sign of losing steam, buyers have finally returned to the market following close to a week of inactivity.

Feed buyers in Thailand and the Philippines issued buy tenders for feed wheat March 2, and South Korea has followed suit March 3 seeking feed wheat arriving in July.

San Miguel Corporation in the Philippines was heard to have booked a feed wheat cargo at high $380s/mt CFR for June-July shipment via its tender March 2.

No offers were heard made to Thai Feed Millers Association, or TFMA, as supply was tight for prompt shipment months of March-May. Many traders were still exercising caution over taking new positions, while prices continue to soar.

However, after almost half a year of being out of the export market, TFMA on Feb. 23 booked a 63,000 mt feed wheat cargo from Australia, with no sprout guarantee, at $349/mt CFR for May 15-June 15.

These two deals within a week apart indicated close to $40/mt uptick in feed wheat prices in Southeast Asia since the conflict began in the Black Sea. Russian and Ukraine, combined, account for close to 30% of world's wheat exports, according to the US Department of Agriculture.

TFMA has been out of the feed wheat export market since July 7, 2021, as the consortium was relying on other cheaper feed products such as local corn, tapioca, and broken rice amid tepid downstream demand, sources said.

"They thought they can rely on corn this year but situation has changed, other markets have bought all the corn around Thailand," a broker based in Thailand said. "Very few Myanmar corn is left for Thailand, and local corn [prices] seem to be going up," the broker added.

However, CFR Northeast Asian corn price index spiked by $46/mt since Feb. 23 to $399/mt CFR March 2, according to Platts assessments from S&P Global Commodity Insights.

Buyers spurred to book cargoes

The MY 2021-22 marked a drastic change in buying patterns among Asian buyers.

China has played a key role in this, as the country has been on a grain-buying spree to replenish grain stocks for food security reasons, along with an eye to fulfill its obligation to the World Trade Organization.

China imported 2.19 million mt of wheat from Australia in MY 2020-21, 59% higher year on year. In MY 2021-22, China has booked upto 5 million mt till May shipment, S&P Global Commodity Insights reported earlier citing trade sources.

This has pushed other Asian buyers to buy well ahead of the curve in fear of supply tightness and higher prices amid an already tight global balance sheet.

For instance, by February this year, South Korean flour millers have booked their Australian wheat purchases till July, as compared to end-March last year for the same shipment period.

"With the current situation removing a key region, he [buyers] may not be able to be as short term with his thinking and buying," trading company Viterra's grains trading manager, Simon Gellert, said during the conference.

"So I think it will drive a longer term shift towards consumers covering further out," Gellert said.

Australia is expected to step up its position to fill the void of Black Sea supply but it was unclear whether prices will stabilize in the near term, market sources said.