Russia's bumper wheat exports may be capped as large vessels shun Black Sea ports

As the global leaders fret about food inflation, Russia is preparing to reap one of its largest-ever wheat crops, but the country is likely to show a sharp year-on-year fall in shipments for the first two months of the marketing year as larger vessels avoid the country's Black Sea ports, according to traders.

"The surplus is there, the bottleneck is execution," one trader said.

"July to August [will be] rather modest shipment months in comparison with the potentially great crop," said Russian agriculture consultancy IKAR, putting Russia's 2022 crop at 87 million mt, of which 41 million mt would be available for export.

To achieve the export potential assessed by IKAR, Russia would need to export an average of 3.4 million mt a month, but three market participants told S&P Global Commodity Insights that it's unlikely for Russian exporters to ship more than 3 million mt a month.

For comparison, Russia produced 75 million mt in the 2021-22 marketing year (July-June), with exports totaling 33 million mt, according to the US Department of Agriculture's most recent report. However, Russia's grains exports tend to be concentrated at the start of the marketing year and they have sometimes exceeded 5 million mt/month.

"Russia has failed to do more than 3 million mt per month over the last three months [March to June] mainly due to freight shortages out of Russia, [issued with] credit lines and payments ... what's different for July to August?" a second trader asked. "July to August export availability is way less than the [upcoming] demand ... the market will realize it in next 15 days."

The country will account for 18% of globally traded wheat in 2022-23, according to the USDA. In the department's estimates, that would partly compensate for a 9 million mt year-on-year decline in wheat exports from Ukraine, where deep sea ports have been closed since Russia's invasion began in end-February.

Russia's challenges were evident in the most recent tender by GASC, Egypt's state grains board, which was the first of the 2022-23 marketing year. GASC, which is one of the world's largest wheat buyers, received 16 offers, but just three from Russia. It accepted eight offers – totaling 465,000 mt of wheat – including all of the Russian ones.

Wheat is typically sold to GASC in 60,000 mt parcels on an FOB basis, with the board holding a separate tender for the freight. However, the Russian wheat offered in this tender was offered on a delivered basis, highlighting the reluctance of many shipowners to visit Russian ports.

This reluctance is greatest among the owners of Panamaxes, and their larger ships are preferred for the longer routes. "Handy and supra are feasible at a premium ... for everything Panamax, they will be struggling," the first trader said.