Russian wheat price floor fails as MENA buyers look ahead to 2024 plentiful crop

Buyers in the Middle East and North Africa continue purchasing cheap Russian wheat, despite the government's failed attempt to impose an unofficial price floor, while exports are expected to continue steady growth amid a backdrop of favorable production forecasts for the 2024 harvest season.

Russian wheat remains the cheapest out of the Black Sea, despite the government's attempts to impose an unofficial wheat price floor to help local farmers, with rumors to withhold phyto-sanitary certificates from anyone selling wheat below the floor. The price floor contributed to halting price declines earlier this year. From the end March to late April, a period classed by traders as a "broken market", the most competitive FOB offer for Russian wheat was at $275/mt for a Handysize cargo, while in Egypt's GASC April 6 tender all Russian cargoes were priced at the floor. This period was followed by the departure of multinational companies, namely Cargill and Viterra, and LDC from the Russian business in July 2023.

However, due to high stocks from the previous year and high wheat exports on good production this year, Russia was forced to export its bumper crop at cheaper prices to appeal to buyers. Platts assessed trading levels for FOB Russia 12.5% at around $242/mt on Dec. 11 against the current price floor level in December of $250/mt. "The Russian wheat market is almost all traded CNF now," a Russian trader said, adding that most sellers circumvented the restriction on FOB prices by selling on a CNF basis.

For this reason, MENA buyers look ahead to plentiful cheap Russian wheat in 2024. The US Department of Agriculture in its December report forecasts a 2.5 million mt year-on-year increase in Russia's wheat exports to 50 million mt for the marketing year 2023 - 2024 (July to June). In the coasters market, buyers in Turkey are also on the lookout for freight increases, which jumped over $10/mt in the past weeks from Azov Sea amid poor weather conditions in the Black Sea. "Freight levels are killing business," a Turkey-based trader said. Between July and November 2023, the top buyers of Russian wheat were Turkey (3.32 million mt), Egypt (2.75 million mt), Bangladesh (1.69 million mt), Algeria (1.46 million mt), and Iran (1 million mt).

For the MY 2024-25, wheat production in Russia is likely to drop to 85.2 million mt, compared with 90.5 million mt in MY 2023-24 on a drop in plantation area and yields, S&P Global Commodity Insights data shows.

However, with good winter crop planting and favorable weather, the export potential is likely to reach a new record of 47 million mt for MY 2024-25, according to S&P Global Commodity Insights senior grains analyst Victoria Sinitsyna.

EU wheat competes with cheap Russian supply

According to S&P Global Commodity Insights forecast, Romania is expected to harvest 9.3 million mt wheat in MY 2024-25, down from the 10.6 million mt estimated for MY 2023-24, as yields are likely to fall 10% to 4.25 mt/hectare while plantation may decrease by nearly 3% on year to 2.2 million hectares. Bulgaria may see a similar fall, with harvest likely at 6.3 million mt in MY 2024-25, down from 6.5 million mt in the previous year. "Generally, farmers are not satisfied with prices this year, they complained prices merely cover their production costs of wheat," a local market source said.

Romania is expected to ship out 8.3 million mt wheat in MY 2024-25 and Bulgaria 4.4 million mt, steady from last season, S&P Global Commodity Insights data showed.

Sluggish exports from the EU remain in tight competition with cheap Russian wheat. "In MY 2024-25, EU-27 is forecasted to export at 35 million mt or below, similar to the current marketing year, as Russian crop may keep weighing on the market," Sinitsyna said.

Ukraine wheat exports likely to slump

Ukraine's wheat exports are likely to drop further in MY 2024-25 due to continued conflicts and persistent logistical challenges in the region, traders said. "If the conflict continues, Ukraine's exports are likely to decline further in coming months," a trader based in Odesa said. So far in MY 2023-24, Ukraine has shipped out 6.3 million mt of wheat as of Dec. 13, down 15.2% on the year, data from the Ministry of Agrarian Policy and Food showed.

Ukraine is also expected to export 12.5 million mt of wheat in the MY 2024-25, compared with 13.4 million mt in the current marketing year, S&P Global Commodity Insights data showed.

Ukraine's exports slumped after the Black Sea grain deal fell apart in July 2023 and Russia started targeting its port operations. Ukraine shipped out 8.9 million mt wheat through the ports of Chornomorsk, Odesa and Pivdenny under the deal. After the deal expired, Ukraine developed alternative routes via Reni and Izmail on the Danube and through the EU, and a marine export corridor through the Black Sea in August, shipping out 3.95 million mt of wheat.

Wheat harvest in Ukraine continues to take a hit. The country is expected to produce 20.5 million mt, around 1.5 million mt lower year on year on potentially lower quality inputs, Sinitsyna said.