China could emerge as a major buyer for Russian wheat and sunflower oil as wide-ranging financial sanctions threaten Russia's agriculture trade flows to its traditional markets in Europe.
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China's deepening agriculture trade relation with Russia was highlighted by the approval of an extensive wheat import agreement on Feb. 24 under which Russia is allowed to sell wheat from all its regions and use its deepsea ports to ship it, directly competing with other wheat exporters eyeing Chinese markets. Earlier, wheat exports to China were only allowed from seven regions, and roadways and railways were used for exports.
China's wheat market presents a huge opportunity for Russia as Chinese dependence on wheat in 2021 rose following higher substitution with corn in its animal feed.
China has already expressed its intention to maintain trade ties with Russia. Its foreign ministry spokesperson Wang Wenb in Feb. 28 said the country will continue to conduct normal trade cooperation in the spirit of mutual respect, equality and mutual benefit.
Russia is also expected to make inroads into China's huge vegetable oil market as traders see an uptick in demand for Russian sunflower oil from China, with top exporter Ukraine remaining absent from the market.
Russia is the largest exporter of wheat and the second-largest exporter of sunflower oil.
- China imported 12,273.62 mt of wheat from Russia in 2021, according to customs data.
- China's wheat purchases were a small fraction of Russia's overall exports, which stood at 26 million mt globally in 2021, according to data from the Russian Federal Service for Veterinary and Phytosanitary Surveillance.
- Estimates for China's wheat imports for marketing year 2021-22 (July-June) are at 9.5 million mt, 48.9% higher than the last three years' average, according to the US Department of Agriculture.
- The USDA projected China's wheat output at 136.95 million mt in 2021-22, up 2.7 million mt on the year. But China's winter wheat harvest in 2021-22 is expected to be the 'worst in history' due to heavy rainfall during the planting season, China's Minister of Agriculture and Rural Affairs Tang Renjian said March 5.
- S&P Global Commodity Insights projected Russia's wheat exports in MY 2021-22 (July-June) at 36.5 million mt, down 4.7% year on year.
- Russia's share of wheat exports in the EU has risen to 21% in MY 2021-22 from 15.6% in the previous year, according to European Commission data.
- Russia's grains exports to China are expected to be limited this marketing year, but may easily exceed 1 million mt going forward, according to market sources.
- Industry sources earlier expected Russia's share of sunflower oil in China's imports to fall as Ukraine was China's preferred supplier prior to the invasion. This may change in the case of a prolonged conflict as currently most Russian ports remain operational in the Black Sea region, while Ukrainian ports and railways remain shut.
- In the first half of MY 2020-21 (September-August), China imported a total of about 1.1 million mt of sunflower oil, with Russia shipping about 250,000 mt of it and Ukraine supplying 783,000 mt, Ukraine-based agricultural commodities information provider APK-Inform said.
- Russia's sunflower oil exports fell 18% on the year to 3.26 million mt in MY 2020-21, according to the US Foreign Agricultural Service, or FAS.
- China is the third largest importer of Russian sunflower oil, accounting for 13% of total imports. Turkey is currently the largest importer of Russian sunflower oil.
- Black Sea wheat export prices have been witnessing sharp volatility in the last few weeks, while futures prices have risen to their highest in years as Russia invaded Ukraine.
- The FOB price of Russia's 12.5% wheat rose $10/mt on the day to a record high of $455/mt on March 7, with prices rising 15% higher on the month, S&P Global data showed.
- The most-active benchmark futures contract traded on the Chicago Board of Trade hit a record high, reaching $12.71/bushel March 1.
- The most-active May futures contract of high gluten content wheat on China's Zhengzhou Commodity Exchange was at Yuan 3,637/mt ($576.12/mt) on March 8, up Yuan 109/mt from the previous settlement.
- Sunflower oil FOB Black Sea was assessed at $2,385.50/mt on March 3-4, up 61.2%, or $905.5, since Russia's invasion of Ukraine began Feb. 24.
- Sunflower oil export prices exceeded $2,000/mt level for the first time on March 3 since S&P Global first started assessing the price in 2018.
- With largest sunflower oil exporters Ukraine and Russia out of the market, buyers are scrambling for supplies, keeping global vegetable oil markets on the boil.
- Crude palm oil FOB Indonesia was assessed at $1,775/mt on March 7, up 11% since Feb. 23, according to S&P Global data.
- Soybean oil Brazil FOB Paranagua was assessed at $1,801.62/mt on March 7, up 14% from Feb. 23, according to S&P Global data.
- The most-active third month futures contract on Malaysia's commodity exchange, which underpins palm oil prices in international markets,is up 9% since Feb. 23 to MR6,533/mt ($1,562.55/mt).
- China's Feb. 24 deal with Russia allowed it to sell wheat from all regions. Previously, only wheat from seven regions in eastern Russia could be exported to China.
- Russia will be able to use its deepsea ports -- the country's main export channels -- to supply wheat to China at a time when all major Ukrainian agriculture ports remain closed.
- Russia's exports to China are mainly done by land from eastern Russia.
- Russia is likely to export a significant volume of wheat to the Chinese market given it produces wheat with high protein content.
- China lowered its import of Russian sunflower in 2020-21 due to higher purchases of Ukrainian products.
- However, since the Russian invasion started, Chornomorsk, Ukraine's main port for shipping sunflower oil has been shut. S&P Global assesses the physical prices of Ukraine FOB sunflower oil at the Chornomorsk port.
- Currently there is no clarity on when Ukrainian ports will be able to start again and sellers are asking for force majeure extensions on their commitments, sources told S&P Global.
- With Ukrainian cargoes stuck at ports, some Indian buyers are looking to book alternative shipments to meet their requirements.
- In its annual report released in 2021, the USDA's FAS projected Russia's sunflower oil production to be around 5.6 million mt in MY 2021-22, up 9% from the previous year.
- Ukraine produces about 6 million mt of sunflower oil annually. Russia and Ukraine account for about 76% of the world's exports of sunflower oil, according to the FAS.
- Sunflower oil is the third most traded vegetable oil after palm and soybean oils in the world.