London — Good European wheat stocks are expected to limit any upside in Russian and global wheat market prices around Europe, the Middle East and Africa, according to sources.
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The cost of European wheat earlier in the marketing year, starting July 1, 2018, pushed most buyers to look at other wheat origins, effectively preserving European stocks, sources said.
However, with the Russian 12.5% protein wheat at a four-year high and Argentine wheat all exported, buyers are returning to Europe, among other destinations.
To date, the EU has exported just over 8 million mt. The EU Crops Market Observatory forecasts total exports to reach 20 million mt, which means ample stocks for exports as the season progresses.
But with the new crop approaching and many buyers well covered amid record prices, a number of market participants expect no more than 15 million mt of exports, possibly suggesting some downside in the coming months.
Consequentially, however, the additional length in the market is keeping Russian wheat upside limited.
"The EU is going to export more with the length it has. Buyers [won't] buy [Russian wheat] at these prices," a source said.
Offers for FOB March-loading Russian wheat have been heard at $245/mt Monday, down $3-$4/mt from Friday as few buyers see length build up on the prompt.
Although Russian wheat is now offered at $245/mt for March loading, Baltic and German wheat can be loaded at $242/mt and only $244/mt, respectively, for April.
As a result, destination buyers such as Egypt have seen private buyers switch to wheat of Ukrainian, French and US origins to satisfy their demand.
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"No one will buy Russian [11.5% protein wheat] now [at these prices]; buyers are switching to Ukrainian origin [on price as it costs around $248/mt on average]," the source said.
With wheat in Egypt selling locally at $249-$250/mt CIF replacement, it is unsurprising that the last Russian cargo to trade to Egypt happened week-ended February 1 -- an 11.5% Panamax size vessel at $257/mt CIF, sources said.
This was reflected in Egypt's state grain buyer GASC's last two tenders where only Ukrainian, French, Romanian and US origins were procured.
Russian 12.5% protein wheat rallied in the first quarter of 2019 as many sellers liquidated their positions at lower costs in Q4 2018 while origination costs soared as supply began to arrive from more remote regions.
Nonetheless, the surging price of wheat in the Russian domestic market, now at all-time record highs, has seen increasing pressure for government intervention.
Periodically, the Russian ministry of agriculture has met with traders to discuss export volume guidelines. Many expect this to result in formal export barriers to alleviate pressure on domestic prices.
According to market participants, one non-tariff barrier already imposed is the more rigorous application of phytosanitary checks following complaints from buyers in South East Asia and the MENA region.
This led to many Russian traders avoiding sales to Indonesia and Vietnam earlier in the marketing year.
However, if some restriction is implemented, any additional length in the EU is likely to have little or no impact on Russian prices.
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