London — High origination costs and expensive terminal fees are pushing Russian wheat sellers looking to originate and sell now to offer at or below cost, market sources said.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
To originate wheat to port for prompt dates for 12.5% protein wheat is at least $210/mt, while terminal costs can be secured at $16-$17/mt for the most vertically integrated traders, rising up to $20-$22/mt for those with lower supply chain integration.
For many sellers, selling at cost on a FOB basis for April or May-loading is roughly $235/mt; offers have been consistently below $230/mt for months now.
S&P Global Platts last assessed FOB Handysize Russian 12.5% protein wheat above $230/mt on February 28 at $230.50/mt.
Wheat was last assessed at around $235/mt on February 25 at $235.50/mt as wheat plummeted from its 4.5 year high at $247.50/mt set on February 6 on easing supply concerns across various origins.
But with the new crop approaching and forecasts suggesting that production levels could be higher than this marketing year's number of 71.69 million mt, according to the USDA, sellers with exportable surplus available are beginning to discount.
August-loading offers are around $195/mt, $29/mt below Platts' current assessment of $224/mt Monday.
And with many buyers well covered for the moment and able to wait until new crop delivery, the likelihood of old crop sales falls each day.
One source touted that 12.5% FOB Russian wheat prices could be $200/mt by mid to late May.
One reason for prompt FOB offers being below the cost of replacement is down to EU and US origins being far more competitive over the last months pushing any Russian wheat sellers to be more aggressive in their offerings.
A large supply pool in the EU and US due to a slow export pace earlier on the marketing year starting July 1, 2018, meant EU and US sellers could offer up to $10 lower than Russian sellers for large periods in 2019.
But the reason for origination costs being so high now is down to extremely tight supply in Russia.
Stocks in the southern regions such as Rostov are completely exhausted; the little availability that there is must come from more remote regions such as Siberia, which include additional transport costs and a delivery time lag of 20 to 30 days to arrive at port.
With FOB prices at record highs during the marketing year, some sellers in the South "oversold and are left with no carry out stocks," a source said.
The large selling has been in part to satisfy firm demand from the Middle East, North Africa and South East Asia but also the local Russian market, which is estimated at 40.5 million mt according to the USDA.
During this marketing year, Russian local prices reached their highest ever, according to sources.
Current Russian wheat exports are now at 32.4 million mt from July 1 to April 10, according to the Russian Federal Service for Veterinary and Phytosanitary Supervision, Rosselkhoznador, a similar pace compared with this time last year.
The USDA forecasts 37 million mt of Russian wheat exports by June 30. Russia exported 41.42 million mt in 2018/19, a global wheat exporting record for a marketing year.
-- James Colquhoun, email@example.com
-- Edited by James Leech, firstname.lastname@example.org