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Turkey's currency crisis squeezes out private wheat importers

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Turkey's currency crisis squeezes out private wheat importers

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Turkey's state grains board loses at least $100/mt on domestic wheat sales: traders

Foreign exchange risks too great for most private importers

As the world's largest exporter of flour, Turkey is one of the largest wheat importers. However, the Turkish lira's sudden depreciation has forced many private players to watch from the sidelines, as the state grain board absorbs losses of more than $100/mt in the name of food security.

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"[Private] importers won't touch CIF business, Turkish privates are buying in Turkish lira from domestics," said one trader, pointing to a reverse of the typical situation when it's profitable to import wheat from Ukraine and Russia and sell domestically. That anomaly is a result of the country's volatile currency, which has shed more than 40% of its value against the dollar since the start of November.

Turkey buys much of its wheat through the country's state grain board TMO, which holds regular tenders for Handysize cargoes, whereas much of the private players trade smaller parcels, typically of 3,000 mt or 6,000 mt.

"Last year, we switched to [sourcing on] the domestic market," said the trader, who estimated that TMO's sales represent only a third of the total 1.5 million mt of wheat that traders domestically in Turkey each month.

Private players have been deterred by the sharp decline of the Turkish lira over since November, but TMO has continued to do business, and it has bought around 2.3 million mt of wheat since the marketing year began on July 1 2021. Its last purchase was on Dec. 21, when it bought 295,000 mt at an average price of $359/mt, and it has another tender scheduled for Jan. 18.

On Jan. 7, two traders said that TMO was selling wheat on the domestic market at Turkish lira 2,655/mt ($195/mt), while the price for private sales was around Turkish lira 4,200.

TMO's sales on the domestic market serve to keep down the cost of bread. However, TMO's sales are rationed, and regulations prevent mills from buying subsidized wheat and exporting flour.

Those exporting mills are the now the only non-state buyers of imported wheat in Turkey, but the weakness of the lira has made it harder for them to get credit lines and the higher price of wheat has raised the amount of working capital that they require. Moreover, there was a surge in flour imports ahead of the lira's sharp decline, which boosted their stocks and reduced the pressure that they now feel to make spot purchases.

"Flour sales are very low," said one miller.

It's not unusual for TMO to sell wheat at a loss on the domestic market -- its mission is to protect producers and consumers and Black Sea wheat prices are up by around 15% on the year -- but traders have been shocked by the scale of its losses on every ton sold.

"Last year, [TMO] was making a loss of $20/mt or $30/mt, this year it's more than $100/mt," said the trader.

"TMO doesn't look at foreign exchange rates. They need to guarantee [wheat] supplies or they'll see a situation like Kazakhstan," the trader added, referring to the recent protests in the central Asian country that were sparked by inflation in fuel prices.

In its most recent update for Turkey, which was published in July 2021, the US Department of Agriculture forecast that Turkey would import 11.25 million mt of wheat in the 2021-22 marketing year, or around 5% of total global imports.

The USDA also estimates that the country exported 6.3 million mt of flour and wheat products in the previous year, on a wheat equivalent basis.