Egypt buys but Russia misses the prize…

By Peter McMeekin

Egypt’s state grains buyer, the General Authority for Supply Commodities (GASC), announced the results of its latest wheat tender early last week and yet again, Russian origin remained too expensive to participate.

GASC sought an unspecified quantity of soft and/or milling wheat in 55-60,000 metric tonne bottoms from global exporters for shipment in the October 15 to October 25 window and payment by 180-day letter of credit. Eligible origins were listed as the United States, Canada, Australia, France, Germany, Poland, Argentina, Russia, Kazakhstan, Ukraine, Romania, Bulgaria, Hungary, Paraguay and Serbia.

Following the close of tenders at noon local time last Monday, GASC announced that it had purchased 180,000 metric tonne (mt); 120,000mt from Romania and 60,000mt from Ukraine. The three successful offers were:
60,000mt Romanian wheat at US$308.50/mt free on board (FOB) plus US$29.60/mt ocean freight totalling US$338.10/mt cost & freight (C&F);
60,000mt Ukrainian wheat at US$304.25/mt plus US$36.08/mt freight, totalling US$340.33/mt C&F;
60,000mt Romanian wheat at US$308.50/mt plus US$34.43/mt freight, totalling US$342.93/mt C&F.

These purchases mirror the quantities and origins in GASC’s previous tender for October 5 to October 15 shipment with the same payment terms. Those results were announced on August 18, with the successful offers being:
60,000mt Romanian wheat at US$294.99/mt FOB plus US$34.43/mt freight for a total of US$329.42/mt C&F;
60,000mt Romanian wheat at US$297.00/mt FOB plus US$34.43/mt freight for a total of US$331.43/mt C&F;
60,000mt Ukrainian wheat at US$297.95/mt FOB plus US$35.94/mt freight for a total of US$333.89/mt C&F.

And just two weeks earlier again, GASC purchased one 60,000mt cargo of Romanian wheat at US$261.49/mt FOB plus ocean freight of US$32.25/mt, giving a landed price of US$293.74/mt C&F.

Egypt is the world's largest buyer of wheat, making their purchase price quite an accurate and fascinating barometer of changes in global export values. In the three tenders in August, the average FOB price rose by US$45.59/mt, or 17.4 per cent. The average cost of ocean freight from western Black Sea ports to Egypt increased by 3.5 per cent, or to US33.37/mt, although it did fall 4.5 per cent, or US$1.56/mt, between the second and third tenders.

This puts the rise in Egyptian C&F wheat values across August at a staggering US$46.71/mt or 15.9 per cent. The surge comes at a time when prices are traditionally burdened by the weight of new crop supply from the northern hemisphere harvest. However, poor harvests in Russia, Canada, the United States and France have tightened global supply considerably, especially in the higher protein milling wheat category.

The fascinating point here is despite the significant rise in GASC tender prices, Russian origin wheat is still well out of the money. In fact, it was more than US$12/mt away from the cheapest tender price on a FOB for FOB basis, with the lowest Russian offers reported to be US$315/mt & US$317.90/mt FOB. With freight of US$35.75/mt, the Russian C&F price averaged US$352.20/mt, US$11.75/mt, or 3.5 per cent higher than the average buying price in the tender.

Another curious outcome of the tender was Ukraine seriously discounting its single successful offer. At US$353.25/mt, its second-best offer was US$12.92/mt more expensive than their lowest and was US$2.50/mt more than the cheapest Russian origin offer. Ukraine already has an extensive export program on its books and has plenty of options for its quality wheat, so it is unlikely they will need to be as aggressive in future GASC tenders.

French origin wheat was even further away at US$368.10/mt C&F. Their FOB price of US$315.85/mt was very similar to that of Russia, but freight is the killer for French wheat exporters. At US$52.25/mt, it is US$16.50/mt, or 46.2 per cent more than the cost out of Russia and US$24.35/mt, or 82.3 per cent higher than the cheapest Romanian offer. With a freight disadvantage of that scale, it is hard to see French wheat winning much GASC business this season.

Russian wheat export prices rose for the seventh consecutive week last week, with farmers holding tight in a rising market and exporters eager to buy ahead of another increase in the floating export tax. Russia launched its formula-based duty for grain exports back in June as part of government measures to stabilise domestic food inflation. The switch to a formula means the tax automatically rises in response to any price increases and is currently set at 70 per cent of the difference between a government/market determined base price and US$200/mt.

The tax started at US$28.10/mt in the week commencing June 2, and last week Moscow announced that the tax for the week beginning September 8 had been set at US$46.50/mt. That is an increase of 65.5 per cent since inception and reflects the rise in Russian export values over that time.

Russian consultancy Sovecon shaved another 0.8 million metric tonne (MMT) off its Russian production forecast last week to stand at 75.4MMT. This followed a 5.9MMT downward revision to 76.4MMT in the second week of August. The Ural and Volga regions of the country suffered greatly due to a dry and scorching summer, according to Sovecon. The Urals may harvest their lowest crop since 2012 and the Volga since 2014. Both regions only received between 50 and 80 per cent of average rainfall over the last three months, and temperatures were 3-5° Celsius above average.

Sovecon also cut its forecast for Russian wheat exports in the 2021/22 marketing year by 3.2MMT to 33.9MMT, the lowest since 2016/17. This was on the back of lower production, slow shipments and stiff competition from fellow Black Sea exporters such as Ukraine and Romania. Russian wheat exports are reported to be around 3.1MMT last month, 20 per cent lower than the August average for the past three years.

The export tax uncertainty puts Russia out of the GASC game for the time being. France is eliminated on account of freight, and Ukraine doesn't need to discount to find homes for its exportable surplus in a season when its primary European competitors have had a poor harvest. The question is: how long can Romania continue to carry the can?

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