EU leaves SE Asia wheat market open for Black Sea

A wide spread between Black Sea and European wheat fob prices could offer Russian and Ukrainian exporters a three to four-month window in the Southeast Asian market before Australia and South America arrive to compete.

Russia and Ukraine have driven wheat fob prices lower since Ukraine resumed seaborne exports in August, as sellers urgently seek buyers to pick up ample volumes in stock. The current $20-30/t discount of both origins to fob prices at Constanta, Varna and Burgas (CVB) ports is likely to attract Southeast Asian buyers, where Bulgaria and Romania are typically the top EU suppliers.

Ukraine, Russia and the EU-27 made up about half of combined receipts for Southeast Asia's top five wheat importers — Indonesia, Bangladesh, Vietnam, Philippines and Thailand — in August-October 2021. These origins were then largely absent for the remainder of the marketing year (see chart).

The top five Southeast Asian importers in outright terms also took the largest volumes of EU and Black Sea wheat in 2021-22, but Indonesia and Bangladesh were particularly dependent on these origins in terms of market share (see chart).

Bulgaria supplied about half of total EU exports to Southeast Asia's five top importers in 2021-22, while Romania and France supplied 31pc and 11pc, respectively.

But hot and dry weather in the lead-up to Europe's wheat harvest has restricted export availability this year. Romania's wheat production has fallen by 2.3mn t from a record 11.3mn t harvested last season.

And France is unlikely to replace CVB volumes in Southeast Asia this year, with no vessels from the origin heading to Southeast Asia in July-August, according to the latest line-up data. The country sold a greater proportion of its harvest earlier this year, filling line-ups with volumes largely bound for north Africa and China.

Competitive levels at French ports in June-July had left Russia largely priced out of the market at peak harvest pressure for both countries. But Ukraine's one-month-old grain corridor allowed prices spreads to reverse, with French and eastern European prices now far higher than Black Sea levels.

Russia is already positioning itself to step in and replace slower volumes from Europe, with its exporters skirting tenders and instead settling private contracts in recent days. These include sales to Algeria and Egypt as well as to Southeast Asia. Bangladesh is set to buy 500,000t of Russian wheat as it seeks to lower domestic prices and offset declining Indian supply. And Vietnam is scheduled to receive trial shipments from Russia for the first time in three years.

As for Ukraine, sales to Southeast Asia have yet to emerge, but offers and bids for cargoes shipping from the country's Black Sea ports to the region — including to Bangladesh and Indonesia — have been submitted in the past few weeks at competitive levels to other origins.

Supply pivots to southern hemisphere in December

Despite considerable potential for shipments of Russian wheat to Southeast Asia, export supply in the next three months hinges largely on Russia being able to physically ship sufficient volumes of grain. Worries around insurance and payment issues have kept Russian exports slow and resulted in Russia's state companies reportedly selling at a loss, while smaller firms are encountering difficulties finding buyers and shipping cargoes.

But market dynamics are set to shift from December onwards, turning a potentially undersupplied market into an oversupplied one.

Any Black Sea exporters targeting Southeast Asia are likely to meet strong competition from southern hemisphere suppliers from December onwards. Both Australian and South American producers will start shipping new-crop wheat from December.

This influx in supply to Southeast Asia could drive down cfr prices in the region in the second half of the July-June marketing year and cost Russia any new-found market share.

An above-average Australian harvest should ease supply concerns for the 2022-23 marketing year arising from lower availability from the EU-27 and the Black Sea. That said, if Australian exports fail to keep pace with the harvest given domestic logistics issues and labour shortages, Southeast Asian cfr prices could rise to compete with buyers in China, Japan and South Korea.

Additional import supply to Southeast Asia may come from North America. Both the US and Canada are forecast to export more soft wheat in 2022-23 than in the previous season. Canadian non-durum wheat exports are set to rise by 46pc to 18mn t in 2022-23 (August-July), according to government statics agency StatCan. And US non-durum wheat exports are expected at 21.63mn t in 2022-23 (July-June), under US Department of Agriculture estimates, inching up from 21.39mn t in 2021-22.

Sufficient stocks going into 2022-23

Southeast Asian countries started 2022-23 with higher beginning stocks overall and may find it easier to hold off buying until more supplies enter the market in December. That said, year-on-year changes in beginning stocks in the region are heterogeneous (see chart).

By Claudia Jackson and Anna Sneidermane

SE Asia wheat imports 2021-22 by origin mn t

Indonesia, Bangladesh, Vietnam, Philippines, Thailand wheat imports 2021-22, cumulative mn t

Indonesia, Bangladesh, Vietnam, Philippines, Thailand wheat imports 2021-22, monthly mn t

SE Asia wheat beginning stocks 2022-23, total and y-o-y change mn t