EU wheat exporters make most of reduced supply as rivals face hitches

20.01.2017

A weaker euro and healthy demand from importers such as Algeria are helping the European Union clear a reduced export surplus, while currency and logistical headwinds limit competition from big U.S. and Russian crops.

EU wheat exports are still likely to fall by about a quarter over the full season, forecasters say, after a dire harvest in France reduced quantity and quality compared to a record, good-quality, EU crop in 2015/16.

But despite the symbolic loss of the position of world's biggest wheat exporter it held for the past two seasons, the EU is exporting as much as could be expected in a global market laden with record wheat supplies, analysts and traders said.

"So far the EU export figures have been very robust in relation to the drop in production," Alexandre Boy of consultancy Agritel said. "The question in some ways is, aren't we going a bit too fast given what's available to export?"

Helped by brisk shipments of Romanian and British wheat in the first half of the July-June season, EU exports actually ran ahead of the 2015/16 pace until last month.

Britain profited from a slide in sterling to attract sales to Algeria, a market usually dominated by French wheat, while Romania has benefited from a resumption of regular purchases by Egypt after a standoff with traders during 2016 over quality specifications.

A broad decline in the euro against the dollar since late 2016, despite a rebound in January from a 14-year low, has improved the competitiveness of EU origins, including Germany, which is set to overtake France as the EU's top wheat exporter.

"Germany, Poland and the Baltic States look well placed for new export business," one German trader said.

"I expect busy German export port loadings in January, February and March as Germany moves wheat to Algeria in place of France, with Saudi Arabian shipments also expected."

Even French wheat exports have held up better than expected, and a series of shipments to Yemen led France's farm agency last week to revise its export forecast up slightly.

EU wheat has faced less fierce competition than many feared as Russia's rouble and the U.S. dollar strengthen, while the rhythm of Russian exports has also been hampered by poor weather.

Inroads by Argentine wheat into North Africa appear limited, with the origin more pulled towards Asia and traditional outlet Brazil.

This favourable context for EU exports could fade, however.

As the logistical snags of winter pass, Russia's exports could surge as it strives to trim hefty stocks before the next harvest.

"The stronger rouble can reduce Russian competitiveness but that's not to say it will really help us," a French trader said.


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