Russian wheat coasters to get price boost on steady forecast demand

21.11.2018

 Russian wheat is expected to see price strength in the coasters market moving toward December and January on steady buying from Turkey as well as other destinations, source said.

Turkey has imported around 2.2 million mt of wheat this marketing year starting July 1, according to sources.

The US Department of Agriculture forecasts Turkey will buy 4.5 million mt by the end of the marketing year, according to its most recent Turkey Grain and Feed Update, although some market sources have put the number as high as 5.5 million mt.

Given that many bids, offers and trades are taking place below replacement, the additional demand seen should "give the market uplift," a source said.

Originating and then loading at Azov or Rostov on a FOB basis for 12.5% protein wheat is around $203-$204/mt on a spot basis.

Most bids, offers and trades are well below this figure.

Monday, for example, a spot cargo was offered at $201/mt.One cue for this trend is the macroeconomic conditions under which many buyers in Turkey find themselves.

Firstly, interest rates are at 24% in Turkey, which limits the ease with which some companies can access credit.

Secondly, while the Turkish lira has clawed back some heavy losses against the dollar, it is still very weak, meaning replacement costs for importers of Russian wheat remain high and unaffordable.

These two factors, coupled with a range of others, has altered buying habits, with buyers far more active on the spot market where they can find distressed cargoes at discounted rates.

Similarly, a number of Handysize cargoes have been heard making their way to Mersin as buyers look to buy in bulk to minimize cost risks.

However, rising prices due to high origination costs and with European substitutes expensive, market participants are expecting more demand to return for Russian wheat and therefore an increase in prices, a source said.

Indeed, other destinations such as Egypt still have well over another 5 million mt to import, which will tighten supply further in Russia.

However, not all analysts are optimistic that Turkey will buy as much as 5.5 million mt.Some have put the figure at 3 million mt by the end of the marketing year on June 30, 2019, due to the country's tough macroeconomic conditions and the high price of wheat.

Nonetheless, with Turkey the number one exporter of flour amid domestic regulations stipulating that effectively any exported flour must be produced from imported wheat, Turkey is likely to keep its buying program strong and with that prices will strengthen.


spglobal.com

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