Turkish wheat stocks plummet, amid economic uncertainty
Turkish wheat stocks are growing extremely tight, thanks to economic uncertainty and a ban on Russian imports, US officials warned, with supplies implied to fall to less than two weeks of demand by the end of next season.
Turkey is the world's largest flour exporter, and its milling industry is dependent on tariff-free imports of high protein wheat.
But the plummeting currency, and political uncertainty, is discouraging private-sector stockholding, while the government grain body aggressively draws down its stocks, the US Department of Agriculture's bureau in Ankara said.
Stocks to tighten
The bureau cut its ideas of 2016-17 imports by 800,000 tonnes, to 4.0m tonnes, citing "unstable currency, the Turkish grain board's strong sales, and a reduced tendency by the private sector to want to grow their stocks in an uncertain economic environment".
Imports are seen rising to 4.5m tonnes in 2017-18, thanks to "ongoing demand for high quality wheat from flour and pasta exporters," but this will not be enough to stop the steady drawdown in stocks.
By the end of 2017-18, stocks are seen falling to just 648,000 tonnes, the lowest estimate on records going back to 1960, "assuming the uncertain economic environment continues to discourage stocking".
The bureau's forecast implies a stocks to use ratio at an eye-wateringly tight 3.7%, enough for less than two weeks of consumption.
Political instability weighs on currency
"The year 2016 has been very difficult for Turkey's grain market sector due to political, security, and economic instability," said the bureau.
One issue for importers has been the weakening of the Turkish lira, which fell by about a third against the dollar between the start of 2015 and the start of 2017.
As well as making dollar-denominated wheat imports more expensive, the volatility has affected investment and market sentiment.
"Apparently the private sector is reluctant to grow their stocks in an uncertain economic environment, which is reflected by low ending stocks of all commodities."
At the same time, the Turkish grain board has been actively drawing down its reserves, supressing import demand and reducing the country's total grain stocks.
Russian wheat supplies blocked
And imports have also been hit by a ban on Russian wheat imports, in addition to corn and other products.
"It is unclear how long this "ban" will last or how much it will impact the grain and feed sector at this stage, but it is causing a lot of concern in the industry," said the bureau.
"According to market sources, flour exporters, who are currently importing more than 3m tonnes of wheat per year, are worried about finding a price equivalent substitute for high protein Russian wheat," the bureau said.
Worries for millers
This shortage of Russian supplies will cause Turkey's wheat flour exports to slow, if the ban remains in place, the bureau warned.
Almost all of Turkey's wheat imports go to the country's flour industry, which is spared the very high tariffs applied to other wheat imports.
This policy is designed to give the country's mills access to high quality wheat, and has helped Turkey become the world's top flour exporter in recent years.