Foreign sales of new wheat begin to stabilize

Foreign sales of new wheat begin to stabilize

The 2022/23 wheat export record finds its limit in the balance volume set by the National Government. The input-output ratio for wheat improves, although it is higher than last year.

The marketing of wheat 2022/23 continues to add tons. With more than 0.5 Mil MT recorded in the month, the total foreign sales of wheat for the coming campaign already exceed 8.5 Mil MT, with less than half a million tons remaining to be declared in the short term, given the volume of balance established by the MAGyP.

Although the balance volume is set by the Government at 10 Mil MT, once 90% of this tonnage has been reached, the rest is sold under the DJVE-30 regime, an impossible situation in the short term given that this wheat is just beginning its production sowing. Such a situation shows several facets of analysis. On the one hand, the great stress generated by the establishment of quotas in the market by affecting marketing decision-making with a recorded volume that today is well above previous years. On the other hand, when reaching a ceiling in the possibility of foreign sales, exporters are unable to react quickly to take advantage of profitable situations in terms of international prices, which can affect the performance of the export complex.

For its part, the low soil moisture in Córdoba slows down the start of the 2022/23 wheat planting, according to MAGyP. However, in the province of Buenos Aires, work before planting has already begun, with some progress in planting in a context of a strong need for water, especially in the south of Buenos Aires. Likewise, in Santa Fe province the first batches have already been planted, although fertilizer dosing was recorded with humidity levels that are not optimal for planting either. Meanwhile, the planting of wheat in Salta and Jujuy, provinces with a smaller relative share of the national fine harvest, is speeding up and advancing rapidly.

The international prices of fertilizers continue to fall week after week as the supply of these key inputs in the world normalizes. Although the Russian-Ukrainian conflict persists, fertilizer exports from Russia, the world’s leading exporter, continue at a good pace, to the extent that important buyers such as India have not been validating the high prices in their international tenders.

In this way, the prices of urea and MAP, key for wheat, have been falling month by month. Consequently, the input-output relationship of wheat with its main fertilizers improves as planting begins. In any case, fertilizers continue to grow above the evolution of wheat prices, which shows us Urea/Wheat and MAP/Wheat ratios that are 26% and 13% above last year, deteriorating the margins of the fine harvest, according to information from Fertilizer Engineering (IF). However, with the Russian-Ukrainian crisis at the end of February, these ratios reached 62% and 26% respectively.

Russian wheat shipments grow, while the biggest doubts are what will happen to Ukrainian ports in the short term

Unexpectedly, the Russian export panorama has been above the volumes exported last year with 9.7 Mil MT in the first five months of the year and is close to the start of the new commercial campaign. In this sense, the sanctions of a wide spectrum of countries towards Russia do not reach its wheat shipments, which have Turkey and Egypt as its main destinations.

Meanwhile, the bulk of Russian exports is concentrated in the Black Sea ports. Terminals in Azov, Kavkaz, and Novorossiysk account for about 80% of Russian wheat shipments abroad.

At the same time, shipments of wheat from Ukrainian ports have accumulated 2.82 Mil MT so far this year, with an almost total stagnation of grain shipments since the start of the war with 0.33 Mil Mt respectively.

The biggest current concern in the global market is what will happen to wheat exports from Ukraine starting in July. The USDA already discounts lower exports from that country with 10 Mil MT in the 2022/23 campaign compared to 19 Mil MT in the previous campaign, but it is key that port activity is renewed in the short term to be able to export these grains.

For the 2022/23 campaign that is about to start, according to the USDA, the total supply of wheat in Ukraine would be 27.2 Mil MT, a very significant drop compared to the 34 Mil MT reached in the 2021/22 cycle. In this sense, a significant decrease in the planted area is estimated that will affect production, which would be partially moderated by the strong increase in initial stocks that are estimated at 5.85 Mil MT due to the impossibility of exporting due to the war.

However, it must be taken into account that a considerable strip of the Ukrainian coast is under Russian control. Consequently, the possibility of exporting Ukrainian wheat and other crops is subject to the Russian will. This week the president of Russia, Vladimir Putin, stated that he will facilitate exports to the extent that the sanctions against his country are withdrawn. Consequently, the volume of shipments from Ukraine depends fundamentally on factors that are not related to the productive activity itself.

In terms of prices, the week was marked by declines in Chicago wheat futures. Compared to last week’s close, wheat showed falls of USD 10/t, to settle at close to USD 420/t on Thursday. In the local market, available prices also showed declines, with buyers picking up in the middle of the week. Open offers for both available and contractual delivery stood at USD 360/t, also USD 10/t lower than last week.

On the contrary, 2022/23 wheat positions climbed USD 10/t in the week in the local market and closed at around USD 340/t. The gains were also reflected in MatbaRofex, where the December position rose more than USD 8/t to return to above USD 350/t.

Source: https://bcr.com.ar/

Photo: REUTERS/Stringer

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