Australian wheat seen as ‘safe haven’ amid Russia-Ukraine tensions

Southeast Asian wheat buyers have ramped up enquiries for Australian wheat in recent weeks amid the continued standoff between Moscow and the West over Ukraine.

Flour millers in Indonesia, the world’s second largest wheat importer behind Egypt, typically relies on Black Sea new crop, particularly Ukrainian 11.5% protein wheat, for second half of the year shipments to meet demand.

However, tensions in the Black Sea have pushed these end-users to increasingly consider purchasing Australian wheat instead, over concerns that a conflict may erupt.

“They are starting to see Australian wheat as a safe haven past July,” a trader in Australia said.

The Black Sea wheat market was transformed in February 2021 when the Russian government introduced duties on grains exports. Traders’ reluctance to take forward positions in the FOB market has grown with the risk of Russia entering a conflict with Ukraine, but it has only amplified the changes from a year earlier.

Despite the US government’s recent comments over the possibility of conflict between Russia and Ukraine, market participants in both these European countries have continued to trade prompt grains cargoes. However, some said that several customers have stepped back in an effort to reduce their exposure, without withdrawing entirely.

“The origination market is active and the FOB market is operating,” a trader said. Some multinational corporations said they have moved to reduce their exposure to Ukrainian wheat, but the uncertainty lingers.

Suppliers in Australia are also eager to compete with Black Sea new crop this year as they look to maximize their export program following a record breaking harvest of 37 million-38 million mt in marketing year 2021-22.

Adding to buyers’ list of worries is increasing logistical bottlenecks in Australia as shipping schedules for the front 2-3 months are becoming tight. Buyers in Asia are competing for Australian supply amid a lack of competition from other origins.

The fifth largest wheat exporter has shipped over 5.3 million mt of wheat between October and December 2021, up 58% from the same period in MY 2020-21. A larger carry over from the previous season enabled this strong export stem as new crop is generally available for shipment from December.

Australia is expected to export up to 24 million-25 million mt of wheat this season, of which about 5 million mt has already been booked by China up until May, trade sources said.

China is proving to be the biggest demand center for Australian wheat so far this season, the leading export destination over October-December 2021 at 1.6 million mt, followed by Indonesia at 680,000 mt.

This wave of Chinese demand has kept other Asian buyers on their toes. In many cases, these buyers have had to book Australian wheat in advance for fear of short supply and higher prices.

S&P Global Platts Australian Premium White wheat index has been on a steady rise since Jan. 24. The index was assessed up $6.50/mt day on day at $350/mt FOB Kwinana at the Asian close on Feb. 16.

S&P Global Platts

Tags: wheat, Black Sea, Market, Australia, Ukraine, Russia, export