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Demand for Russian Wheat Strong despite Circumstances

Demand for Russian Wheat Strong despite Circumstances

2022-03-22

Article by: Hari Yellina

Russia’s invasion of its western neighbour on February 24 drastically interrupted trade balance out of the Black Sea region, particularly from Ukrainian ports. This region’s exports represent an important part of the world’s food supply. A long-term disruption will have far-reaching consequences around the planet. Nonetheless, it would be absurd to anticipate Black Sea wheat demand to fully disappear at this stage. Russia is said to have mined vital shipping lanes leading to the Bosphorus from Odesa and other Ukrainian ports. As a result, navigation is highly dangerous.

Furthermore, the Russian navy continues to impose restrictions on vessels attempting to exit the Black Sea after loading at Ukrainian ports. It’s unknown how many ships are in question. According to a report, the number of ships could be as high as 200-300, with many of them carrying grain like wheat and corn. According to another source, roughly 100 ships were impacted. The Black Sea is a peripheral sea of the Atlantic Ocean with a surface area of 436,402 square kilometres, or roughly 75% of Ukraine’s size, with Bulgaria, Georgia, Romania, Russia, Turkey, and Ukraine as its neighbours.

The Bosphorus is the only entrance and departure for ships navigating the Black Sea. It is a tiny strait that divides Istanbul and forms part of the Asian-European continental divide. The Bosphorus links the Black Sea to the Sea of Marmara, which is linked to the Aegean Sea and eventually the Mediterranean Sea via the Dardanelles. The Russian navy will be able to easily regulate the flow of ships out of the Black Sea as a result of this. At least six oil tankers carrying roughly 300,000 tonnes of Russian oil sailed across the Bosphorus unhindered on their way to their destination on Friday last week. In the past four days, 800,000, 400,000, 400,000, and 600,000 tonnes of Russian oil had passed through.

According to SovEcon, while Ukrainian ports are expected to remain closed until the war is over, Russian ports are open for business and quite busy. Following a break of a week to ten days at the beginning of the conflict, private Russian consultant IKAR claimed that export vessels were being loaded at all five Black Sea grain terminals. However, much of the grain loaded since February 24 is likely to have been for sales made before the invasion of Ukraine. Many of the ships that were loaded in the first part of March were likely already in the Black Sea when the war broke out, either en way to their loadports, anchored at Russian ports waiting to berth, or actually loading.

As a result of Putin’s invasion of Ukraine, Egyptian authorities have taken steps to safeguard local food supply. Wheat, cooking oil, corn, lentils, pasta, flour, and faba beans were all barred from export on March 12. Egypt’s Ministry of Supply and Internal Trade estimates that when the domestic harvest ends in April, the country will have around eight months’ worth of wheat reserves. In the event that the conflict continues, the General Authority for Supply Commodities (GASC) is apparently working on importing wheat from alternate sources such as Argentina, Canada, France, Kazakhstan, Romania, and the United States. Last weekend, India’s Ministry of Commerce and Industry surprised the world by announcing that it was in final talks to begin the first-ever wheat exports to Egypt.

India has emerged as a noteworthy exporter in 2021-22, thanks to a succession of record crops and a raised global price environment. The wheat exports have reached a new high of 8.5 million tonnes, according to the USDA. The International Grains Council, on the other hand, boosted its projection from 8.9 to 11.6 million tonnes last week. The Indian government is also in talks with Turkey, China, Bosnia and Herzegovina, Sudan, Nigeria, and Iran over possible wheat shipments. In the past, India’s attempts to export large volumes into the global market have been hindered by logistical and quality concerns. The government, on the other hand, is putting in place a strategy to boost exports.

Russia is most likely being compensated for its goods and earning some of the US funds that the sanctions are attempting to prohibit. Countries such as India and Australia are stepping up to cover the wheat supply gap created by Ukraine’s export programme setback. However, the gap widens as the fight continues. The wider the gap becomes, the more upward pricing pressure there will be until the war is over and/or demand is rationed.