Wheat Shippers Fight for Sales as Grain Glut Grows: Commodities

Wheat Shippers Fight for Sales as Grain Glut Grows
Cargoes to northern Africa from France’s Rouen, Europe’s biggest grain-export hub, seen here, fell to a four-month low in the week ended Nov. 2, port data show. Photographer: Andrew Wheeler/Bloomberg

France may lose its place as the second-biggest wheat exporter after failing to win more than a dozen tenders in Egypt, the world’s biggest buyer, as shipments from Russia, Ukraine and Kazakhstan overwhelm markets.

Egypt favored cheaper supply from the Black Sea region in the past 17 tenders and cargoes to northern Africa from France’s Rouen, Europe’s biggest grain-export hub, fell to a four-month low in the week ended Nov. 2, port data show. France’s crop office expects a 23 percent drop in shipments in the 12 months ending in June, the most in at least a decade.

That’s reversing last season’s trend, when French cargoes jumped 16 percent to a record as Russia and Ukraine cut sales to ensure domestic supply. Prices that reached a three-year high in February are plunging after both countries eased restrictions. Output is also expanding elsewhere and the United Nations expects the biggest-ever global harvest. Wheat may drop another 20 percent in Paris by May, said Greg Grow, director of agribusiness at Archer Financial Services Inc. in Chicago.

“The world is awash with wheat and unless you can compete with the Black Sea you’re stuck,” said Tom Fritz, the Chicago-based co-founder of EFG Group LLC, a researcher and adviser to commodity traders. “The bias is for lower prices in an effort to clean up the glut.”

Milling wheat retreated 27 percent to 184 euros ($251) a metric ton this year on NYSE Euronext in Paris, compared with a 20 percent drop in futures traded on the Chicago Board of Trade, a global benchmark. The Standard & Poor’s GSCI Agriculture Index of eight commodities fell 14 percent and the MSCI All-Country World Index of equities retreated 7.6 percent. Treasuries returned 8.6 percent, a Bank of America Corp. index shows.

Yearlong Ban

Russia lifted an almost yearlong export ban on July 1 and by mid-September was shipping at the fastest pace in five years to clear silos before the next crop, according to the government. This year’s harvest will be the third-biggest since the breakup of the Soviet Union in 1991, the U.S. Department of Agriculture estimates. Ukraine also eased export quotas and its cargoes will almost double in the year to June, the USDA says.

Egypt accounted for 4 percent of France’s exports outside the European Union since July, compared with 18 percent in the previous season, data from the crops office show. France is also losing business across most of northern Africa, a region which accounted for 49 percent of sales last year.

Northern African Cargoes

Shipments to Morocco from Rouen reached 60,215 tons in the four weeks ended Oct. 26, compared with 247,896 tons a year earlier, port data show. Wheat cargoes were last sent to Libya a month ago and totaled 7,779 tons, the least in about 11 months, the reports show.

The exception to the slump in sales has been Algeria, which took French wheat every week since January. The northern African nation was a French colony until 1962. Historical ties will make it harder for competitors to displace French grain, said Abdolreza Abbassian, a senior economist at the UN’s Food and Agriculture Organization in Rome.

Algeria bought 24 percent of all French exports last season, government data show. The average Algerian consumed 467 pounds of wheat last year, second only worldwide to neighboring Tunisia, according to the FAO.

Wheat imports by Algeria probably will reach 6.1 million tons this season, compared with 10.5 million tons for Egypt, the USDA estimates. Northern African nations will buy a combined 23 million tons, equal to 17 percent of world trade. Maintaining sales to Algeria may help sustain French exports as Russia and Ukraine encroach on its other traditional markets.

Ukrainian Discount

Ukraine can offer wheat to northern Africa at $10 to $15 a ton less than France, said Maria Kolesnik, an agricultural researcher at AAA, a consultant in Kiev.

“At some point the Algerians, who are as smart as anyone, will say: ‘We’re not going to pay a fortune when we can look to other origins’,” said Pierre Raye, an analyst at Paris-based InVivo, the largest French wheat exporter.

The surge in Black Sea cargoes is also hurting other exporters. Shipments from the U.S., the biggest exporter, will decline 24 percent to 26.5 million tons this season, the biggest drop in a quarter century, USDA estimates show.

Russian sales will rise to 19 million tons from 3.98 million as Ukraine’s shipments expand to 8 million tons from 4.3 million and Kazakh cargoes advance to 8.5 million tons from 5.52 million, the USDA estimates. French wheat exports will drop to 16.6 million tons from 21.6 million tons, the national crops office predicts.

Global Stockpiles

World production of wheat, the most-planted grain by area, will gain 5.3 percent to 683.3 million tons, the second-biggest crop ever, the USDA forecasts. The FAO predicts a 6.1 percent increase to a record 691 million tons. Global stockpiles at the end of this season will advance 3.6 percent to 202.6 million tons, the highest in a decade, the USDA estimates.

Prices that dropped 20 percent to $6.3675 a bushel (172 euros a ton) in Chicago this year will decline as low as $5.90 by the end of December, according to the median estimate of nine analysts and traders surveyed by Bloomberg earlier this month.

“All the world’s wheat is attached at the hip,” said Roy Huckabay, an executive vice president for Linn Group, a brokerage operating from the Chicago Board of Trade. “We know there is plenty of wheat around the world, so there’s nothing too bullish fundamentally for prices.”

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