Grain Traders Eye Business in Iran as Sanctions Set to Ease

  • BayWa, Nidera looking to attract more business from Iran
  • Most of Iran's wheat imports come from EU, Russia, Kazakhstan

Iran is about to open for business, and the world’s grain traders are lining up.

Food wasn’t subject to sanctions, but the rules created enough difficulty to keep out many grain suppliers. Now, with world powers expected to lift restrictions as early as next year, new companies are entering the market. One example: BayWa AG, a German firm that recently shipped Russian grain and South American soybean meal to Iran. While the biggest traders, such as Bunge Ltd. and Cargill Inc., kept operating in the country, the end of sanctions is a chance to expand operations.

"When the sanctions came in, you started to see some people shying off and not willing to take the risk anymore," Michel Dumoulin, a trader at Rotterdam-based Nidera BV, said by phone on Thursday. "In the past six to eight months, we’ve seen a lot of new, small players in the Caspian Sea. Russian and Ukrainian companies, all entering the market in Iran."

Iran, known for its savory flatbreads such as lavash, barbari and taftan, is a hot market for grain traders because citizens rely on bread as a staple food and domestic wheat production often falls short of demand. As traders gather in Geneva for the annual Global Grain conference this week, Iran, tied with Turkey as the Middle East’s second-biggest wheat consumer, will be a key point of conversation and the new business couldn’t come at a better time.

Grain Selloff

Wheat prices have fallen for three years after record harvests sent grain stockpiles to a 29-year high. Prices in Chicago, the international benchmark, dropped 15 percent in 2015 at $5.03 a bushel. Milling wheat, used to make bread, is down 9.2 percent to 182.75 euros ($196.29) a ton in Paris.

World powers are getting ready to lift the sanctions they imposed to deter the nation’s nuclear program. In July, the nation agreed to accept limits on its nuclear work in return for access to oil and financial markets.

Iran’s wheat imports can vary widely from year to year, but they’ve been trending higher. The nation will bring in 4 million tons of the grain this season, roughly 10 times more than a decade ago, according to estimates from the U.S. Department of Agriculture. Imports could eventually rise to 6 million to 7 million tons, according to BayWa’s Chief Executive Officer Klaus Lutz.

Trade Delegations

BayWa sent an executive to Tehran a week ago as part of a German trade delegation of 100. The Munich-based company plans to ship 250,000 metric tons of grains and oilseeds to the country this quarter.

Nidera executives will travel to Iran this week to visit customers, according to Dumoulin. He said the end of sanctions doesn’t necessarily mean grain imports will rise and predicted more competition for business and lower profit margins. Nidera, majority owned by China’s largest food company Cofco Corp., already ships as much as 3 million tons of grain and vegetable oils to Iran a year.

Hakan Agro DMCC, which already supplies dairy products to Iran, is planning to expand its business in the country to grains, Scott Wellcome, a trader at the Dubai-based company, said in an interview in Geneva. Iran could become a "big hub" for the Middle East and North Africa region and has the land to expand storage facilities, he said.

Most of Iran’s wheat imports have come from the European Union, Russia, Australia and Kazakhstan. They stand to benefit the most from easing of sanctions and there’s a chance demand for grain will increase over time, said Amy Reynolds, a senior economist at the International Grains Council in London. It may be cheaper for Russia and Kazakhstan to send grain to Iran because all three countries border the Caspian Sea.

More Trade

"We hope that, if sanctions are eased or lifted, trade in food and agricultural commodities will increase," Elissa Bertot, a spokeswoman for Chicago-based Archer-Daniels-Midland Co., the world’s largest corn processor, said in a statement Nov. 5.

The government has taken some steps to make trading easier, ending a $50 a ton wheat import duty in August and lifting a rice import ban this month, according to Ali Ghanbari, chief executive officer of Iran’s state grain buyer. The country is a big player in other grain markets, ranking third globally for barley imports and fourth for rice.

Iran is also a major buyer of corn, with imports forecast to match those of wheat. Bunge shipped almost a million tons of corn from Brazil to Iran last year, the most of all exporters, according to data from shipping agency SA Commodities. Cargill exported about 269,000 tons in 2014.

"The termination of these sanctions would have a clearly positive impact," BayWa’s Lutz said. "Iran is one of the most essential import markets for grain and oilseeds in the world and has great significance for the agricultural trade."

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