EU wheat exporters to benefit from Black Sea turmoil
Matif wheat futures traded in Paris have widened their price premium over U.S. Hard Red Winter wheat futures to the highest level since April, raising expectations that U.S. exporters will be well positioned to see an increase in export business at Europe's expense.
But in reality, European wheat traders are more likely to see a climb in export interest.
Despite rising prices, the ongoing tensions between Russia and Ukraine could steer major importers toward other large sellers in the region on any signs of potential disruption in grain flows from the Black Sea.
Up until the 2001-02 crop year, Black Sea wheat exporters had failed to secure more than 10 percent of global wheat trade due to a fragmented production and distribution system as well as limited connections with buyers in the top importing regions such as the Middle East and Africa, which collectively account for roughly 45 percent of world wheat imports.
But over the past decade or so, traders and grain handlers in Ukraine, Russia and Kazakhstan invested massively in storage and logistics infrastructure in order to beef up quality and handling capabilities, which helped propel the Black Sea region's share of the global wheat trade to nearly 40 percent by 2011-12 – second only to North America.
Not surprisingly, the lion's share of Black Sea wheat has tended to flow directly to the world's top import destinations, not just because those markets purchase a lot of wheat, but also due to the cost advantages brought about by the relatively close proximity of many of those markets to Black Sea export facilities.
For instance, Egypt's top grain importing port of Damietta is located less than 1,200 nautical miles from the Ukrainian port of Odessa. That compares to being located more than 10,500 nautical miles from the top U.S. wheat-handling port of Portland, Oregon, and 6,700 miles from New Orleans.
The shorter distances involved contribute to sharply lower freight costs for importers, and can result in savings that amount to several hundred thousand dollars per shipment.
Combined with the large tonnages of approved-quality grain available for shipment, these are a major reason why Black Sea wheat traders have been able to secure such a dominant position in the global trade in recent years.
But that position is under threat with the escalation of geopolitical tensions in the region, posing increasing risks to commercial, banking and logistical activities across Russia and Ukraine.
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