(Bloomberg) -- For the first time in a decade, the world risks being cut off from Russian wheat at a time when some key buyers are rushing to import it.
The top shipper last month limited sales through June to protect its own supply as the coronavirus crisis sparks food-security concerns around the world. Although the curbs were seen loose enough to ensure normal trade flows for this time of year, Russia has already burned through the entire quota. It will halt grain shipments to all but four former Soviet neighbors once the last cargo booked under the limits leaves the country.
While the ban will only last until farmers start harvesting in July, some other nearby nations have also restricted grain exports, threatening to reroute global trade and fueling worries about food shortages and higher prices. Countries from Egypt to Turkey are trying to load up on imports while they still can, and Russian shippers have been feeding that demand.
There has been “a flurry of activity” recently, said Andrey Sizov Jr., managing director at consultant SovEcon in Moscow. “Buyers want to stock up because they realize they may not have the chance to do it later.”
The window has closed fast. In just a few weeks, shippers booked out all of the 7 million-ton quota set through June. As well as strong demand from importers, a weak ruble is keeping Russian grain attractive. Also, sales from government stockpiles -- another measure intended to safeguard domestic supplies -- have helped contain local prices and keep exports competitive.
The Agriculture Ministry on Sunday didn’t specify when the last cargo booked under the quota could leave.
One reason the limit was reached so quickly was because shippers rushed to get customs paperwork for future cargoes, according to Dmitry Rylko, director general at the Institute for Agricultural Market Studies. That means about 3 million tons could still be exported in the next two months, Reuters reported him as saying.
Russia has a history of disrupting the wheat market through restrictions or taxes, but last imposed an outright ban in 2010 after drought destroyed crops. The move caused wheat futures to rally and some researchers saw it as as an indirect contributor to the Arab Spring uprisings.
While there’s still ample global supplies, the memories of past food shortages have restarted the debate about food nationalism. Organizations such as the United Nations and European Union said the risk of social and political unrest is rising again as the pandemic spurs discontent, and urged against unjustified measures that could hurt food security and raise prices.
Trade Shift
Banning Russian exports could benefit rival suppliers such as the EU and the U.S., said Amy Reynolds, a senior economist at the International Grains Council in London. Crops office FranceAgriMer this month raised its outlook for French wheat exports outside the bloc to a record for the season that ends in June.
Egypt is one country that may purchase more from the EU. The top wheat buyer is taking an unusual step of importing a large amount of wheat during its own harvest to ensure it has enough to feed its population, many of whom live in poverty. The North African nation is heavily reliant on Black Sea grain, but has already boosted French purchases this season due to more competitive prices.
The increased demand is drawing down European inventories at a time when dryness is threatening crops across the region. If conditions in the Black Sea deteriorate further, that could prompt buyers around the world to stock up on supplies even more in the coming weeks, SovEcon said.
“The probability of that scenario is growing, given the current weather,” SovEcon’s Sizov said. “Among the major exporters, the U.S. has some of the biggest inventories, and that may help their sales.”
Still, forecasting trade flows remains difficult due to the uncertainty over how the health crisis will play out. Plus, the collapse in the energy market will likely take its toll on the economies of wheat importers like Algeria and Nigeria, which derive large amounts of income from oil.
“The demand profile is uncertain and clouded further by events in the crude oil sector, with some of the key buyers potentially affected by falling oil revenues,” the IGC’s Reynolds said.
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