Black Sea Chaos Prompts Buyers To Seek Australia Wheat In Advance

(Bloomberg) -- With wheat flows from the Black Sea region snarled by Russia's invasion of Ukraine, buyers are starting to consider forward contracts for Australian grains as far out as the third quarter, said top shipper CBH Group.

The war in Ukraine has left the world's biggest importers scrambling for grain as shipments from the two countries grind to a virtual standstill. Russia and Ukraine normally account for more than 25% of global wheat exports, and there are increasing concerns that the fighting and chaos in the country will also reduce prospects for the harvests this summer.

Buoyed by a bumper crop, from Friday CBH will offer more than 500,000 tons of capacity to meet new demand, in addition to about 17 million tons already anticipated to be shipped out of Western Australia, Ben Tiller, the shipper's head of trading, told a conference Wednesday. That's nearly a 20% increase on the previous record for export volumes out of the major wheat-producing state.

Satisfying demand in the near term, though, is a challenge, with export capacity limited in Australia and shipping slots fully booked for months. That's already driven buyers to purchase positions much further out, with the Black Sea situation creating added pressure to secure contracts.

Wheat Trade Routes Set to Shift as Ukraine Crisis Upends Market

“We're anticipating further demand here with the loss of Black Sea volumes in the short to medium term,” Tiller said. “The supply chain here is certainly trying its best to respond.”

As the market digests the upheaval in Europe, nascent demand for longer-dated contracts could become more pronounced, Tiller said. “Buyers have initially, I think, thought there is some time yet before they need to make a decision for positions that may be right out to quarter three of 2022.” he said. That sentiment has now shifted.

“We may start to see that accelerate as the reality of this massive disruption to the grain supply chains globally takes place,” Tiller said.

Security Crisis

Russia's invasion of Ukraine, Europe's worst security crisis in decades, leaves a vital source of wheat supplies hanging in the balance. Timing has an impact -- a large portion of the season's exports from both countries would have already sailed by now. The next harvest from Ukraine and Russia would be around July and August, and there are fears of shortages.

Australia's just wrapped up a record wheat harvest, with production this year estimated to be even larger than expected after mostly favorable weather, helping to ease global shortages caused by drought and the war in Ukraine.

Tiller also pointed to possible renewed interest at a “typically dormant time” for the canola market to export additional oilseed to Europe in the third quarter. Russia and Ukraine ship about 80% of global sunflower oil cargoes.

Simon Gellert, grains trading manager at Viterra Inc., echoed Tiller's view about consumers buying further along the curve, adding that it was rare for Australia to see new crop export business done before the second half.