Downed Jet Disrupts Russia and Turkey Wheat Trade -- Update
28 November 2015 - 12:19AM
Dow Jones News
By Ed Ballard
LONDON--Agricultural dealers said shipments of wheat to Turkey
from key Russian ports were put on hold amid continued tensions
between the two countries.
Russia on Thursday announced plans to impose sanctions on
Turkish economic interests, including trade. Uncertainty over how
that dictate will translate in practice led port officials on
Friday to stop granting crucial customs approvals for shipments of
wheat bound for Turkey from ports on the Azov Sea, where the bulk
of the countries' grain trade is handled, two brokers said.
Any impact on wheat prices globally is expected to be
short-term. But the disruption is high stakes for both countries.
Russian wheat sold to Turkey is one of the biggest trades between
the two nations.
Wheat exports appear to be on hold until Monday at the earliest,
the brokers said, as port officials await word of Moscow's
sanctions policy. Neither Russian government nor port officials
were reached for comment.
Erol Yahya, executive director of Turkish milling group
Intermil-Un, said Friday his company had suspended new purchases of
Russian wheat until the situation becomes clear. Meanwhile, a
trader and brokers say, some Russian trade houses have stopped
finalizing new deals with Turkish buyers. The sellers are afraid
that an extended export ban would leave vessels stuck in port
accruing fines, said Andrey Sizov, managing director of Russian
agriculture consultancy SovEcon.
The paralysis comes after some ships were permitted to leave
with wheat cargoes on Thursday, according to Mr. Yahya and the
director of a Dubai-based brokerage that handles wheat exports from
the region.
"It's a mystery to us what's going to happen," said Gregory
Souris of Actava Trading DMCC, the brokerage.
A Turkish jet fighter on Tuesday shot down a Russian bomber
along the Syrian border, marking the first time a North Atlantic
Treaty Organization member downed a Russian warplane since
1952.
Russia is the biggest supplier of wheat to Turkey, according to
March report from the U.S. Department of Agriculture. More broadly,
Russia is the world's third-largest wheat exporter, and Turkey is
one of its biggest customers.
Turkey bought around 1.6 million metric tons of Russian wheat in
three months through October, making it Russia's second-largest
buyer after Egypt. Turkey could be facing higher wheat prices if it
needs to find alternative sources.
Sizable wheat reserves give the global market a large cushion
against volatility from the situation. European wheat prices are
down 12% this year, and this week European wheat futures shrugged
off the geopolitical turmoil, with contracts for March 2016
delivery in March 2016 falling under 1% to EUR181.50 ($192.25) a
ton on Friday.
After three consecutive big harvests, this marketing year will
end with stocks of around 209 million tons of wheat stockpiled,
according to the International Grains Council.
Any disruption would come as a boon to the beleaguered grain
industry in U.S. and elsewhere in Europe, giving producers a chance
to sell some of the millions of tons of grain piling up in silos
around the world.
Additional demand from Turkey could comfortably be met by
Russia's rivals, said Daryna Kovalska, an analyst at Macquarie,
although a short-term price-spike is possible if Turkish millers
have to scramble to find alternative sources of wheat at short
notice.
Mr. Yahya of Intermil said his company would have pay $30 to $40
more per ton for wheat from Canada, Australia or the U.S. if it
were cut off from Russian supplies, he said.
Many in the industry are hoping that the two governments will
quietly permit trade to continue even as they spar in public,
citing the countries' mutual dependence in trade. Mr. Sizov, of the
Russian agriculture consultancy, said a formal ban would be
counterproductive in light of the revenue Russia receives from
sales of wheat to Turkey.
Turkey was the No. 1 destination for Russian wheat, corn,
sunflower oil, and sunflower meal in 2014-15, accounting for
exports worth around $1.5 billion dollars, according to SovEcon's
data. Meanwhile, Russia's boycott of some EU products has left it
reliant on imports of fruit and vegetables from Turkey.
Logistical factors also would hinder the two countries if they
sought alternative arrangements, Mr. Yahya says. The ports of the
Azov Sea--the northern part of the Black Sea--are set up to serve
small vessels of 3,000 or 5,000 tons. As such, they are well-suited
to Turkey's importers, who prefer small shipments because of the
higher costs involved when the 60,000-ton vessels used at larger
ports encounter delivery problems, he said.
Write to Ed Ballard at ed.ballard@wsj.com
(END) Dow Jones Newswires
November 27, 2015 19:04 ET (00:04 GMT)
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