The stable functioning of the “Ukrainian corridor” and the absence of Russian intervention in grain transportation by sea has allowed Ukraine to increase wheat export to Indonesia by 60% y/y in the first half of the 2023/24 season. But to have an opportunity to ship to a remote destination is only half of the battle. Ukraine also has to deal with traditional and new competitors in the Indonesian market. Australia, the key supplier of wheat to Indonesia, is estimated by WASDE, as harvested 25.5 MMT of wheat in 23/24 MY vs. 40.5 MMT last season. As well, the quality of wheat in Australia is expected to be worse this season. The EU is rather a strong competitor this MY. Its export to Indonesia so far in 2023/24 MY has already 5 times exceeded the year-ago level. Moreover, high production in Brazil may again lead to strong imports from the South American country.
Ukrainian corridor was a bit late for Indonesia, but better late…
In July-December 2023/24 MY, Ukraine exported 553 KMT of wheat to Indonesia. It is 60% up from 346 KMT over the same span of the previous season and exceeds the volume shipped to the Asian country in the whole 2022/23 MY (459 KMT). It should be noted that the main volumes were shipped in November (252 KMT) and December (212 KMT). So even after Ukraine missed the main active export season, which is July-October, it managed to make good progress during just two months.
However, the current volume of wheat export is still significantly lower than the pre-war results, due to much smaller supply and export constraints. In July-December 2021/22 MY, Ukraine exported 2.66 MMT of wheat to Indonesia. It also was the final result of that season, as there were no shipments from Ukraine to the Asian importer in the second half of 2021/22 MY. As traditionally after December, Indonesia focuses on Australian wheat. The main reason for the better performance of Ukrainian exports to Indonesia in the current season is the functioning of the “Ukrainian corridor”, the one that does not include Russia.
Generally, this corridor is the only way to supply any sizable volumes of Ukrainian wheat to such remote destinations as Indonesia. Thus, in July-December 2023/24 MY, 433 KMT of wheat were shipped to Indonesia from the Ukrainian deep-sea ports, and 120 KMT were moved from Ukraine to Indonesia by containers. In July-December 2022/23 MY, virtually the whole volume of wheat destined for Indonesia was shipped from the deep-sea ports of Ukraine. Therefore, the operation of the sea corridor is essential for the supply of Ukrainian wheat to the Asian buyer, and it is a great achievement that Ukraine managed to open and maintained the functioning of this route despite all Russian attacks on the port infrastructure of the country.
When traditional competitor is weakening, new ones arise
December USDA’s WASDE report pegged wheat import to Indonesia at 10.5 MMT in 2023/24 MY, up 11.2% from the previous season. The USDA said that assuming improved global economic conditions and improved domestic demand from the upcoming election as well as population growth, imports of wheat in 2023/24 are forecast to increase.
Australia is traditionally the key competitor for Ukrainian wheat in the Indonesia market. It was the leading supplier of wheat to the Asian country in 2022/23 MY (4.7 MMT). Australia remains the largest supplier to Indonesia so far in 2023/24 MY. In July-October, 1.7 MMT of Australian wheat was exported to the buyer, in line with the same period of the preceding season. According to the USDA, despite forecasted El Nino-induced production declines, Indonesian flour mills will still prefer to source imports from Australia due to its closer proximity to Indonesia. However, the overall supply of Australian wheat will shrink in 2023/24 MY, as the country’s crop is pegged by the USDA at only 25.5 MMT, down 37% y/y.
Canada also is a traditional competitor. In 2022/23 MY it exported 2 MMT of wheat to Indonesia. In July-October 2023/24 MY, shipments of Canadian origin amounted to 817 KMT that almost doubled the result of the same period last season. At the same time, the overall supply of Canadian wheat is a bit lower in the current season, as the crop is seen by USDA close to 32 MMT, down 7% y/y, with beginning stocks virtually unchanged y/y.
Another 820 KMT was shipped to Indonesia in July-October 2023/24 MY from the EU. The volume is significantly surpassing 168 KMT over the same span of 2022/23 MY and it exceeds the total result of the previous year of 413 KMT. Quite good EU crop at 134.3 MMT that is virtually steady y/y, and bigger carry-in stocks may allow the EU to stay competitive in the Indonesian market.
A main rival from the Black Sea region this MY appeared to be Russia. It increased the volume of wheat export to Indonesia dramatically in Jul-Oct 2023/24 to 518 KMT vs. zero KMT same time last year. We can explain this due to the absence of Ukrainian corridor during the same period. Herewith, even after the Ukrainian corridor started to work full pace, Russia continued increasing the pace of its wheat export to Indonesia, which amounted in July-December 2023/24 to about 890 KMT.
The share of US wheat is rather small due to US wheat’s premium prices over other suppliers. In July-October 2023/24 MY, the US exported 162 KMT of wheat to Indonesia vs 250 KMT a year earlier.
So far in 2023/24 MY, there were no shipments of wheat from Brazil. However, it may be just a seasonal factor. Import from Brazil amounted to 871 KMT in 2022/23 MY that put the South American country to the third position among the key suppliers of grain to Indonesia and ahead of Ukraine. Last season, the first shipments to Indonesia were in November. In 2021/22 MY, Brazil started to supply wheat to Indonesia in December. There was no yet wheat export from Brazil to Indonesia in November 2023, however, there is a probability that the shipments will be started in the coming months. The USDA supposes that Indonesia may find Brazil to be another promising supplier. The South American country is forecast to have wheat production in 2023/24 MY at 8.4 MMT, down 21% from a record high of the previous season, but still sizably higher than the average.
Indonesian wheat buyers assess origins, risks, and preferences
Nick Ooi Eng Hooi, Director Grains&Oilseeds Procurement at Cerestar Indonesia
Nick Ooi Eng Hooi
For general purpose wheat, 11.5% (DB), the best quality comes from Bulgaria. Test weights in the high 76s, wet gluten min 23 and excellent extraction rates. Russian wheat never let us down, always reliable. We did receive a vessel from Ukraine in the early part of 2023, the wheat was almost perfect in meeting our quality specifications. All in all, I must say the Black Sea orgination is reliable for Indonesia requirements. But the recent Black Sea weather calamity is creating shortage problems in Indonesia. Buyers are having to look elsewhere for immediate replacement. Going forward, I very much doubt any buyers in SEA would dare to take the high risks of buying Ukraine wheat, the risks versus payoff are not worth it. Of course, if prices are measurably lower than other Black Sea origination, there will always be risk-takers. Due to geographical proximity, even though Aussie wheat priced at a premium to the Black Sea is a safe go-to and last-minute hand-to-mouth insurance option. As a physical wheat buyer, diversification and timing are everything. Buying wheat is an art, not a science.
Kenny Hartanto, Director at PT MURTI JAYA ABADI