Kateryna Mudriian
Chief Analyst | ASAP Agri

Ukraine has faced significant challenges in maintaining its traditional markets in North Africa, the Middle East, and Southeast Asia – particularly in Egypt, Turkey, and Indonesia – since the onset of the war. These challenges have been primarily due to logistical difficulties and issues with price competitiveness. European Union's sanctions on Russian products from 01 July 2024 did not change the situation for Ukrainian wheat a lot. While closure of Turkish import till the middle of October added to the price pressure, the existence of the Ukrainian grain corridor helps Ukraine to improve export volumes heavily in the beginning of 2024/25 MY. But competition with Russia in North Africa and Asia is very tough and traders keep on watching which destination remains the most profitable. ASAP Agri together with Atria Brokers will summarize destinations, on which Ukrainian wheat exporters are expected to focus on in 2024/25 MY, and what price trends are expected by market.

Record world crop 2024/25 presses wheat prices, in spite of lower Black Sea potential 

As of 30 August 2024, 11.5 protein wheat offers lowered to 214 USD/MT FOB POC. It is already the same level as same time last year. All market participants ask, which position to take? To sell or to hold wheat? Recently prices were under pressure of a record global wheat production 2024/25 MY, which was seen by August WASDE at 796.2 MMT (789.6 MMT LY). From this magnificent figure, cumulative production in the TOP-8 wheat exporting countries was expected by August WASDE to increase by 1.7 MMT y/y to 385.6 MMT, thanks to crop growth in North and South America, which compensates for losses in Russia, the EU and Ukraine. Herewith, taking into account latest cut of wheat crop forecast in the EU, we expect, that in September WASDE could cut wheat crop in TOP-exporters to the same level as in 2023/24. 

Black Sea countries lowered wheat crop 2024 by about 10 MMT y/y, but crop in competitor countries created a bearish trend. At the end of August, Ukrainian wheat prices got additional pressure, as its own wheat production in 2024 appeared better than expected. Ukrainian AgMin published its forecast at 21.8 MMT vs. 21.6 MMT in August WASDE (LY 23 MMT). Ukrainian export potential-24/25 was seen by WASDE – at 14 MMT (18.4 MMT LY). Herewith, we consider this figure underestimated. At the end of August Ukrainian flour millers proposed a traditional Memorandum agreement with traders to limit the export of wheat from the country in 2024/25 MY – this year to 16.2 MMT. It is still a very comfortable level, taking into account heavy competition with other origins. ASAP Agri sees Ukrainian wheat export potential 24/25 within 15-15.5 MMT.

EU to remain a key market for Ukrainian wheat despite reduced interest from Spain

Gözde N. Karagöz
Broker at Atria Brokers

Gözde N. Karagöz
Broker at Atria Brokers

Ukraine could not replace Russian wheat in the EU 

Gözde Nur Karagöz noted “Our Greek buyers tell that about 200 KMT of Russian wheat was imported to Greece last season. However they believe that Ukrainian-origin wheat would not replace Russian-origin during this marketing year. Yannis Daskalakis, a trader at Soya Hellas said: "Since the tax increase for Russian goods in 2024/25 MY, it is impossible to import Russian wheat, as there is a 95 EUR levy, so there is no point of importing it. Ukrainian wheat will not be able to cover this loss. The country is importing only high-protein wheat from Russia, and it is not possible to cover it from Moldova or Ukraine. Although, Canadian origin may be an option in this case. In general, if Turkey lifts the import ban there will be a sudden increase in prices and that is something to be watched". “Still, the EU will most likely remain the largest buyer of Ukrainian wheat. As per EU Commission, from 01 July till 19 August 2024, the EU imported 462 KMT of Ukrainian wheat to the bloc, remaining its supplier No. 1”, added Gözde Nur Karagöz.

Ukrainian wheat chances in Morocco and Algeria improved

The European Union includes several major wheat exporters, such as France, Germany, Romania, and Bulgaria. For the 2023/24 MY, total wheat export estimates stand at approximately 35.2 MMT. However, a significant decline to 32.6 MMT is projected for the following year, mainly due to reduced production among key exporters. Argus sees French wheat harvest at the smallest level in 41 years – 25.2 MMT, down 27% from the 5YA, with mixed milling quality due to heavy rains. Germany's wheat production is estimated by the AgMin at 18.8 MMT in 2024, reflecting a 13% y/y decrease. Bulgaria and Romania have experienced slight decreases in production as well. Overall, the EU's wheat production is down by approximately 9 MMT, according to the EU Commission data.

“This decline in production in major EU exporters could potentially open the region's traditional markets to other participants. Consequently, markets in countries like Saudi Arabia, Algeria, Egypt, Morocco, Nigeria, and Kenya may need to seek alternative suppliers,” underlined Karagöz.

Ukrainian grain corridor boosts wheat export prospects to Asia and Africa in 2024/25

In addition to the production decrease in the EU, importing markets in Asia and Africa, predominantly developing countries, are experiencing growing consumption. In Asia, countries like Indonesia and Bangladesh are witnessing a rise in demand for wheat-based products. Thanks to the existence of the Ukrainian grain corridor, during the first two months of 2024/25 MY, Ukraine managed to increase wheat export pace by 70% y/y. It improved shipments to Indonesia and Vietnam to pre-war levels. As well, big shipments were done to Algeria and Egypt. For Egypt, WASDE sees import demand steady y/y – at 12 MMT, but competition from Russia is fierce, as 82.5 MMT crop forecast by SovEcon at the end of August is still a decent volume.

On the other hand, Nigeria and Kenya are showing significant import potential, especially with a reduced EU supply. Nigeria, one of Africa's largest wheat importers, is estimated to import from the EU 3.5 MMT in the 2023/24 MY, up from 2.9 MMT the previous year. Their total wheat imports are at 5.2 MMT as per USDA. The country's expanding milling sector and ongoing urbanization underscore the need for increased supply. But for Nigeria, competition with Russia looks very tough.

Turkey withdrew from wheat import till the middle of October

The next large market for Ukraine is Turkey, which in 2024/25 MY may harvest 19.0 MMT of wheat as per Aug WASDE, however according to market opinion production may appear to be about 0.5 MMT higher. Due to lower forecast y/y its import demand will also decline – by around 1.4 MMT to 8 MMT. Thus, from 21 Jun 2024 and till the middle of October, Turkey introduced a wheat import ban. The country had high production and stocks; however, farmers were not satisfied with TMO’s purchasing prices due to having to deal with 75% inflation.

According to Gözde Nur Karagöz, broker with Atria Brokers, the local market participants believe that the ban will not be lifted any time soon and will be prolonged till the end of 2024. The ban will also affect the trade flows from Russia, as it will have to look for other markets for its wheat. “They will try to sell more to Egypt and other North African destinations, maybe Syria too. It may affect Ukraine as well, as it has a big share on these markets, and will be forced to compete more with Russia."

ASAP BRAINSTORM

One of the key questions now is the buyers’ demand for wheat, as it is currently estimated as not very active. Prices could be suddenly supported in case some country comes to market for more wheat. Each factor is watched very closely. Asian destinations should give enough work for Ukrainian traders to compensate for lower demand from Spain and fulfill the export program from Ukraine this season within 15-16 MMT. The question will be in the pace of export from Ukraine, as competition is very tough at destinations.