* Russia eyes wheat supplies to Iraq, Saudi Arabia and Algeria
* Russia is already the world's largest wheat exporter
* Russian success in Iraq would be a blow to the US
* Russian expansion into Algeria would hurt EU
Russia, already the world's leading wheat exporter, is bent on taking further market share from the European Union and United States with a new attempt to crack what have traditionally been its most difficult destinations.
Successful marketing campaigns in Iraq, Saudi Arabia and Algeria would cement Russia's leading position in the wheat markets of the Middle East and North Africa.
Wheat traders said price is an increasingly decisive factor in securing export deals, with a challenging economic backdrop, caused in part by sliding oil prices.
Cheaper oil is playing to Russia's advantage in grain, keeping prices for Russian wheat relatively low in dollar terms due to lower fuel costs and a weaker local currency.
‘With crude oil prices remaining low, the Arab countries are asking themselves why they are paying millions of dollars more than they need to for wheat imports,’ a German trader said.
‘In a direct price fight, I would expect Russian wheat to take the main share of markets opened to them,’ the trader added.
Iraq, a major Middle East grain buyer traditionally reliant on the United States, wants to allow Russian wheat in its state buying tenders, its new trade minister, Mohammed Hashim al-Aani, said last week.
Negotiations to allow Russian wheat into Iraq have been going on for two years, but haven't concluded due to frequent changes to Baghdad's negotiating team, a Russian source familiar with the talks told Reuters.
‘We hope that the situation will change with the appointment of the new trade minister, who has already said that he would send a delegation to study Russian wheat to Russia in December,’ the source said, adding supplies could start next year.
Quality specifications are a central issue in the talks, traders said.
Russian wheat doesn't contain enough gluten to satisfy Iraqi importers, but is about $10 to $12 per tonne cheaper than US hard red winter wheat shipped to the Middle East, said a US wheat trader.
‘It would have to be a quality or financing issue’ for the United States to win the business, he added.
In grain trade negotiations, quality and price are key issues but politics also plays a role, with countries sometimes prioritising trading relationships with allies.
PORT PROBLEMS SOLVED
US traders complain that American wheat is too expensive for major global wheat markets in the Middle East and Africa.
High rail freight costs to get US wheat to port, as well as a futures mechanism known as variable storage rates, combine to keep prices higher than Russian wheat.
Meanwhile, Russia is solving its port capacity problems. It aims to speed up and increase grain export capacity by 25 million tonnes to 77.7 million tonnes by 2022, two years earlier than expected.
Russia exported a record 52.4 million tonnes of grain in the 2017/18 season, up 47 percent year-on-year, including 40.5 million tonnes of wheat. This season, grain exports are expected to be 38-39 million tonnes.
One rogue element is weather fluctuations, the key variable for Russia's crop size, which traditionally raises concern that the government could limit supply during export campaigns.
However, domestic prices have been relatively stable so far this season and the risk of state curbs has eased.
While Russian success in Iraq and markets like Nigeria could be a huge blow to the United States, Russian expansion into Algeria and Saudi Arabia would be a significant setback for EU wheat.
‘Russia's entry into Algeria would be an earthquake. The EU, especially France, still dominates wheat sales there because Russia is excluded and competition from Russia would be a grave danger to the EU,’ said another trader.
‘The same goes for Saudi Arabia, which is vital to Germany, Poland and the Baltic States.’
Russian wheat has been barred from international tenders in Algeria, one of the world's biggest wheat importers, for failing to meet the North African nation's strict bug damage controls.
Russian wheat is not currently in the list of origins which can take part in Saudi purchasing tenders due to Saudi Arabia's high-quality specifications.
Algeria's neighbours, including Tunisia, Libya and Morocco, are all buying Russian wheat. Russian wheat is also going to Jordan and Nigeria, and Moscow has said that it wants to boost supplies to those countries.
About 80 percent of France's non-EU wheat exports have been to Algeria so far this season but its traders have said that it remains to be seen if Algeria changes its terms or forces Russia to meet the current low bug-damage limit.
Russian traders, major suppliers to Egypt, Turkey, Bangladesh and Vietnam, are focused on maintaining their share of the current markets despite a lower 2018 crop, one of them said.
Russia is preparing to send wheat samples to Saudi Arabia for quality tests.
‘We hope that all barriers in the way of Russian wheat to Saudi Arabia will be removed after the results of the analysis,’ the source familiar with the talks said.
LEAVE A COMMENT Your email address will not be published. Required fields are marked*
Truss under fire as pound sinks and BoE sounds alarm
Italy takes sharp turn with far-right win
Ex-pupil kills 15 at Russia school
Russia school shooting kills 15, including children
Rare pink diamond to go under hammer in Geneva
Italy votes as far-right eyes historic victory
Russia stiffens penalty for refusal to fight, replaces top general
On poll eve, Italy braces for potential far-right win
Lavrov slams the West for ‘grotesque’ Russophobia