Iraq moves to Russian wheat
TALK that Iraq is looking at the possibility of importing Russian wheat is not great news for Aussie producers.
Iraq may not be our biggest wheat customer, nonetheless, it is a substantial and vital buyer of Australian high protein wheat, averaging around 620 thousand metric tonne (kmt) over the past 10 marketing years.
Iraq’s new trade minister, Mohammed Hashim al-Aani, has reportedly said it will send a delegation to Russia in December to assess the quality and suitability of Russian wheat for domestic use as well as assessing its logistics capabilities.
Whilst shipping from Russia’s Black Sea ports traditionally has a freight advantage, quality is considered to be the biggest hurdle facing Russian exporters compared to traditional suppliers such as Australia, Canada and the US.
The latest estimates place Iraq’s population at just under 40 million. About 35-40 per cent of Iraqi citizens live below the poverty line and are reliant on a monthly subsidy card system to supply subsidised bread and other essential foods.
The Iraqi government wants to allow Russia to participate in the tenders to supply this massive rationing program, presumably, in the hope of buying suitable quality wheat but at a lower price compared to traditional suppliers.
Mr Hashim al-Aani also stated that he was looking to secure larger state funding for the rationing program with the aim of maintaining at least a three-month reserve of grain. This reserve would include purchases from local farmers which he expected to total around 2mmt this year.
Wheat consumption in Iraq is about 5–6 million metric tonne (mmt) per year.
It usually imports around half of its annual requirements and, along with Saudi Arabia, is one of the few markets in the region that do not import Russian wheat. Domestic wheat production has been struggling to meet the increase in demand, primarily from the livestock sector, resulting in imports of almost 3mmt in the 2017 calendar year.
About one in five Iraqis is a farmer. Less water means less land can be farmed, resulting in less production and lower farm income. This has forced people to find alternative employment or migrate to the larger cities where services are struggling to cope with the increased pressure and unemployment is on the rise.
Like eastern Australia, this season’s Iraqi wheat crop was hit by severe drought. According to Iraq’s Central Bureau of Statistics, this cut the country’s soft wheat output by 27 per cent to only
2.2mmt, its lowest since
2009. This means that Iraq’s import requirements in the
2018/19 marketing year are likely to be higher than in recent years.
In the five marketing years starting in 2008/09, Iraq bought an average of 900kmt per year from Australia, with the biggest being 1.65 mmt in
2012/13. In the five subsequent years, the average was much lower, with the 2015/16 season seeing only 52kmt of Australian wheat make its way to Iraq. The recently concluded
2017/18 marketing year had Iraq import around 700kmt of Australian wheat, mostly from Western Australia.
Nobody is questioning Russia’s long-term ability to meet some, or all, of Iraq’s wheat demand, so long as it can meet the quality parameters.
SovEcon agriculture consultancy recently raised its current season wheat production estimate by 1.3 per cent to 70.7mmt.
Meanwhile, the harvest is ramping up in Western Australia and ramping down in many parts of eastern Australia.
In Queensland, receivals into the GrainCorp system are less than 150kmt and unlikely to increase significantly.
Most of the grain is either stored on farm or has bypassed the bulk handler system, and the trade, and gone directly to the hungry domestic consumer on the Darling Downs.
On the flip side, yield reports from the early Western Australian harvest have been better than expected. The consumer is praying that this continues and gives them a modicum of price relief until the sorghum crop is harvested. The problem here is that Western Australian wheat exporters are finding international demand at present values.
At current price spreads, this will most likely lead to an increase in domestic barley demand, thereby freeing up wheat for international markets such as Indonesia, and hopefully, Iraq.
SWITCH LOOMS: Iraq may start to import Russian wheat, which is sad news for Australian growers.