Global trade war to be a boon for Black Sea grain

MOSCOW/BEIJING — Trade conflict between the United States and China could further boost already booming grain and oilseed exports from the Black Sea region, traders and analysts said.

New opportunities to sell wheat, corn and soybeans to China and even the European Union are set to open up for the region’s main exporters Russia, Ukraine and Kazakhstan, whose recent ascendancy has already ended full US dominance in markets such as Nigeria and Mexico.

The United States and China slapped tit-for-tat duties on $34 billion of each other’s imports on Friday, with Beijing accusing Washington of triggering the “largest-scale trade war.”

The Black Sea region’s share of the international wheat market climbed to about 37 percent in 2017-2018, according to the International Grains Council, comfortably topping the United States and Canada combined.

China is the world’s top wheat producer but still imports about 4 million tons of the grain each year.

In the 2017-2018 season (June-May) the United States exported 902,400 tons of wheat to China, down from 1.56 million in the prior season, according to US government data.

For Kazakh wheat, the pick-up in Chinese imports started due to Beijing’s Belt Road policy and before the trade dispute took off, but the tariff row accentuates the trend.

“We have just started buying wheat from Kazakhstan this year. Our first order was for several thousand tons,” a Chinese wheat trader said. “We will see about sales and profits. If they’re good, we will increase imports for sure. It is related to the current trade war.”

“Now that you can’t bring in American wheat, it gives us more incentive to buy from Kazakhstan. And once your trading of Kazakh wheat reaches a certain volume, you get government preferential support,” the trader added.

Among the risks for this strategy are difficult logistics and unstable quality seen in Kazakh and Russian wheat, said another trader who has been looking for more Kazakh wheat deals.

Black Sea wheat may not be able fully to replace its US counterpart due to different quality grades, meaning some traders will also turn to Canadian wheat, he added.

According to statistical data, Russia and Ukraine, whose traditional buyers had been in North Africa and the Middle East, boosted wheat supplies to Vietnam, Indonesia, the Philippines, Spain, Tunisia, Tanzania, Sudan, Oman, Mexico and Kenya in the 2017-2018 season.

One location in which Russia has taken away from US wheat market share is Nigeria, which like Brazil traditionally favors a higher-protein grain such as US hard red winter.

In a sign that may worry some US wheat traders further, Brazil bought Russian wheat in July for the first time in eight years.

“In this new era of trade wars, prices talk louder than words,” said Swithun Still, director of Solaris, which specializes in trading Russian agricultural commodities.

“It’s likely that China will aim to buy more grains and oilseeds from the Black Sea and more beans from South America. Mexico has been buying lots of Russian wheat and will continue as prices are attractive compared to US wheat,” he added.

The trade spat could also boost exports of Black Sea corn and soybeans.

Russian authorities recently reported a record 850,000 tons of soybean exports to China in July 2017-May 2018, more than double the 340,000 tons a year earlier, Svetlana Malysh, Kiev-based Black Sea agriculture market analyst at Thomson Reuters, said. —