What impact has the increase in Russian grain exports by large companies had on the Azov ports of the Black Sea, which were previously self-sufficient export hubs?
- Azov ports are turning into one of the links in the export supply chain instead of being self-sufficient export hubs.
- The emergence of a pool of state exporters on the Russian grain market and high domestic wheat prices has reduced the opportunity for small exporters to make money on grain exports.
- Small and medium-sized companies are pessimistic about their future wheat export activity prospects.
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The increase in grain exports by large companies based in Black Sea deep-water ports is accompanied by a decrease in grain shipments by small companies from shallow ports of the Azov region.
This turns the Azov ports into one of the links in the export supply chain instead of self-sufficient export points. The Russian grain export quota and export taxes introduced in February 2021 could finally push out small exporting companies from the wheat export market and stiffen competition in the export of other agricultural goods, market participants believe.
The presence of a pool of state exporters on the Russian grain market since 2019 led to higher shipments by major players through Black Sea deep-water terminals and road trans-shipments with a decrease in grain exports from the Azov ports.
The share of direct shipments from the ports of Azov in the total volume of wheat exports from Russia for the period July-December 2020 fell to 12 per cent compared with 24 per cent in the same period the year before, according to Refinitiv Trade Flows data.
High domestic prices for Russian grain for the second season in a row also reduced small companies’ ability to compete with large exporters.
The export of Russian 13.5 per cent protein wheat with higher quality has traditionally been the domain of small companies in previous years, but for the second season in a row, Refinitiv’s monitoring records such grain offers from deep-water ports by handy-size volumes of 30 thousand tonnes.
Despite the active export of Russian barley in the current season, the Azov barley export was weaker. Coaster-sized deliveries from the region to buyers directly without transshipment for the period July-November 2020 reached only 29 thousand tonnes. This is almost three times lower than in the same period last year, according to Refinitiv Trade Flows data.
The impact of high prices on grain exports
High wheat prices are also forcing importers to switch to purchasing larger volumes of grain.
Since the beginning of the 2020/21 season, Refinitiv Trade Flows data showed that importers from Turkey, Lebanon, Albania and Georgia have halved the import of coaster-size volumes of Russian wheat from Azov to 2.2 million tonnes during July-November 2020/21, compared with 4.5 million tonnes for the same period of the 2019/20 season.
A significant decrease in demand for shipments from the Azov ports was due to an increase in shipments through deep-water ports based on changes in the Turkish purchase policy. Turkey is one of the world largest importers of Russian wheat.
Wheat imports to Turkey in the current season are expected to be lower than 2019-2020 season, according to the USDA’s latest WASDE Report, with an anticipated fall to 8 million tonnes. This figure is down 27 per cent from last season due to increased domestic production and large beginning stocks.
The country boosted grain imports through international tenders by handy-size ships. The Turkish Grain Board (TMO) purchased 1.69 million tonnes of wheat through tenders between July and November 2020, up from 0.44 million tonnes over the same period 2019 year, according to Refinitiv.
Market difficulties for small grain exporters
In the current 2020/21 season there are fewer ways for small exporters to make money on grain exports, market participants believe.
Some small companies have already stopped working as grain exporters in the Azov and Black Sea ports, or are trying to find alternative exports, Refinitiv monitoring showed. Many have started supplying grain on CPT basis to large exporters. In previous years, deliveries on the CPT basis were considered as “not prestigious work”.
Small and medium-sized companies are pessimistic about their future export activity prospects. Market participants believe that setting up a grain export quota and taxes in Russia to attempt to curb soaring food domestic prices would mostly benefit large companies. Pushing small exporters out of the market could narrow the grain market for farmers domestically, limiting options to sell their crops and capping their margins.
The market for other cereals and by-products will potentially remain an upcoming trend for the small export business. Such goods are less attractive to large exporters due to low trade volumes and high price volatility. Competition among surviving exporters in this segment is likely to intensify.