* Crisis affecting deals for new season starting in July
* Ukraine ports still operating but traders concerned
* European and US suppliers to benefit - traders
By Suleiman Al-Khalidi
AMMAN, March 12 Turmoil in Ukraine is driving
Middle Eastern grain buyers to shy away from striking new deals
there and to consider rival suppliers, a shift that is likely to
push up import bills.
The Black Sea region, mostly Ukraine and Russia, has become
the major source of wheat and barley for Middle East importers
from Libya, Egypt and Syria to Saudi Arabia and Yemen,
dislodging U.S., Canadian and European suppliers who once
dominated the market.
Middle Eastern commodities traders and officials said fears
that tensions between Russia and Ukraine could come to a head,
however, are discouraging most buyers from striking deals with
Ukraine suppliers for the new season, which starts in July.
"At this time of the year, end of March, people are selling
forward contracts for the new crop. Traders and trade houses
start selling July shipments. This is not happening now. People
are very reluctant; they don't know what to expect," said Tony
Mudallal, a senior commodities trader in an international house.
Ukraine, the world's third-biggest maize exporter, also has
come to dominate in corn exports, taking market share from
traditional suppliers such as Argentina and Brazil.
"Ukraine proved to be a powerhouse in the trade of grains in
the last 10 years. It affected the region positively in terms of
supply, mainly in wheat, corn and barley," Mudallal said.
On the supply side in Ukraine, foreign trading houses are
avoiding fixing new grain export contracts as well. Russian corn
export prices also have been rising for two weeks.
Ukraine's main ports continue to operate, but Middle Eastern
traders were concerned that shipping could be affected.
"The situation could change if fighting breaks out," said
Malak Jehad Al Akiely, a dealer in International Grain
"If Ukraine enters into more turmoil, this could mean
declaring force majeure, and that would definitely cause tension
around other Black Sea origins and raise insurance premiums," an
Egyptian government source said.
Conflict-torn Syria, which has relied mainly on Ukrainian
wheat in the last two years to cover a shortfall in local
production, is likely to be the hardest hit by the Black Sea
conflict, traders say.
Any delays in grain shipments could exacerbate Syria's food
shortages as western financial sanctions make it more difficult
to switch to alternative markets, according to two
Damascus-based Syrian traders.
IMPORT BILLS TO RISE
The quality of Ukraine's grain and its proximity to
Mediterranean ports have helped it win lucrative business from
Middle East state importers with lavish budgets to subsidise
bread and basic foodstuffs at low prices.
Middle Eastern countries have already sealed deals for
around 80 percent of the grain they need for the current season
to end-June, traders said.
A switch to other sources is likely to push up Middle
Eastern import bills substantially in the coming season,
however, with prices rising by $120-$150 per metric tonne from
levels in existing contracts of around $280 per tonne FOB for
Russian and Ukrainian wheat, according to regional experts.
"Ukrainian grains are very competitive price-wise, and they
are as good or even better quality than say western European or
other sources," another commodities trader based in Jordan said.
"If the situation escalates, it means the Middle East
consumers will pay a higher bill by up to $150 per tonne," he
A Cairo-based trader said the crisis was already driving up
prices for new deals.
"Egypt had banked on doing more buying from the U.S. for
example, but now prices are up as far as $304 a tonne on a fob
basis," the trader said.
Middle Eastern state and private importers are likely to
diversify to Romania, Bulgaria and western European suppliers,
particularly France and the Baltic states.
"Russian and Romanian and other Black Sea origins could
replace Ukraine, but also French wheat, which is priced slightly
higher," the Egyptian government source said.
Egypt, the world's largest wheat importer, has said it will
reconsider a rule that limits moisture content and excludes
mostly French wheat.
That issue has to be resolved, the source said. "We need to
open the door to as many origins as possible and then choose."
Even U.S. and Australian wheat exporters may also see a
comeback in shipments of corn to Egypt, which has relied on
Ukraine for years.
"Today Ukraine is still exporting. Yes the price is going to
differ. Eastern Europe will love this," a Lebanese grains trader
As for shipments so far, Egypt's main state grain buyer, the
General Authority for Supply Commodities (GASC), has said the
crisis would not affect any shipments already purchased.
If grain exports are disrupted through the port of
Sebastopol in Crimea, Ukraine can still export to the region
through its main deepwater ports of Odessa, Illichivsk and
Yuzhny, traders say.
A significant volume of Russian and Ukrainian grain exports
is shipped directly in 5,000 tonne vessels from small Black Sea
ports in the Sea of Azov on the southern coastlines of Russia
and Ukraine to ports in Egypt, North Africa and eastern
Mediterranean such as Latakia and Beirut.
Also traders are concerned about the military buildup
taking place in Crimea near the Strait of Kerch, a major
transhipment point for Ukrainian and Russian grain shipments to
the Middle East, where 5,000 tonne barges cross and 50,000 tonne
"Kerch is now witnessing a lot of military activity that is
beginning to affect commercial vessel activity," said one senior
Middle Eastern commodities dealer.
"Even if you want to speak commercially about loading a
vessel or doing some transhipment operation at this strait, the
priority is going for the army not for the commercial," the
"It disrupts Middle Eastern traders thinking of getting from
Russia small barges and to top it off with mother vessels. You
will think twice," he said.
Dealers said the potential that the conflict could lead to
EU trade sanctions against Russia was another factor weighing on