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Environment

Scenarios: Who will take Russia's lucrative grain exports?

HAMBURG (Reuters) - Russia’s sudden announcement of a grain export ban from August 15 after its harvest was ravaged by the worst drought in over a century is sparking fierce competition among rival exporters to take over the business.

Russia was expected to have been the world’s third largest wheat exporter in the new 2010/11 season with forecast sales of 17.5 million tons, larger than Argentina’s entire wheat crop.

Existing supply contracts will be stopped by the ban, so importing countries will need to award multi-million dollar contracts quickly for replacement supplies.

Here are possible scenarios for the scramble to take Russia’s business:

EUROPEAN UNION HAS MAJOR SALE SURGE

France and Germany are seen as well placed to make quick sales to the main Middle Eastern and Arab North African grain importing countries.

“I expect France to book heavy sales to Egypt and other countries looking for standard quality wheat in coming weeks,” a European grain export trader said. “Germany and the Baltic States also have good opportunities for importers seeking higher quality.”

Traders stress France has started dominating Egypt’s wheat imports; with the north African country’s state purchaser GASC buying 360,000 tons from France after the ban was announced. In four wheat tenders before the ban, Russia had made massive sales of 540,000 tons to Egypt.

“Despite a heatwave in Europe this summer, there is belief that EU wheat harvests will be big enough to handle a strong rise in exports,” a trader said.

French grains analyst Strategie Grains has raised its forecast of EU wheat exports in 2010/11 by almost 3 million tons against its previous estimate before Russia’s export ban.

Jordan bought 100,000 tons of German wheat on Thursday, its first non-east European wheat purchase for about seven years.

But the general strength of the euro may burden EU sales in more distant markets away from the Middle East.

UKRAINE, KAZAKHSTAN WILL NOT FILL GAP

Russia’s rivals Ukraine and Kazakhstan, which have both massively expanded wheat exports in recent years, are not likely to get Russia’s business.

Unconfirmed reports say Ukraine’s government is considering export restrictions to conserve its own crop. Traders say Ukrainian authorities are already unofficially hindering exports.

Landlocked Kazakhstan is expected to face major bureaucratic problems in exporting its wheat via Russian or Ukrainian Black Sea ports, traders say.

“It doesn’t make any difference whether the Kazakhs want to export or not. The Kazakh wheat is going to be cut off by the export bans,” one European trader said.

U.S. WILL MAKE MAJOR SALES

The U.S. and Canada are expected to make major new sales in coming days and weeks, both of wheat and also of animal feed corn (maize) to replace lost Russian feed barley.

Strategie Grains on Thursday raised its forecast of U.S. soft wheat exports by almost 6 million tons following Russia’s export ban. “This would make U.S. wheat exports in 2010/11 among the highest in the last 20 years,” a trader said.

Major new U.S. sales were also reported by the U.S. Department of Agriculture on Thursday.

One trader said: “U.S. wheat sale prospects are very good and are likely to be held back only by ocean shipping costs in the near future. Tenders this week have shown that U.S. wheat is cheaper than European.”

U.S. wheat was offered $5 cheaper than French wheat in Egypt’s tender on Wednesday. But as shipping costs from the U.S. to Egypt were $10-$15 more expensive than from France, France got the business.

“We are still likely to see U.S. wheat popping up in markets which only a few weeks ago were seen as belonging to Russia,” a trader said. “I expect new sales of U.S. wheat to exotic destinations, especially high quality and durum.”

“There is market talk today of a large U.S. wheat shipment to Syria, the first I have seen for 20 years,” a trader said. Sales of U.S. corn are also expected to surge, partly as a replacement for Russian animal feed barely in the Middle East. Israel is among importers turning from Russian feed grain to U.S. corn.

AUSTRALIA, ARGENTINA TO GAIN

The two southern hemisphere producers Australia and Argentina are both seen gaining major sales as both have good harvest prospects.

“Russia has made major inroads into Asian markets such as Bangladesh and Philippines in recent months,” a trader said. “Australia looks likely to get a lot of replacement business both to Asia and the Middle East.”

“Big new Australian wheat sales are expected for August to October shipment.

Argentina’s government currently has no export restrictions which is likely to boost sales.

SHIPPING MARKET TO CHANGE TO LONGER DISTANCES

A restructuring of the ocean shipping market is expected as grain will probably have to be shipped longer distances, especially to the key Middle East market.

Freight brokers said there had been growing grain fixtures since Monday from the U.S. Gulf to Europe due the Russian export ban.

“The ban on grain exports from Russia has also altered trade patterns boosting demand for bulk carrier services,” said Nicolai Hansteen, chief economist with broker Lorentzen & Stemoco.

Ship operators say a switch in origins to the United States, Australia and possibly Argentina would boost ton mile demand -- a key indicator of ship demand -- which measures the volume of cargo transported multiplied by the distance of the voyage.

“As we have seen more wheat fixtures from the U.S. Gulf, this development is an early boon for the U.S. grain export season,” said Andrew Winkler, analyst with dry bulk consultants Commodore Research.

Additional reporting by Gus Trompiz in Paris, Sarah McFarlane and Jonathan Saul in London; editing by James Jukwey

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