HAMBURG (Reuters) - Russia’s announcement of a grain export ban means existing deals may be torn up and rival sellers will scramble for the country’s drought-hit supply contracts, traders and analysts said on Thursday.
Russia stunned global grains markets on Thursday by saying it would ban grain exports August15 to December31, a move applying to contracts already signed after the worst heatwave on record ravaged the country’s harvest.
Cheap Russian wheat has massively expanded sales to global markets in recent months, buoyed by bumper harvests in 2008 and 2009 and making inroads on shares enjoyed by the United States, Europe and Australia.
Exporters said based on their understanding of Russian government announcements on Thursday they expected to declare force majeure on millions of tonnes of Russian export deals.
This would enable supply deals to be cancelled because of events outside the control of the contracting parties.
Some exporters will be pleased to declare force majeure as they face huge losses on some contracts after selling Russian wheat in advance before price rises in past weeks, traders said.
Wheat prices in the U.S. hit 23-month highs and in Europe scored new contract highs on Thursday as rival exporters expected to gain new business as Russia retreats from the global grain export market. U.S. wheat futures have risen nearly 70 percent since the end of June.
“As we understand today, there will be an export ban from August 15 so force majeure will have to be declared on shipments after this date,” said a trader at a European export house with major Russian export contracts.
“The (Russian) government will physically stop us from fulfilling the contractual commitments we entered into.”
A French exporter agreed: “If there is an export ban it is a force majeure,” he said.
Chris Vanhonacker, a European grain trader said: “People will have to read their contracts in detail; how are the origins labelled and what is the governing law.”
RIVALS LICK LIPS
Observers now expect a race among Russia’s export rivals to take over the business.
Keith Flury, grains analyst at German commodity analysts F.O. Licht, said: “For the Middle Eastern market, I think the European Union looks well placed to fill the gap. The U.S. will have an outside chance but will be hampered by higher shipping costs.”
“Ukraine also has crop issues and Kazakhstan is unlikely to be willing to sell very large volumes. Asian buyers are likely to look to Australia and the U.S.”
Bill Nelson, economist with Doane Advisory Services in St Louis, Missouri said: “The ban is going to have a positive impact on U.S. wheat. But we are not sure at this stage how much the increase in U.S. wheat exports will be.”
He said the shortfall in Russian wheat output will boost consumer demand for feed grains like such as corn and barley. Nelson said the surge in prices could lead to some destruction of demand as livestock herds are cut due to high feed costs.
EGYPT NEEDS GRAIN QUICKLY
Leading importer Egypt was seen with an immediate problem after buying a total 360,000 tonnes of Russian wheat for August 21 -September 31 shipment in the past week plus 120,000 tonnes for August 11-20 shipment which could fall under the ban.
Egypt’s state grains buyer GASC said it would not-retender but will seek about 60,000 tonnes a month.
“It’s a big problem for the Egyptians,” the French trader said. “The Egyptians bought Russian wheat at good prices for August and September and they need it.”
Traders were also hopeful some of the business for Egypt, the world’s biggest wheat importer, will be switched to the EU.
Market talk increased on Thursday that Russia’s Black Sea neighbour Ukraine had slowed down exports, stopping short of an outright ban.
“Ukraine is a member of the World Trade Organisation and has to be very careful about introducing export bans and export taxes,” a trader said.
“They have apparently introduced different measures, they have introduced an unofficial ban on grain shipments by rail to ports and extra re-inspections of grain cargos after loading which makes their exports much slower.”
“It is not a ban but an officially-sanctioned export slowdown which greatly diminishes capacity to export.”
A senior government minister on Wednesday said Ukraine did not need at the moment to limit grain exports.
Cheap Russian wheat has massively expanded sales to global markets in recent months, making inroads on shares enjoyed by the United States, Europe and Australia.
Reporting by Michael Hogan in Hamburg, Gus Trompiz in Paris; Sarah McFarlane in London, Martin Roberts in Madrid, K T Arasu in Chicago; editing by Keiron Henderson
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