HAMBURG/LONDON (Reuters) - Iran’s government is expected to start buying hundreds of thousands of tonnes of feed grains as western sanctions are causing enormous disruption to the financing of Iran’s imports, traders said on Thursday.
Iranian farmers face a shortage of feed for their huge livestock flocks as private-sector grain importers are unable to arrange payments, traders said.
Though food shipments are not targeted under Western sanctions aimed at Iran’s disputed nuclear program, financial measures have frozen Iranian firms out of much of the global banking system, hindering grain buying.
The government, which had bought more than 2 million tonnes of bread-making wheat recently, is now poised to make substantial feed grain deals, traders said.
They expect the Iranian government feed agency SLAL to step into international markets and start buying feed grains in the same way the state food agency GTC moved earlier this year to secure bread wheat supplies.
“Logically Iran could be in the market for several hundred thousand tonnes of barley, corn and feed wheat, but no one can confirm this business, because of payment issues,” a trader said. “The government will probably step in and buy feed grains on behalf of the country.”
Several dealers reported multiple enquiries from Iranian importers, but they were reluctant to close deals due to concern over trade financing.
“I have several Iranian buyers who are currently seeking a total of about 250,000 tonnes of feed wheat, corn and barley but I cannot sell it because I do not know how they will pay,” one European grains broker said.
Other traders said they estimated current Iranian feed grain purchase demand at between 200,000 to 300,000 tonnes of feed wheat, corn and barley.
The Iranian government bought wheat on international markets at a frantic pace in March, buying 2.5 to 3 million tonnes of bread wheat at a premium to global prices as private Iranian flour mills found they could not purchase in the face of toughened western sanctions.
“The Iranian government seems to have solved its bread wheat problem but the poor harvest in the country at a time of political tension means it still has unresolved feed grain import requirements as the private-sector feed buyers have the same problems in payments as the flour mills,” another trader said.
The cash-rich Iranian government was able to arrange payments for its wheat via a series of routes including Turkey.
“Some Iranian feed buyers have been seeking to arrange purchases with pre-payment but this is too difficult with large shipments with a panamax load of about 55,000 tonnes of grain likely to cost around $18 million,” a trader said. “This is too much to finance with advance payments.”
A Swiss bank owned by India’s Hinduja Group said this week it is continuing food trade finance with Iran despite the sanctions.
U.S. agribusiness giant Cargill also said in February it planned to continue grain shipments to Iran.
Another trader said he had current inquiries from Iran for 50,000 tonnes of feed wheat as corn is more expensive. More purchases of Indian soymeal are also expected.
“For the moment it’s 50,000 tonnes and if that is a success they will definitely be looking for an additional 100,000 tonnes,” he said.
As Iran remains defiant towards western sanctions, analysts believe the Tehran government may take action to prevent a sanctions-related rise in food prices endangering the regime’s popularity.
Henry Wilkinson, head of intelligence and analysis at the Risk Advisory Group said: “(the government) seems to be of the view that it is in a better position to mitigate the risk of losing control of food prices now, rather than later, by stockpiling grain.”
Alan Fraser, Middle East analyst with security firm AKE, added: “Food security is hugely important to the regime as a whole, and the recent grain imports are likely aimed at staving off any potential instability that could result from food shortages.
“Even though the import of food is not placed under sanctions, restrictions on banking and trade are making it difficult to secure the supplies it needs. By stockpiling, the regime is insuring against any future shocks that would leave them short.”
Additional reporting by Sarah McFarlane in London; Editing by Veronica Brown and Keiron Henderson