EXCLUSIVE Ukraine considers milling wheat export curbs in H1 2022 -sources

KYIV/MOSCOW, Dec 22 (Reuters) - Major global grain producer Ukraine will consider limiting milling wheat exports in the first half of 2022, with officials expected to decide on the issue in mid-January, two sources familiar with the discussions told Reuters.

Government officials are concerned strong exports will raise domestic prices for high quality bread-making wheat, making the staple more expensive at a time when Ukraine's inflation is close to 2018 highs.

Demand for Ukraine's wheat has been buoyed by an export tax in rival supplier Russia, which is also trying to control domestic price pressures.

"At a recent meeting at the agriculture ministry, officials indicated that restrictions are possible as the pace of exports is too high," one of the sources told Reuters.

Any further measures from a major exporter are likely to drive up milling wheat and bread prices globally. Affordability of food is a major issue, partly due to economic damage caused by the COVID-19 pandemic, with the latest measure of food price inflation from the United Nations running at 10 year highs.

Ukraine has exported 15.6 million tonnes of wheat so far in the 2021/22 season (July-June), up 27% year on year.

The country is only able to deliver around 10 million tonnes more - up to 4 million tonnes of milling wheat and 6 million tonnes of feed wheat - without damaging its own consumption needs, analysts and traders said.

Russia has sought to curb exports since early this year, with shipments down 37.5% since the start of the current 2021/22 season, leaving major importers scrambling to find alternative supply.

RECORD WHEAT PRICES

Milling wheat futures on Paris-based Euronext rose to a record high last month and are currently 35% above year-ago levels.

"The introduction of restrictions by Russia only complicates the situation - their volumes will most likely be replaced by Ukrainian grain," one of the sources said.

"This will cause an increase in demand and prices, which of course will lead to an increase in domestic wheat prices and a consequent rise in bread prices (in Ukraine)."

Ukraine harvested a record grain crop in 2021 but its inflation, fuelled by higher global food and gas prices, hit 11% in September and is still expected to be around 10% by the end of the year.

The agriculture ministry and traders sign an export memorandum each season. It is currently set at 25.3 million tonnes without specifying the amount of feed or milling wheat shipments.

The government could update the memorandum and add a 4 million tonne milling wheat export limit for the rest of the season, according to the two sources.

"A plan to restrict exports sounds reasonable, since there are about 4 million tonnes of milling wheat in stocks. This will last until April-May, then there maybe a threat to food security," a market source said.

Ukraine's agriculture and economy ministries told Reuters there were currently no market factors that would require restrictions, but the sources said officials plan to look at the issue in mid-January.

Ukraine's association of flour makers said in a letter to the government last month that any shortage of milling wheat could significantly affect prices for flour and flour products in the country.

"Some kind of restrictions are likely - there are more and more voices saying that there is no grain in Ukraine and there will be no bread, another trader said. "But this restriction will most likely affect only food grains as we have a lot of feed grains."

Russia, where inflation remains close to a 6-year high, announced the size of its Feb. 15 - June 30 wheat export quota last week and said it would change the formula of its wheat export tax as a security guarantee in case of sharp growth in global prices. read more

Reporting by Pavel Polityuk and Polina Devitt; additional reporting by Natalia Zinets; writing by Polina Devitt; editing by Nigel Hunt, Veronica Brown and Kirsten Donovan

Our Standards: The Thomson Reuters Trust Principles.

Thomson Reuters

Senior commodities correspondent in Russia writing about metals and mining, agriculture and other commodities