Ukraine's government considers wheat export curb in first half of 2022: Reuters

23 December 2021, 11:20

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Ukraine will consider limiting exports of milling wheat in the first half of 2022. Officials are expected to make a decision on the issue in mid-January, Reuters reports with reference to its sources.

One of the sources claims that officials are concerned that strong exports will lead to higher domestic prices for high-quality wheat for baking bread. In turn, this will make it more expensive at a time when inflation in Ukraine is close to the 2018 highs.

The demand for Ukrainian wheat has reportedly been boosted by an export tax in Russia, the country's closest rival, which is also trying to contain 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.

It is noted that any further action by a major exporter is likely to increase the price for milling wheat and bread globally. Food accessibility is a major concern, partly because of the economic damage caused by the COVID-19 pandemic, and the latest food price inflation indicator from the UN hitting a 10-year high.

Wheat export from Ukraine since the start of 2021/22 has made up 15.6 mln t, 27% up YoY.

Analysts and traders estimate the country is able to supply about 10 mln t more — up to 4 mln t of milling wheat and 6 mln t of feed wheat — without affecting its own consumption.

Russia had been seeking to limit exports since the beginning of this season. Since the start of the current 2021/22, supplies have fallen by 37.5%, forcing large importers to look for alternative supply options.

Milling wheat futures on Euronext rose to a record high last month and are now 35% higher than a year ago.

"Russia's imposition of restrictions only complicates the situation — their volumes are likely to be replaced by Ukrainian grain," one source said.

According to the source, this will cause an increase in demand and prices, which, of course, will lead to higher domestic prices of wheat. As a consequence, the price of bread will rise in Ukraine.

Ukraine produced a record grain harvest in 2021, but inflation in the country, fuelled by rising global food and gas prices, reached 11% in September and is expected to be around 10% by the end of the year.

The Ministry of Agrarian Policy and Food of Ukraine and traders sign an export memorandum every season. Currently, it is set at 25.3 mln t without specifying the volume of feed and milling wheat supplies.

According to two sources, the government may update the memorandum and add an export restriction of 4 mln t of milling wheat by the end of the 2021/22 season.

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

Reuters writes that there are currently no market factors that can necessitate restrictions, but sources said officials plan to consider the issue in mid-January.

Last month, the association of flour producers in Ukraine stated in a letter to the government that a shortage of milling wheat could significantly affect the price of 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."