Russia’s new crop wheat exports stifled by mistrust of Western banks
Russian wheat exports harvested this summer for the 2022/23 marketing season are unlikely to realize the potential offered by an expected record crop, as banks, shippers and insurers remain wary despite US assurances of sanctions, said the traders.
The West issued a series of sanctions against Russia following Moscow’s decision to send troops to Ukraine and although food exports were excluded, the measures created difficulties in financing the agreements and arrange freight and cargo insurance.
In a bid to free up exports amid a global food crisis, the United States issued clarifications in July reassuring banks, shipping lines and insurance companies that transactions for Russian food exports and fertilizer would not violate Washington’s sanctions against Moscow.
Despite a challenging backdrop, wheat exports for the 2021/22 marketing year were broadly in line with pre-crisis forecasts, boosted by high world prices and demand from customers unable to source goods from overseas. ‘Ukraine.
However, a sharp decline in world prices over the past two months has resulted in higher than normal financing costs and freight is now beginning to have a significant negative impact on shipments.
The International Grains Council estimates that Russia exported 33.0 million tonnes of wheat in the 2021/22 season (July/June), slightly below the 33.3 million forecast in its February report – published just days before Russia begins what it calls its “special military operation”. ” in Ukraine.
The 2022/23 season started in July with the possibility of a jump in exports after a bumper harvest.
Russia has not released export or import data since February, but could export 4 million tonnes in August, compared to 2 million tonnes in July, according to traders’ estimates.
That’s less than the country could offer in terms of port capacity and its huge harvest, traders said.
Russia exported 5.2 million tons of wheat in August 2021.
For Russian grain traders, US insurance is not the remedy they were hoping for, as several market players are still reluctant to work with Russia for fear of secondary sanctions.
“All these statements that it is possible to work with food supplies from Russia give half a percent progress. I haven’t seen any relief so far. Nothing changes,” said a Russia-focused trader.
“If the banks we’ve worked with for many years would call and say ‘well, hello again, let’s get the money flowing’, that would mean a change, but no, that’s not happening,” he added.
Russian grain traders still pay a premium for freight and insurance, it is also difficult for them to find large ships or find a bank that would provide trade finance or a letter of credit for supply.
Banks working with them carry out additional checks and ask traders to provide detailed documents about the companies that produced the grain or delivered it inside Russia, the trader said, adding that this further complicates the process. process.
Ukraine has accused Russia of stealing grain from territories it has seized since February 24. Moscow denies this.
The Russian Union of Grain Exporters says the West has the tools to take over the financial service of grain supplies from Russia. Together with Russian officials, this association has called for the removal of “invisible barriers” for Russian grain.
“There are some relaxations, but they are not enough for normal work. We do not agree that civil servants cannot influence the work of their banks and insurance companies. Each country has a financial regulator that affects the activity of financial institutions. But progress requires goodwill, not formal slogans,” Eduard Zernin, head of the association, told Reuters.
THE AGREEMENT IS NOT FULLY IMPLEMENTED
Russia, Ukraine, the United Nations and Turkey signed an agreement in July to resume massive grain exports from Ukraine that had been blocked since February 24.
Russia backed the deal after the United Nations pledged to facilitate unhindered access of Russian fertilizers and grain products to world markets.
So far, Moscow believes that the part of the agreement that concerns it has not been fulfilled.
“The package of documents signed in Istanbul included agreements not only on the export of grain from three Ukrainian ports, which began a week and a half ago, but also on the promotion of Russian food and fertilizers in the markets countries, which is currently not being implemented,” Russian Foreign Ministry official Ivan Nechayev said at a press briefing on Aug. 11.
Favorable crop weather has helped Russia reap a huge wheat crop, potentially a boon for importers in the Middle East and Africa who are heavily dependent on supplies from one of the world’s major exporters.
Agricultural consultancy IKAR currently expects Russia to produce a record wheat harvest of 95 million tonnes this year, up from 76 million tonnes in 2021.
Source: Reuters (reporting by Reuters; editing by Nigel Hunt, Veronica Brown and David Evans)