August 26, 2002

Without the European Union as a major market in 2002-03, the former Soviet Union is grabbing market share in North Africa and the Middle East from other, more traditional exporters. While production in the FSU is forecast down 9 million tons from last year's exceptionally high level, it is still more than 20 million tons higher than the average of the 1998 though 2000 crops.

This production, combined with abundant stocks, is expected to lead to overall exports of nearly 11 million tons, compared to just 4.7 million two years earlier. However, the largest customer of FSU wheat in 2001-02, the EU, will need significantly less this year as a result of a bumper crop. Although FSU exports to the EU have continued steady over the past couple of months, they are expected to slow once the EU harvest is complete and the commission implements mechanisms to restrict imports from the Black Sea region.

Meanwhile, production for last year's top four exporters is forecast down 16.3 million tons and total supplies (production and stocks) by more than 28 million tons from just two years ago. During the same time period, supplies from the FSU are expected to jump nearly 27 million tons.

Even old crop Argentine wheat, which has been competitive in the past, is currently estimated to be more than $50 higher than FSU wheat. However, lack of credit offered by FSU suppliers may somewhat diminish its price advantage. The EU is the one notable exception among top suppliers. French prices are competitive, given slightly higher quality, with FSU supplies as reflected by recent French sales to Egypt.

With large supplies, improving infrastructure, and competitive prices, the FSU made significant inroads into North Africa and the Middle East during the 2001/02 campaign. For example, Iran increased imports from Kazakstan to more than 1 million tons because of greater export capacity at the Caspian port of Aktau, thus displacing Argentine and Australian wheat. In Egypt, where U.S. exports were down significantly, Russia and the Ukraine combined to export more than 500,000 tons. Shipments are expected to continue strong as stiff competition and a weak currency force Egyptian millers to procure the cheaper wheat for blending.