Global grain trade: Tim Worledge focuses on North Africa as a key importing region

The importance of introducing the Wheat CFR North African Milling price and shifting the focus on end users

Why is it important to benchmark the Wheat CFR North African Milling price?

North Africa is a huge importer of wheat.

It’s one of the most significant regions of any of the importers worldwide and a key area for price requirements. With a population of around 200 million people, all dependent upon these imports, North Africa is a vital part of the whole supply chain.

Importers and end users, in particular, are very prone or exposed to price fluctuations. Recently, with the disruption in the Black Sea, for instance, many of the existing pricing references have been completely disrupted, leaving end users even more vulnerable to volatility.

This raises questions about where wheat will be coming from and how much they should be paying for it.

What determines the price?

It’s a slightly unusual approach to price reporting here. Typically, you would work with bids and offers transaction data information from the marketplace to benchmark a price, i.e. a price that can be looked at by the industry and used to develop all sorts of other contractual approaches or derivatives or exchange-listed contracts to help manage risk.

This is slightly unusual because there isn’t really the same level of bids or offers available for this region. So, we’re taking our FOB prices (the prices at origin), adding a freight market to those levels, and projecting a delivered price for the North African region.

Within the process, we’re considering five key regions that are potential exporters: Argentina, US Gulf, Germany, Russia and Europe, plus an appropriate freight value to give us a landed price for the delivered price itself. We then take the cheapest of those five options, and that sets our price.

It’s a different way of approaching a market, but it delivers a robust price based on physical bids or offers that the market is trading.

How widely used is the price?

Considering that the price is very recent, this is hard to say.

Because of the nature of how the price is derived, we’re able to project a price history for it that goes back three years. So, while we have a long price history for it, at the moment, it is still effectively a new price.

Our hope is that it will, at least, start a conversation around how these critical importing nations are valuing what they are having to import; how they are able to contract or negotiate contracts using these prices.

Right now, much of the imported wheat is secured by tender, which can be a very inefficient way of buying if we consider that only the announcement by a country to be in need of tendering for certain commodities will immediately drive prices up.

We hope our price can be used in conversations around contracts or negotiations and can bring a bit more clarity to how much importing nations should be buying.

So, in essence, at the moment, it’s a novelty – it shifts the focus to a new area in a way that people can look at it and discuss it. But we would like to think that we can fine-tune it and finesse it and get to a point where the industry itself is actually adopting it and using it in these essential conversations.

How will the Wheat CFR North African Milling price impact the global grain market?

It’s hard to know at this stage because, as I said, it is a new price.

Our hopes are that this actually shifts the focus away from some of those producing nations (and there are challenges capturing any producer nation because there’s obviously the fear of seasonality involved, in that prices will tend to come down as the harvest lands and then as that harvest supply is exhausted price will creep back up again - and there’s a seasonality to that, which means it can be a challenge for price reporters to be able to capture enough physical information through those quieter months to towards the end of the harvest).

So the great advantage of shifting the emphasis away from the origins and towards the destination markets is that there’s a constant year-round demand and less exposure to some of the geopolitical concerns that may also accompany big producing regions like the Black Sea.

And the Black Sea really is the case in point at the moment. On top of that, if you layer climate change and the impact of extreme weather on some of these producing regions, there’s a whole cocktail of uncertainty that makes it a challenge to continue using these origin-based pricing solutions.

So hopefully, by switching it to a destination market, we can start to push the question a bit more towards the end users and gives them a bit more sway and a bit more power in those conversations to actually readdress the influence of some of the really big players that are active in this market.

If you’d like the opportunity to discuss price trends with government representatives, end users, and public sector importers, join us at Global Grain Geneva 2022.

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