FEATURE: Morocco turns to Black Sea wheat; South America dominates corn demand

Morocco's protracted drought has severely impacted domestic wheat production, leading the country to anticipate record imports for the 2024-25 marketing year and sourcing more from the Black Sea over traditional suppliers like France due to quality concerns. Although not a major corn consumer, Morocco ranks among the top 20 global corn importers, with imports projected to rise 1.5% to 2.7 million mt this season, according to US Department of Agriculture.

Wheat demand and market trends

Russia has emerged as a significant player in the Moroccan wheat market, exporting over 700,000 mt from July to November, vessel lineups from traders showed, while French shipments have plummeted to less than 300,000 mt this season. Last year, France supplied 1.2 million mt during the same period, contributing to a total of 2.8 million mt for the entire season, while Russia and Ukraine combined accounted for only 295,000 mt.

"It is the first year that Russia has been so present in Moroccan purchases," a local buyer said.

French wheat exports have plummeted due to a poor harvest from excessive rainfall, resulting in a nearly 29% drop in production and a staggering 61% decrease in exports to non-EU countries.

"The protein and test weight are lousy this year in French wheat," a Moroccan trader said, highlighting the concerns over French crop quality.

Meanwhile, Morocco has resumed imports of Ukrainian wheat, purchasing 145,000 mt so far.

"Morocco is not having a good crop, and it has been an opportunity to buy something from Ukraine," a seller from Ukraine said.

One source in Morocco said historically, Ukraine accounted for 30% of Morocco's grains imports before the conflict in the Black Sea region, indicating a gradual return to sourcing from there.

Following Russia's invasion of Ukraine, importers have favored French wheat due to challenges in securing insurance from Moroccan banks for vessels shipping from the Black Sea, primarily due to war concerns.

This issue has eased somewhat, allowing for greater flows of wheat from the Black Sea region.

Platts, part of S&P Global Commodity insights, assessed Russian wheat 12.5% at $234/mt, around 1.80% on the week, and CPT Rouen 11% at $245.75/mt, up 2.8% on the week Dec. 11. Ukraine 11.5% was assessed at $228/mt, up 0.44% on the week Dec. 11.

Unlike many North African and Middle Eastern countries with state-controlled imports, Morocco allows private importers more flexibility. The National Grain Agency ONICL supports this through a restitution system that compensates for the difference between the average cost of wheat from suppliers like Germany, Argentina, France and the U.S., against a reference price of Dirham 270/mt ($270/mt). Importers typically wait until mid-month to assess subsidy values, leading to a rush to finalize orders in the last two weeks. Subsidized flour currently accounts for 10% of total flour production in Morocco. The price of the traditional baguette remains affordable at Dirham 1.20, with bakers required to offer a portion of their bread at this price.

The ongoing drought has driven Moroccan wheat production to its lowest levels since 2007, with imports expected to reach a staggering record of 7.5 million mt, USDA estimates, an alarming increase from previous years when local production covered 50% of consumption, now reduced to a mere 5%, traders said. Farmers are in dire need of rain for the next crop, and if the drought persists, many may abandon wheat cultivation, further increasing reliance on imports. To mitigate these challenges, Morocco is pursuing initiatives to enhance irrigation technology for at least 1 million hectares by 2030.

As Moroccan traders prepare for the new year, having mostly completed their 2024 purchases, their focus is shifting to the upcoming Argentinian wheat crop, with January shipment bookings expected in mid-December. But the decision to engage further will hinge on price competitiveness. Recent FOB Argentine Upriver 11.5 protein offers were heard low $220s/mt for 30,000-40,000 mt bulk carriers.

Corn demand and market trends

Brazil is a leading supplier to Morocco, followed by Argentina and the US. According to Commodity Insights data, from January to September 2024, Argentina accounted for 40.2% of imports, while Brazil accounted for 39.5%, and the U.S. only 10.9%. In the same period of 2023, Argentina made up 40.3% of imports, Brazil held 42.5%, and the US accounted for 12.4%. On Dec. 10, Platts assessed Brazilian corn at FOB Santos, Brazil, at $217.70/mt, while Argentinian corn FOB Up River Argentina was assessed at $211.02/mt.

Climatic variations have significantly influenced corn consumption and demand in Morocco, increasing the country's dependence on corn imports due to challenges in producing other feed grains like wheat and barley.

A buyer from Morocco said, "Drought in Morocco affects the availability of feed grain."

Market participants expect the demand for corn in feed to remain stable, as the country continues to face the threat of drought.

"Feed demand will remain unless we face inflation, which may occur as the dollar appreciates," a market participant said.

A Moroccan feed mill buyer offered a different perspective on the potential for decreased feed demand in the country due to high imported corn prices.

"There will be no immediate effects unless there is a crop failure in South America," the buyer said. "But we are far from that situation for now."

Another buyer from Morocco said that the corn demand could be bearish, adding "the Moroccan consumer, unable to cope with this inflationary pressure, will partly turn to plant-based proteins."

Towards the end of MY 2023-2024, feed wheat prices dropped, prompting feed mills in the EU to replace corn with feed wheat, which is more protein-rich. However, the replacement of corn with feed wheat in Morocco has been negligible. The situation regarding the replacement of corn with feed differs significantly between Morocco and North Africa compared with Europe, according to the feed mill buyers in the country. In Europe, feed mills can easily switch between feed wheat and corn, utilizing trucks, rail and coasters to ensure large availability at competitive prices. In contrast, Moroccan feed mills primarily rely on corn, which is more readily available and stable in price. Consequently, even when feed wheat prices fall, the transition from corn to feed wheat occurs only in small ratios.

"We include feed wheat as quality parameter for our final products and the quality of pellets," a Moroccan feed mill source said.

This limited flexibility in the Moroccan poultry industry arises from two main factors: feed mills cannot completely replace corn with feed wheat and the feed produced is primarily for poultry, which has different dietary requirements compared to ruminants or pork. While ruminants can consume feed wheat, poultry benefit most from corn, which yields the best results for the predominant poultry types in the region. Moreover, according to sources from feed mills, apart from corn and other feed grains, Morocco uses all the byproducts of corn, soybeans and rapeseed, making the feed formulations differ from other countries in the North Africa and Middle East.

Another corn buyer said Morocco's water deficit has led to a decrease in livestock for red meat, lowering the corn demand in ruminant feed.

"Animals are being imported to be slaughtered quickly," he said.