South Korea's NOFI seeks Russian feed wheat offers first time since Ukraine invasion

Nonghyup Feed Inc. has sought Russian feed wheat offers in an international buy tender closing Nov. 22, according to a tender invitation seen by S&P Global Commodity Insights, the first such move by a South Korean feedmiller since Russia's invasion of Ukraine in February 2022.

NOFI, which is South Korea's biggest feedmiller, is seeking 20,000-65,000 mt of feed wheat for April 5, 2024, arrival, according to the tender invitation. If a tender participant chooses to offer Russian feed wheat, the cargo must be offered on CIF terms with payment on telegraphic transfer or cash against documents basis, the invitation said.

The decision was likely spurred by dwindling offers or unsatisfactory quality specifications from other origins such as Australia, Eastern Europe and South America for shipments around the first quarter of 2024, grain traders said.

"It will be interesting to see if other feed buyers follow their lead," said a grains trader.

Several traders said Russian feed wheat offers to Asia have declined in recent days, as most destination buyers were well covered for demand or sought offers from non-Russian origins.

"Russian feed wheat offers to Asia are definitely drying up, but no doubt someone will offer [in NOFI's tender]," another grains trader said.

South Korean grain buyers purchased Russian feed wheat in bulk prior to the war. However, sanctions against Russia and financing and insurance difficulties prevented meaningful volumes of Russian grain from landing in Asia.

Russian feed wheat exports to South Korea have dwindled significantly after the war to smaller vessels delivered from Port Vladivostok.

A second consecutive bumper crop harvest in Russia in 2023 has pressured wheat prices, allowing Russia to maintain a competitive edge against other exporting countries for milling and feed grades. Wet weather during the 2023 growing season also led to higher production of feed-grade wheat in Russia compared with milling-grade wheat.

Meanwhile, Australian and South American wheat, which is typically more price competitive in the first quarter of a calendar year, has seen its competitive edge eroded due to production and quality issues.

Australian wheat production is expected to fall by at least 30% due to hot and dry weather in the 2023 growing season, according to the latest estimates from the Australian Bureau of Agricultural and Resource Economics.

The onset of El Nino in 2023 has weighed on low-protein and feed wheat production in Australia, as drier weather boosted crop protein at the expense of yields. As a result, prices of low-protein wheat have risen in Australia compared with other origins. Platts, part of S&P Global, assessed Australian Standard White wheat at $280/mt on Nov. 21.

Weather woes have also plagued production and quality in South America. Patchy rainfall has affected yields in Argentina, while excessively wet weather has led to a dilution of protein as well as higher vomitoxin levels in Brazilian wheat. Most suppliers have currently offered Brazilian or optional South American origin feed wheat, including from Argentina and Uruguay, with 4-5 ppm vomitoxin levels at a discount to other origins. But these levels are much higher than 1 ppm tolerance preferred by South Korean feed millers.

Russian feed wheat is typically offered with 2 ppm vomitoxin levels. While a significant discount could entice some South Korean buyers, not everyone is comfortable with the quality yet, a buyer and a trader said.

South Korean feed buyers' differing risk appetite, negotiation of suitable payment terms and insurance may remain a hurdle for a more widespread adoption of Russian feed wheat as the war continues, trade sources said.