Commodities
Exclusive-Iraq set to pay high price for bumper wheat harvest
By Sarah El Safty and Muayad Kenany
DUBAI/NAJAF, Iraq (Reuters) – A bumper harvest and a hefty grain surplus in Iraq, typically one of the Middle East’s biggest wheat importers, has left the government with the prospect of a net loss of nearly half a billion dollars, according to Reuters calculations.
The 1.5 million metric ton wheat surplus, helped by better than expected rains but above all by government subsidies, is excellent news for farmers.
For the government, however, which pays them more than double the global market price to encourage cultivation of the food staple in often arid conditions, the price is high.
According to the calculations, based on official figures and conversations with more than 10 government officials, farmers, mill owners, analysts and exporters, the government will have made a loss of $458.37 million, once it has paid the farmers and assuming it manages to sell the excess to private millers in Iraq at an agreed price.
Critics say it needs to better balance the challenges of motivating farmers and limited financial and other resources.
“This is poor planning,” said Adel Al Mokhtar, former adviser to the Iraqi parliament’s agriculture committee. “Why do we produce more than we need, which also leads to wasting water?” he asked.
To meet the needs of its subsidy programme, the government needs between 4.5 and 5 million tons annually.
Historically, Iraq, as part of the Fertile Crescent from the Mediterranean to the Gulf is where farming developed more than 10,000 years ago.
In recent years, Iraqi agriculture has suffered from a lack of rainfall linked to climate change, less water flowing through its two main rivers, the Tigris and the Euphrates, and decades of conflict that have interfered with cultivation.
The United Nations puts Iraq among the five most vulnerable countries to climate change globally, making food security a priority for the government.
But the country, the second largest producer in the Organization of the Petroleum Exporting Countries (OPEC) is also facing a reduced budget in 2025 after lower oil prices.
“If oil prices start coming down the government has first to pay salaries of public service employees so how much will be left to subsidise the agriculture sector, that’s the question nobody knows the answer to,” Harry Istepanian, an independent energy and water expert in Washington and a senior fellow at the Iraq Energy Institute, said.
STORAGE PROBLEM
Baghdad could try to export its surplus but said it prefers to keep it inside the country and support its millers. Limited storage space means it cannot store the surplus for next year, Haider Nouri, director general of Iraq’s grain board, told Reuters.
Although the government was buying for 850,000 Iraqi dinars ($649.35) and selling for 450,000 dinars, it did not consider that a loss because the grain was staying in the country, Nouri said.
“There is no loss considering that the money is spent inside the country and in Iraqi currency, employing workers, supporting flour (mills), relying on the local product, and abandoning flour imports from Turkey, the Emirates, and Kuwait,” he said.
Farmers said rains had helped them, but the government subsidy was crucial.
Ashour Al Salawi, a farmer in Iraq’s southern province of Najaf, said the government price had led him to increase the area he planted with wheat by 50% to a total of 15 dunums. A dunum is a land measure of less than an acre.
In contrast to previous years, he said the money was paid on time.
“There’s a huge difference between this year and previous years,” Abbas Obeid, another farmer in Najaf, said.
“It was the compensation but we were also provided with water, electricity and subsidised fertilisers.”
Mohsen Abdul Amir Hadhud, head of the agricultural cooperative in Najaf, said most farmers had seen a major improvement in their lives.
“The farmers’ living conditions have improved due to government support for the wheat crop. They have restored their homes, increased the cultivated areas, and purchased good agricultural supplies,” Hadhud said.
The government also provided support for other crops such as rice, buying it at a price between 850,000 and 1 million Iraqi Dinars depending on its quality.
MILLERS BARGAINING POWER?
The decision to keep the surplus wheat in Iraq could lead to pressure on the government from the millers for lower selling prices given that they potentially can import for less.
“The price set by the government, which is 450,000, is not final, and we expect the price to be reviewed by the government, since the price that the government will sell to mills is higher than the global price,” Ali Fadhel, director of Al-Aswar Company, a private sector mill, said.
Farmers, meanwhile, may find themselves less well rewarded in the 2025 season, when Nouri said Baghdad was considering cutting the price it pays them.
“It is possible that the price of purchasing wheat will decrease [next year]…but it will not be significant, and will be higher than the global market,” he said.
The farmers in Najaf, say that undoubtedly will mean less wheat.
“It would be a disaster if they decrease the price next year,” Hussein El Morshedy, whose production increased more than 60% this year, said.
($1 = 1,309.0000 Iraqi dinars)
Investing.com — prices are expected to lag behind other precious metals, according to analysts at UBS.
The analysts flagged the volatility of palladium, which has seen prices fluctuate above $1,000 per ounce in recent weeks.
They added that with elevated short positions in the market, this volatility is likely to continue in the near term.
UBS pointed to several factors contributing to a tighter palladium market, which contrasts with their long-term outlook.
A decline in electric vehicle sales this year has helped sustain demand for palladium in autocatalysts, a sector that accounts for over 90% of palladium consumption.
Additionally, upcoming supply cuts from a U.S. palladium mine next year are expected to tighten the market further, prompting UBS to raise their price forecasts by $100 per ounce.
Despite the short-term tightening, the long-term outlook for palladium remains bleak.
The shift from internal combustion engines to battery electric vehicles is expected to oversupply the metal, as the demand from the autocatalyst sector declines.
The analysts pointed out that while global car electrification rates have stalled, consumers are increasingly favoring hybrid vehicles, which still rely on autocatalysts and, consequently, palladium.
Supply dynamics also contribute to the anticipated tighter market. UBS noted that the fourth-largest palladium producer, holding a 14% market share, plans to restructure its U.S. operations due to unfavorable pricing.
This restructuring will lead to a reduction in group metal production, particularly palladium, with an expected cut of around 150,000 ounces, which represents about 2.3% of the 2023 mine supply.
While UBS has adopted a more neutral outlook for palladium amid these short-term factors, they caution that the metal is likely to underperform compared to other precious metals.
This perspective is reinforced by an anticipated increase in scrap supply from old car autocatalysts next year, as well as a continuing trend of substitution in new vehicle autocatalysts, which favors platinum over palladium.
By Alex Lawler
LONDON (Reuters) -Oil steadied on Wednesday, supported by OPEC+ cuts and uncertainty over what may happen next in the Middle East conflict, although an outlook for ample supply next year added downward pressure.
Crude fell more than 4% to a near two-week low on Tuesday in response to a weaker demand outlook and after a media report said Israel would not strike Iranian nuclear and oil sites, easing fears of supply disruptions.
futures were down 33 cents, or 0.4%, at $73.92 a barrel by 1110 GMT. U.S. West Texas Intermediate crude futures lost 38 cents, or 0.5%, to $70.20.
Still, concern about an escalation in the conflict between Israel and Iran-backed militant group Hezbollah persists. OPEC+ supply curbs remain in place until December when some members are scheduled to start unwinding one layer of cuts.
“We would be somewhat surprised if the geopolitical risk premium has disappeared for the time being,” said Norbert Ruecker of Julius Baer.
“We see the market heading towards a supply surplus by 2025,” he added.
On the demand side, the Organization of the Petroleum Exporting Countries and the International Energy Agency this week cut their 2024 global oil demand growth forecasts, with China accounting for the bulk of the downgrades.
Economic stimulus in China has failed to give oil prices much support. China may raise an additional 6 trillion yuan ($850 billion) from special treasury bonds over three years to stimulate a sagging economy, local media reported.
“Monetary and fiscal efforts to revive the Chinese economy are proving a damp squib,” said Tamas Varga at oil broker PVM.
Coming up is the latest U.S. oil inventory data. The American Petroleum Institute’s report is due later on Wednesday, followed by the government’s figures on Thursday. Both reports are published a day later than normal following a federal holiday.
Analysts polled by Reuters expected crude stockpiles rose by about 1.8 million barrels in the week to Oct. 11.
Investing.com– Oil prices rose slightly Wednesday, steadying after logging bruising losses over the past week as the prospect of a less severe escalation in the Middle East and weak demand weighed.
At 09:00 ET (13:00 GMT), rose 0.3% to $74.48 a barrel, while rose 0.4% to $70.87 a barrel.
Middle East fears ease after Israel report
Prices plummeted more than 4% in the prior session after fears of a severe escalation in the Middle East conflict eased following a Washington Post report said Israeli Prime Minister Benjamin Netanyahu assured U.S. officials that the country would not attack Iran’s oil and nuclear sites.
Markets have been watching for Israel’s retaliation over an early-October missile strike by Iran, as hostilities between Israel and Iran-backed forces showed little signs of easing.
Fears of all-out war in the region had been a major boost to oil prices, as traders priced in a greater risk premium on the prospect of Middle East supply disruptions.
IEA, OPEC warnings dent oil outlook
Oil markets were also grappling with warnings on increased supply and lower demand from two major industry groups this week.
The International Energy Agency said in a on Tuesday that it expects oil markets to see a supply glut in 2025, and that it stood ready to plug any potential supply disruptions from the Middle East.
The agency also slightly trimmed its 2024 demand growth forecast, citing weakness in top importer China.
The cut came just a day after the cut its demand growth forecast for 2024 and 2025, citing concerns over worsening demand in China.
China have announced a slew of stimulus measures in recent weeks. But investors were still underwhelmed by a lack of details on the timing and scale of the planned measures.
Weak economic readings from the country also dented sentiment.
OPEC faces a dilemma – Bernstein
Global oil demand remains in the doldrums, according to Bernstein, creating a dilemma for OPEC given the looming surplus in crude supply next year.
“Heading into 2025, we remain concerned about the looming surplus in crude supply next year which would reduce the call on OPEC by 0.9 million bbls/day,” said analysts at Bernstein, in a note dated Oct. 16.
“OPEC’s dilemma is that to support current prices, they probably need to cut. But with spare capacity already at elevated levels, this is far from what OPEC would like to do,” said analysts at Bernstein, in a note dated Oct. 16.
More recently, the OPEC members have been talking about unwinding cuts, although this could be an attempt to maintain discipline among OPEC members, Bernstein said.
At this stage any increase in OPEC output towards the end of the year looks unlikely, but this is probably the biggest thing to worry about in the near term for oil investors.
“While the setup on fundamentals does not look positive for Brent, geopolitics remains the key upside risk which cannot be completely discounted given the geopolitical risks,” Bernstein added.
(Ambar Warrick contributed to this article.)
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