Wheat buyers in Turkey undeterred despite lira beating

20 Nov 2017 | Tom Houghton

The Turkish lira plummeted 1.8% to 3.92385 against the dollar Monday, its lowest value on record as worries over potential political fallout of a criminal case shook market confidence.

The fall came as the trial against Reza Zarrab kicks off in New York, with US prosecutors claiming Zarrab was involved in a money laundering deal which saw Iran evade US sanctions with the assistance of Turkish government insiders.

The perilous state of the economy was further underlined by bond yields on Turkish 10-year debt slipping to 12.8%, the highest levels on record.

Wheat markets were tetchy in response to the move, with some backing out of the market and looking to regroup in response. “The dollar/lira parity is killing most of the business,” one broker said, “but not everything has stopped.”

Indeed, market sources confirmed they had not yet seen business completely grind to a halt following the lira’s fall with several said to have been completed for wheat over the course of Monday.

The structure of the Turkish grain importing industry necessitates continued buying, however, with most buyers typically making frequent, smaller-volume transactions and taking advantage of movements in the volatile shallow water market rather than taking large forward physical positions.

Shallow water trade across the Black Sea has been complicated in recent months by rising shipping costs. The size of Russia’s grain harvest this year has placed significant strain on freight costs as vessels are delivering grains out of Russia at a record pace, constricting availability of supply for the wider market.

The cost of shipping a coaster size vessel from the Azov Sea to the Sea of Marmara – the typical route for milling wheat from Russia to Turkey – has more than doubled in recent months to almost $50/mt.