Russia set to be biggest wheat exporter for first time

18.08.2016

Bumper harvest comes as production in France and the US slips

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The country is forecast to overtake other contenders with exports of 30m tonnes thanks to a bumper harvest. The EU, last year’s leader, has fallen off the perch hit by a sharp decline in French production, while the US has seen its position eroded over the past few years, according to the US Department of Agriculture.

The Black Sea region, consisting of Russia, Ukraine, and Kazakhstan, has become a force in the international wheat market, boosted by high yields, weak currencies and falling freight rates. Grain flows from Russia are expected rise again this year after strong wheat output growth, with production expected to hit new records at around 70m tonnes.

“[Russia’s] harvest is absolutely huge,” says Amy Reynolds, analyst at International Grains Council.

The Black Sea, of which Russia is the largest exporter, has always been the leading supplier to the Middle East and north Africa, but now, an increasing number of countries in the Gulf area and Africa are switching from the US and Australia. Cheaper freight rates have also meant that countries as far as South Africa and Mexico, which has traditionally been a US wheat buyer, are buying Russian wheat.

Andrey Sizov at grains and oilseeds consultancy SovEcon in Moscow puts down the rise in production for the past four years to “luck, good weather and increased agritechnologies level thanks to relatively good economic conditions for farmers in previous years”.

If luck has been on the side of Russian farmers, it has not shone on French producers. A sharp fall in French wheat production means that the EU, which was the world’s top exporter last year, will now be relegated to the silver medal spot.

The French wheat harvest has been damaged by “unrelenting rain” during the key growing periods earlier this year, while the lack of sunlight and cool temperatures have also hit quality. This has “damaged crop quality and sharply lowered yield prospects,” according to the USDA.

“We have to go back 10-20 years to see such bad production,” says Francois Luguenot, head of market analysis at InVivo, a leading French agricultural co-operative group and one of the country’s largest wheat exporters.

Agritel, the French grains consultancy, forecasts this year’s output to fall 30 per cent to 28.7m tonnes compared with last year’s 41m, while exports outside the EU are expected to tumble by 60 per cent to 5.1m tonnes.

“We are expected to export less than Germany.” says Caroline Bitton at Agritel. The bad weather in Europe has also hit German wheat production, but it is not expected to be as poor as that of France.

Prospects of a poor crop have kept French wheat prices high, but larger crops in Australia, Canada, Kazakhstan, Ukraine and the US have weighed on the international market. This has meant that French wheat has been priced out of the export market, a double whammy for French farmers already facing lower production.

US wheat traded in Chicago has declined 10 per cent since the start of the year to $4.24 a bushel, while French milling wheat converted into dollars is almost flat at $5.21.

“Farmers are penalised this year by the bad crop but also because the rest of the world has a good harvest, prices are not high,” says Ms Bitton.

The US, which has been losing market share to the EU and Russia over the past few years, looks set to regain some of that this year.

The issue for US wheat this year is its quality, as the cool and wet temperatures have increased yields but protein levels, key for some types of wheat flour, have fallen, according to analysts.

“There is plenty of supply of low protein stuff,” says Ms Reynolds.

On top of strong output growth around the world, a lack of good quality storage in Russia will mean that this year’s competition on the wheat market will be especially fierce. With storage limited in the face of a record crop, Russian farmers and grain handlers will turn to overseas markets, leading to heavy exports especially in the months immediately after the harvest, says Arthur Marshall, analyst at AHDB Market Intelligence. “The scale of Russian wheat exports may be particularly large in the first part of this season,” he says.

The future performance of Russian exports relies mainly on the weather, as well as currency fluctuations. Farmers and exporters have also been lobbying for the lifting of an export tax, designed to prevent a shortage on the domestic market as traders sought foreign currency amid the sharp fall in the rouble by selling grain.

With so much grain produced in the country this year and heightened competition on the international markets, the duty puts Russia at a disadvantage, say analysts.

“If the government continues to limit wheat exports, the crop production is likely to stagnate or decline medium term,” warns Mr Sizov.



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