Wheat market eyes next Russian move over export limits


With nervous wheat markets back up this week on renewed fears of export limits out of Russia, the following Factbox takes a look at where we are with the Russian government's food export policy and global wheat supply.

Global supply balance

    The global wheat supply balance is at its tightest in six years after drought and hot weather scorched crops in the EU, the US, Russia, Ukraine and Australia.
    Russian wheat production fell from last year’s record-breaking 85 million mt to somewhere in the region of 69 million mt, with last year’s exports hitting 42 million mt. With domestic consumption expected around 35 million mt, the market has factored in much lower exports.
    Russian wheat export prices have increased 14% since the start of the marketing year on July 1.
    Domestic prices are up 10% in ruble terms in the south of the country and as much as 13% in the North Caucasus, according to data from the Russian agriculture ministry.

Previous jumps

    The first whispers of a Russian export ban moved through the market on July 25, with futures jumping 7% on the news and trading limit up as part of a wider fear over the global wheat supply balance.
    Fears that Ukraine could put an export limit in place sent futures soaring 5%, although the rumours would later prove false.
    Subsequent rumours of a Russian export ban then did the rounds again on August 17, with the market up 3% to briefly arrest a developing bear market.

Wednesday’s developments

    The latest stage of the saga came Wednesday, when futures jumped 5% on renewed fears of an export ban after members of the National Association of Exporters of Agricultural Products (NAESP) met with officials from the agriculture ministry.
    When asked by Agricensus, an agriculture ministry representative denied reports circling in the market that Wednesday’s meeting had involved discussions around limiting exports – although meetings are now being held every fortnight with exporters, which has left some market players sceptical of the denial.
    Reuters reported Wednesday that an unofficial English translation of the meeting was doing the rounds in the market and had missed certain conditional subtleties contained in the original Russian language version that softened its tone.

Food inflation

    A poor wheat crop comes at a tetchy time for Russian politicians, who are facing some of the most serious domestic pressures for some time, as the impact of renewed sanctions from the US and EU bite and send the ruble tumbling further still.
    Meanwhile, a controversial pension reform package has seen President Vladimir Putin’s personal approval rating drop 16 percentage points, with the government forced to soften its stance on the issue in the face of protests.
    Given the government’s rare backtracking on the social welfare issue in the face of falling popularity, sensitivity around food inflation is likely to factor into its future calculations.

What next?

    After this year’s harvest kicked off a fortnight ahead of schedule, on the current trajectory, exporters will hit the 25 million mt target for exports around the second or third week of January.
    However, the pace of sales would likely change significantly should an official announcement be made on export limits.
    A September 3 meeting is now scheduled between the agriculture ministry and wheat exporters, which the international wheat trade is now looking to for signals as to the next steps in Russia’s export policy.
    “On the agenda [of the meeting is the] current market situation, grain production, [and] export prospects,” an agriculture ministry representative told Agricensus.


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