Russian wheat rose in price on foreign markets to a seven-year high. This makes export supplies vulnerable and calls into question the revenues of the Russian budget: in the last tender, Egypt bought four times more wheat from Ukraine than from Russia. Will Russia retain its global leadership in wheat exports, which it has held for the past five years?
Export prices for Russian wheat (protein 12.5%) last week renewed a seven-year high and reached $ 303 per tonne (FOB), industry analyst Sovekon reported. During the week, the growth amounted to two dollars. Such prices make Russian wheat less competitive in foreign markets. This creates risks of a decline in wheat exports. In the first seven months, there has already been a 5.8% decline over the same period a year earlier.
Meanwhile, grains, which include wheat, have made it possible for the Russian budget to earn good money in recent years. In 2019, Russia earned even more from wheat than from weapons – $ 25.5 billion.
“Cereals have become a valuable source of income for the Russian budget and even partially offset the decline in oil export revenues. For the past five years, Russia has been a leader in wheat exports, providing one fifth of the world market, ”says for “Delovaya gazeta” Maisa Seifullayev, professor at the department of trade policy of the Russian University of Economics “G. V. Plekhanov” in Moscow.
However, all of these successes were in jeopardy. Wheat from Ukraine and Romania is now more readily bought, because Russian wheat is more expensive. At the last tender, the Egyptian state-owned company GASC purchased 240 thousand tons of Ukrainian wheat and only 60 thousand tons of Russian, according to Sovecon. Although back in August, when the window of opportunity was opened due to the absence of export duties, Russia exported a record volume of wheat – 5.78 million tons. This is the maximum for this month. And the main buyer of Russian wheat was not Egypt, but Iran, which in July-August bought 1.6 million tons of our goods. Last season, for the entire period, Iran bought less from us (about 1.4 million tons).
Why did wheat of competitors start to bypass Russian wheat in foreign markets in September? It’s all about the price.
The value of the crop is growing due to fears of a low harvest in Russia, as well as the imposition of an export duty by the authorities.
The wheat harvest in Russia turned out to be worse than everyone had planned, because in the summer, hot and dry weather set in, the sown area decreased. Many experts have already lowered their estimates for the new crop. The latest public estimate of Sovecon is 75.4 million tons of wheat, while a few months ago they expected a harvest of 84.6 million tons. The ProZerno company and the Russian Grain Union also expect a harvest of only 75 million tons of wheat.
The second factor in the growth of the export price is the export duty on wheat. It was introduced by the authorities first from February 15 to the end of June 2021 in order to contain the surge in prices for flour, bread and pasta. But then it was not only extended in terms of time, but its size was also increased. The wheat export duty is expected to rise from $ 46.5 to $ 52.6 per ton from September 15 to September 21. And in the second half of September, it can grow up to $ 70 per ton. The duty becomes an unpredictable negative factor. On expectations of its growth, prices for Russian wheat are increasing.
Competitors have no such problems. Thus, a record harvest was harvested in Ukraine: its size in Sovecon is estimated at 31.6 million tons, which is 7 million tons more than a year earlier.
Therefore, Ukrainian exporters will try to take contracts from Russian exporters using price games.
“Russia has faced food shortages many times in history, so it has genetically strong concerns about its food security. Management believes that priority should be given to securing domestic supplies, and grain exports are possible if there are surplus resources. Therefore, since the early 2000s, the government has made it possible to impose restrictions on grain exports when domestic grain supplies become unstable due to poor harvests or the difference in prices in the domestic and foreign markets increases, ”explains Maisa Seyfullaeva.
Over the past few years, bountiful harvests in Russia have made it possible not to impose restrictions on grain exports. But at the end of 2020, such a problem arose.
On the one hand, the authorities are betting on the diversification of the country’s exports, including through the growth of grain exports. On the other hand, “if Russia often adopts such export restrictions due to internal circumstances, it will ruin its image and lead to the spread of the opinion that“ Russia is an unreliable grain supplier, ”the source warns.
However, price fluctuations are seasonal and do not pose serious concerns for Russian exports, the expert said. Russia still has a good chance of retaining its world leadership in wheat export. Even the US Department of Agriculture on the eve kept the forecast for the wheat harvest in Russia in the new season (from July 2021 to June 2022) at the level of 72.5 million tons (excluding Crimea). The estimates of Russian experts are slightly higher – 75–75.5 million tons. And also the forecast for the export of wheat was kept at the level of 35 million tons. The American department believes that in the new agricultural year Russia will share world leadership with the European Union, which will supply the same amount of wheat to foreign markets – 35 million tons. The US itself will be able to export only 24.5 million tons of wheat, Australia – 24 million tons.
As for Ukraine and Romania, their grain supplies to the world market are growing. From 2012 to 2019, Ukraine’s export of its grain has been increasing. But after 2019, wheat exports from Ukraine, on the contrary, are falling. Thus, export sales of Ukrainian wheat in the 2020/2021 marketing year (from July 2020 to June 2021) decreased by 19% compared to last season – to 16.7 million tons, according to the Ukrainian Agricultural Business Club Association. Since the start of the new season in July 2021, wheat exports are still 4% less than last season and amount to 6.1 million tons.
In the long term, Ukraine may face serious problems with the grain harvest. “Global climate change will have a serious negative impact on agriculture in Ukraine. Some authoritative experts argue that in the next decade in Ukraine, the current arid southern climatic zone will expand by 150-200 kilometers to the north. And this climatic trend will affect not only Ukraine, but also Romania, ”concludes Seyfullaeva.
