Russian wheat sets price record on global market
However, increased export duties are expected to push buyers to alternative suppliers
Export quotas and taxes on Russian grain implemented to secure food prices in the domestic market have resulted in a record price growth. Analysts consider that the Kremlin’s tax move may make Russian wheat uncompetitive and enable other exporters to gain bigger market shares.
Russian wheat export prices breached the $300-per-tonne mark on 18 January, reports S&P Global Platts, for the first time since the agency started assessing the commodity in 2014. Mounting concerns about “floating” export taxes became the main driver of the growth, which is expected to continue in the near term.
Russia announced a wheat export tax and grain export quotas in December as a way to curb domestic food inflation. The export quota mechanism limiting shipments of wheat, corn, barley and rye will be in effect from 15 February to 30 June. The export tax on wheat was initially announced at 25 euro per tonne within the quota volume of 17,5 million tonnes and 50% of the value, but not less than 100 euro per tonne outside of the quota. Later, the Russian Ministry of Agriculture decided to increase the tax within the quota to 50 euro per tonne from 1 March. The ministry also indicated that the taxes might not be scaled back to zero with the beginning of the new marketing season in July.
The analysts of S&P Global expect Russia to produce a near-record amount of 81,5 million tonnes of wheat in the 2020-2021 marketing season. However, drought during the planting period has raised concerns over the Russian winter crop. Combined with food security concerns due to the COVID-19 pandemic, the uncertainty resulted in a flurry of international tenders. Wheat prices surged from $197,50 per tonne in August to more than $250 per tonne in October. Over the past month, Russian 12,5% wheat FOB Black Sea has risen by 17% to over $300 per tonne.
According to US-based advisory firm Agrivisor, introducing a “floating tax” on Russian wheat from 1 July may impact next season’s trade. At the same time, market participants remain sceptical about the effectiveness of the tax move as a way to control domestic food inflation, says S&P Global Platts. As for the global market, the rise in export prices may push more buyers to switch to other wheat origins, considers Victoria Sinitsyna, a grain analyst at Platts Analytics. Russian suppliers have already lost several recent wheat tenders from Egypt’s General Authority For Supply Commodities, which typically buys Russian wheat. IKAR agricultural consultancy recently lowered its forecast for the country’s 2020-2021 wheat exports by 1 million tonnes to 37,5 million tonnes due to the impact of the export duty.