Despite Russia’s decision last week to halt wheat exports, Canada probably won’t be able to capitalize with additional sales, said a senior official with the Canadian Wheat Board.
David Boyes, CWB commodity risk manager, said it’s a matter of supply.
“The U.S. has a big crop and so will likely make up the bulk of the shortfall,” he said. “We have a smaller crop.”
The CWB’s strategy will be to focus on quality rather than volume, moving quality wheat into the markets that will provide the best return, he said.
Russia announced Aug. 5 that beginning Aug. 15, it will temporarily ban grain exports in the wake of a record heat wave and accompanying drought that have destroyed millions of acres of wheat and other crops.
“As of today, Russia has no grain market,” Russian trader Kirill Podolsky told Bloomberg News. “This will be a catastrophe for farmers and exporters alike.”
How long the ban will last remains unclear.
It initially was expected to end Dec. 31, but prime minister Vladimir Putin weighed in on Aug. 9, saying the ban could last into the new year.
A senior government official said Russia remains committed to its long-term obligations but many buyers of Russian wheat will be scrambling to find new suppliers, most likely the United States, Europe or Australia.
Wheat prices responded to the ban by rising to two-year highs on the day of the announcement.
Soft red wheat trading on the Chicago Board of Trade had increased the week before the announcement, as rumours of a grain embargo circulated throughout the industry.
December futures on the Minneapolis Grain Exchange opened at $8.05 US per bushel Aug. 5, up from $5.29 at the end of June.
The market showed its volatility by dropping the limit across all wheat markets the next day, then rebounded in response to Putin’s comments, exceeding $7.10 at Chicago Aug. 9.
Russia has become one of the world’s biggest producers of wheat, barley and rye, ranking number four in wheat in 2009-10 with a crop of 61.7 million tonnes.
A poll of market analysts by Reuters news agency suggested the 2010-11 Russian crop will shrink to 46 million tonnes this year.
Russia has also asked neighbouring Kazakhstan and Belarus, both facing drought and reduced production, to impose similar export bans.
Russia has become a major exporter of wheat, mainly lower quality and lower priced, buoyed by bumper harvests in 2008 and 2009, and made inroads into markets previously held by the United States, Europe and Australia.
Exports totalled 18.4 million tonnes in 2008-09 and 17.5 million the following year, accounting for about nine percent of global wheat trade. Before the ban, exports had been forecast to be 14 million tonnes in 2010-11.
One Russian agricultural forecaster projected exports could dip as low as three million tonnes in 2010-11.
Boyes said the Russian export ban wasn’t completely unexpected.
He said Russia has a history of exporting itself into a grain deficit, and being forced to import to meet domestic demand.
“I suspect this time they’re worried not about running out of wheat, they’re worried about domestic food price inflation,” he said. “They want to keep domestic supplies high in order to keep domestic prices low.”
Boyes said the ban will support the nearby price for the next few months but it’s hard to predict what will happen after the ban is lifted.
Another issue is whether buyers burned by the Russian ban will return to buying Russian wheat.