Talk of Russian export restrictions spark wheat futures rally

(Note: this column is an updated version of what appeared in the Dec. 4 Western Producer)

Concerns about Russia’s wheat exports in the coming months helped wheat prices rally Nov 28 and Dec. 1 but the market is back peddling this week because the threat of Russia exporting less wheat is more a political issue than a production factor.

True, analysts are lowering their expectation for Russia’s 2015 wheat because of dry cold weather stressing the newly seeded crop.

SovEcon last week said the grain crop could fall to 86 million tonnes from the record 104 million harvested this summer.

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However, futures prices really took off only when the country’s deputy agriculture minister speculated that Russia might consider a floating tariff on grain exports to protect domestic supply if the crop was severely hurt. And then the Veterinary and Phytosanitary Surveillance Service (VPSS) tightened requirements on grain export quality and warned that the move could lead to “a significant fall in grain exports.”

This revived memories of Russia’s grain export ban of 2010, which ignited wheat prices.

Andrey Sizov of SovEcon told Reuters that the VPSS statement signaled a readiness to act if necessary but did not present an imminent move.

He said export limits were unlikely unless total exports in the current crop year look to exceed 30 million tonnes from the 18 million currently exported.

Other analysts noted that Moscow might want to keep back grain because, as a commodity priced in U.S. dollars, it acts as a hedge against the falling ruble, which has already lost 35 percent since midyear.

However, optimism about wheat prices should be tempered.

There is no guarantee Russia’s crop will be ruined. Spring rain could restore yield potential, ending talk about export restrictions

Also, there is ample supply of wheat in Europe to compete with North American stocks if Russia steps back. U.S. wheat exports are already running behind expectations.

As well, wheat’s rally is going against the current of corn and soybeans, which have difficulty rallying because of the large U.S. crop and prospects for record production in South America.

Crude oil’s weakness also hangs over all commodities.

Wheat has fallen since early this week but is still stronger than its was since September. If you are considering selling wheat before year end, it might be time to phone your adviser to discuss whether a sale now is right for you.

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