Russia is poised to become the world’s leading wheat exporter for the first time since the tsarist era a century ago.
The U.S. Department of Agriculture forecasts 36 million tonnes of Russian wheat exports in 2017-18. The European Union will take second place with 26 million tonnes.
Russia is stealing grain markets around the world by undercutting competitors on price in what is likely just a taste of what’s to come.
Russia’s ports exported 42.6 million tonnes of grain in 2017, up 30 percent from the previous year.
By 2022, the country will add an extra 30 million tonnes of grain export capacity, according to Russia’s agriculture minister. That is the equivalent of Canada’s combined annual canola and wheat exports.
Bruce Burnett, director of markets and weather with Glacier Media’s MarketsFarm, said Russia’s expanding control of the wheat market is a threat to Eastern Canada’s soft wheat but not so much for Western Canada’s high protein wheat.
“It’s essentially a market tussle between the lower-protein-producing countries,” he said.
“We’re in a slightly different ballgame.”
The European Union faces the biggest threat because the wheat it sells is virtually identical to Russian wheat but more expensive. It is already losing market share around the world.
Argentina has recently been ramping up its wheat production just as Russia has been asserting itself on the world scene. The U.S. and Australia are also in jeopardy of losing markets.
The Australian Export Grains Innovation Centre released a report in late 2016 assessing the threat posed by Russia.
The report projected a 60 percent increase in Russian grain exports between 2015 and 2030.
Wheat exports are forecast to climb to 32.5 million tonnes from 21.7 million tonnes over that same period. However, Russia is already forecast to surpass that total in 2017-18.
The big threat to Australia and other exporters is that the total cost of producing wheat, delivering it to port and loading the grain onto a ship is $176 per tonne in Russia compared to $299 per tonne in Australia.
“This gives Russia, along with its similarly competitive Black Sea neighbours, a powerful competitive advantage against Australia and North America when targeting price-driven markets,” stated the report.
Burnett said almost all of the wheat that Russia exports is low protein winter wheat grown in districts near the Black Sea.
It also produces spring wheat but that wheat is consumed domestically and is grown in districts like Siberia and the Urals, which are a long way from port position.
So growers in Western Canada are largely shielded from direct competition with Russian wheat, although it does pull down global wheat prices and that does have an impact on Canadian spring wheat.
Russia exports a lot of wheat in small vessels out of the Port of Rostov-on-Don, which is not a deep-water port.
“What their problem had been was lack of capacity on a deep port basis,” said Burnett.
In the Soviet era, Russia used to ship most of its grain through ports located in Ukraine. It didn’t have much in the way of deep-water ports of its own.
That is why the Russian government is spending up to $500 million expanding and deepening the Port of Novorossiysk on the Black Sea. When the project is complete the port will be capable of handling 10,000 TEU (20-foot equivalent unit) vessels, up from 6,000 TEUs.
“That’s what they’ve expanded is their ability to load larger vessels in a timely manner. That’s essentially what they’ve done to improve their logistics,” he said.
To reach its goal of increasing grain export capacity by 30 million tonnes in five years, Russia is doubling capacity of a grain terminal in Novorossiysk, developing the Port of Taman, which is another Black Sea port, and is constructing a new grain terminal in the far east, according to a Reuters story.
Russia is also investing heavily in rail with a goal of adding up to 20,730 kilometres of new rail line by 2030.