The country’s shrinking crop is lowering an export estimate to 31.4 million tonnes from 37.6 million tonnes made in April
Russia will be less of a force in some wheat markets this year, says an analyst.
Many analysts slashed their Russian wheat production and export estimates last week due to a hot and dry finish to the winter wheat growing season.
SovEcon, a leading Russian agricultural consultancy, dropped its production estimate to 73.7 million tonnes, down from its April forecast of 83.4 million tonnes.
It also reduced its export estimate to 31.4 million tonnes from 37.6 million tonnes. That would be a 13 percent decline from 2018-19.
MarketsFarm analyst Bruce Burnett said that is a reasonable estimate given what he anticipates will be a low carryout resulting from an aggressive 2018-19 export campaign.
Russia will still be active in markets like North Africa and the Middle East but it won’t be a player in markets where it has a freight disadvantage such as Indonesia and Mexico.
“Places like that, I think you’ll probably see limited Russian presence this year because of the lower export numbers,” he said.
“So I think that’s positive for the international wheat market.”
SovEcon believes the reduced supply of exportable wheat will result in a 20 percent increase in Black Sea wheat prices in the next four to six months.
Burnett said that is a reasonable forecast given that Russia’s f.o.b. offers on Egyptian tenders increased about 12 percent from the end of June 2018 to their peak in mid-February of 2019.
Considering that Russia’s wheat prices are starting the 2019-20 crop year US$5 to $10 per tonne lower than last year, they will likely end up at around the same level as they did last February.
Burnett said the market has largely shrugged off the cut to Russia’s crop. It is being overshadowed by harvest activities in places like the United States and the European Union.
Some people believe the sizable EU crop will offset Russia’s losses.
The U.S. Department of Agriculture is forecasting a 151.3 million tonne crop, which would be a 10 percent increase over last year. It is predicting 27 million tonnes of exports, a three million tonne increase.
But as the calendar flips, the market will start paying more attention to Russia’s reduced export potential.
“Will it be important when we come into the first half of 2020, the last half of the crop year? I think it’s probably very pertinent,” said Burnett.
“When we get into the second half of the marketing year, wheat stocks will be a lot tighter than what people had been anticipating just a couple months ago.”
Another issue that could arise with Russia’s crop is reduced quality due to excess moisture during harvest.
The European Centre for Medium-range Weather Forecasts was forecasting 200 to 400 percent of normal rains in central Russia and the Volga Valley for the July 30 through Aug. 13 period.
Ukraine’s wheat crop appears to be in better shape than Russia’s. APK-Inform is forecasting an average yield of 63.7 bushels per acre.
That will result in 27.5 million tonnes of production, 65 percent of which will be milling quality. That is above the USDA’s estimate of 25 million tonnes.
Burnett believes Kazakhstan’s crop is likely suffering the same fate as Russia’s spring wheat crop. It was extremely hot when the crop was heading in Russia’s Ural region.
“That’s never good,” he said.
He will be watching the USDA’s production estimate for Kazakhstan in the next World Agricultural Supply and Demand Estimates report on Aug. 12.