Russian wheat export controls are still in the cards despite reports of a bigger crop, says an analyst.
The United States Department of Agriculture recently bumped up its Russian wheat production estimate by three million tonnes to 71 million tonnes.
That is 16 percent below last year’s record crop.
There have been rumours that Russia will take steps to curb its exports once shipments reach 25 million tonnes by implementing export tariffs or quotas.
“I still think they are probably going to initiate some export controls,” said Bruce Burnett, director of markets and weather with Glacier MarketsFarm.
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That is because the extra three million tonnes was spring wheat from the districts of Siberia and Ural, which tends to be consumed domestically by millers rather than exported through the Black Sea.
“I don’t really think that necessarily changes the dynamics,” he said.
Russia’s agriculture minister has denied that the government is contemplating export restrictions but many in the grain trade think it is a possibility.
If it happened, it would bolster world wheat prices because buyers would be forced to turn to other exporters.
The USDA is forecasting 35 million tonnes of Russian exports, so a 25-million-tonne cap would redirect 10 million tonnes to alternative suppliers such as Canada.
Matt Ammermann, vice-president of the Black Sea region for INTL FCStone, said Russia’s 2018-19 wheat export program has been brisk to date.
Exports are exceeding last year’s record pace. Russian farmers are eager to move their wheat before there is any type of government intervention, which is expected to happen in December or January.
“Right now, domestic farmers are getting very nice prices,” Ammermann said in a webcast.
Buyers are happy to oblige because while wheat prices are sky high in Russia due to its faltering currency, Russian wheat is the cheapest wheat on the world market.
One factor Ammermann is closely watching is inflation. Rising bread prices and livestock feed costs will spring policymakers into action.
The last time Russia implemented an export tax was 2014 when inflation was extremely high. That is not the case today when inflation is almost at a record low due to economic sanctions.
“This is one argument for those that think there will be no restrictions,” he said.
However, the Russian ruble is weak and that can very quickly lead to inflation.
Domestic wheat prices are at record levels, which is good for farmers but it has traders nervous because it could lead to restrictions to appease Russia’s politically powerful livestock sector.
Exporters are not putting much business on the books past the December 2018 to January 2019 timeframe.
Russia’s top three wheat customers are Egypt, Turkey and Vietnam, so if there are restrictions those markets could be shopping for wheat from other exporting regions.
Ammermann said dryness in the Black Sea region is starting to make headlines as the winter wheat crop goes in the ground.
But he noted that farmers in that region are used to seeding into dust and waiting for one or two good rains to get the crop off to a good start.
