Large carryout stocks to help country keep its overseas sales close to last year’s 44 million tonnes despite a smaller crop
Russia’s wheat crop will be considerably smaller in 2023-24, but its exports are expected to remain about the same as this year, according to an analyst.
SovEcon is forecasting 85.3 million tonnes of production, down from the 104.2 million tonnes harvested last year.
“Last season the weather was almost ideal,” SovEcon analyst Andrey Sizov said in an email.
“(That is) not the case this year. At this stage, we are projecting below trend yield.”
However, carryout stocks from the 2022-23 crop are expected to be massive, so total supply will be very similar year-on-year.
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The U.S. Department of Agriculture’s crop production and world agricultural supply and demand estimates reports were released July 11 with the main focus on the wheat, corn and soybean estimates.
That is why SovEcon is forecasting 43 million tonnes of exports, down only slightly from the 44.1 million tonnes expected to be shipped this year.
Sizov said 34 million tonnes of that total have already been moved, with the main destinations being Egypt, Turkey and Iran.
There have been reports that the Russian government recently met with agriculture industry stakeholders to discuss an export ban.
Sizov doubts those reports. He thinks the headlines were an attempt to bolster prices, which worked in the short-term.
But he doesn’t rule out the prospect of a ban in the coming weeks or months to support the market or to be used as a bargaining chip with the West.
It wouldn’t be the first time that Russia has used policy to manipulate the market. An analysis by U.S. Wheat Associates president Vince Peterson shows Russian intervention has fueled every wheat price spike since 2007.
“When the global wheat market showed any sign of stress, the government of Russia stepped in to impose an export ban, export tax or export quota to isolate their home market,” he wrote in a recent Wheat Letter Blog.
“This Russian intervention further magnified any supply shortage and accelerated the rise in wheat prices.”
It has happened six times over that span, resulting in spikes in the Kansas City nearby futures contract ranging from $75 to $250 per tonne.
“Twice in this time frame, Russian military aggression against Ukraine directly caused world wheat prices to spike sharply,” he said.
Prices have settled since Russia invaded Ukraine in February 2022, but it wouldn’t take much to ignite another rally.
Sizov sees limited downside to global wheat prices, with an upside of maybe 10 percent from current levels.
However, he believes there is a 20 to 30 percent probability for a bull market to develop.
Something bad could happen in the Black Sea. Markets seem to have forgotten there is still a war going on in the region.
Or there could be another trigger, such as worsening drought in the U.S. hard red winter wheat growing region, or an expansion of the financial crisis.
Those bullish scenarios could cause a 20 percent or greater “explosion” in wheat prices as speculative fund money urgently buys back its big short position in the soft red winter wheat market.
In the meantime, more trouble appears to be brewing in Russia. World Grain is reporting that Viterra plans to exit the grain origination and export business in that country.
“Viterra has concluded that its activities in Russia no longer fit the long-term direction of the company,” the company told World Grain.
Its statement came one day after Cargill confirmed it would stop elevating grain for export in Russia as of July 1 because of mounting grain export challenges there.
