The wheat market is wondering what Russia is going to do.
The answer is not clear.
The lack of clarity is illustrated by two Reuters headlines separated by a few hours:
“Russian minister says no plan to restrict grain exports — TASS.”
“Russia should limit grain exports via offshore firms — minister.”
So, absolutely, there will be no restrictions on grain exports except the restrictions that they think they can get away with.
Since it became a member of the World Trade Organization in 2012, Russia can no longer order a halt to all grain exports as it did in 2010.
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However, it appears to be looking for a way to restrict the flood of grain moving out of the country.
A few weeks ago, I wrote that export restrictions were unlikely in the near term because Russia had lots of grain from its 2014 harvest and there was no guarantee that the 2015 crop would be a disaster, even though it was under stress as it entered winter dormancy.
It turns out the real focus of Kremlin concern is rising domestic wheat and flour prices and the potential for pubic protest.
The rapidly falling ruble, down 43 percent since early July, is making grain exports lucrative.
Selling $100 worth of grain on the international market in July would generate 3,370 rubles. The same $100 sale today would generate about 5,900 rubles.
The domestic market, priced in rubles, must rise to compete with returns from the international market.
Bread prices have soared as much as 10 percent the past month, contributing to an food inflation rate of 14 to 15 percent and an overall inflation rate that is expected to hit 10 percent for the year.
Fresh fruit and vegetables are rising particularly fast, and buckwheat, a staple in the country, rocketed more than 50 percent in November because of fears of shortages after a weather problem in a key growing area.
The ruble is falling because of the collapse in oil prices (Russia is a major oil exporter) and because of the economic sanctions the West has levied because of Russia’s aggression in Ukraine.
Inflation is rising because of the increased cost of imported goods and because the Kremlin blocked food imports from the countries that took action against it over Ukraine.
Rising inflation could start to wear away at the popularity of president Vladimir Putin, who is riding high in public opinion because of his efforts to restore Russia to its former glory.
Through his control of most of the media, he blames all of Russia’s problems on the West. He ensures there are few alternative voices.
However, Putin’s policies could lose favour as the economy falters, the sanctions bite deeper and inflation rises.
A lot of riots and revolutions have started with protests over rising bread prices.
So it is not surprising that Putin’s agriculture minister is looking for ways to limit exports and lower domestic flour prices so as to calm consumer worries.
All this is good news for prairie farmers.
The uncertainty over Russia is helping support international wheat prices at five-month highs. It is a level stronger than perhaps they should be given ample global supply.
