Kremlin’s actions caused short-term rally
U.S. Wheat Associates is lambasting Russia for export restrictions set to begin Feb. 1.
That is when all Russian wheat will be slapped with an export tax of 15 percent plus $10.52 per tonne. At today’s export values, it will amount to a total tax of $60 per tonne.
The December announcement of the new tax temporarily pushed Kansas wheat futures up by 30 percent, but they have since fallen back to pre-announcement levels.
Vince Peterson, USW vice-president of overseas operations, said in a recent edition of the association’s Wheat Letter report that the unnecessary government intervention undermines Russia’s role in world trade.
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“Five times in just the past seven years, the Russian government has restricted or threatened to limit access to exportable wheat supplies, sometimes even cutting across existing contracts,” he wrote.
“Each time, the markets responded with a correspondingly sharp price rally.”
Peterson said the government interventions have magnified temporary supply shortages into “full-blown price and supply crises.”
“Someday, Russia may benefit from embracing open markets and free trade rather than continually rushing in and out of the marketplace on a political whim.”
So why are U.S. growers so fired up about a major competitor bowing out of the export arena?
Rich Nelson, chief strategist with Allendale Inc., thinks it might be because the U.S. won’t be filling the void left by Russia due to its wheat being too expensive.
“The problem here is our competitors are cheaper. We’re still a little over-priced. Especially with our rising U.S. dollar, we’re not going to get these extra sales,” he said.
U.S. exports are stalling, but shippers should still be able to meet the U.S. Department of Agriculture’s 2014-15 export estimate of 25 million tonnes, said Nelson.
Bruce Burnett, CWB’s weather and crop specialist, thinks the USW rant was more about politics than market share.
“On the surface, it doesn’t make much sense to criticize (Russia’s export restrictions) if it’s benefitting you, but I guess they’re taking a principled stand,” he said.
“They’re generally against government influence in export policy, whether it be subsidies for export or restricting exports or whatever.”
Burnett said Russia’s announcement brought the bulls to the wheat market, but they misjudged the amount of available wheat supplies in the world.
Customers who used to buy low protein milling wheat from Russia simply switched to the ample supplies available from Europe, Argentina and Australia. That is what pulled prices back down in a hurry.
Another thing to note is that Russia had already shipped most of its crop. Burnett said the country has exported close to 18 million tonnes and will likely meet the USDA’s January estimate of 20 million tonnes for 2014-15, which is down two million tonnes from its December estimate.
He said Russia’s announcement was akin to Canada saying in June that it will restrict exports until the end of July.
Burnett expects Russia to continue with its restrictions until new crop supplies are available.
Peterson said the only way to legally block U.S. wheat exports is through a presidential declaration of national emergency.
“Our doors are open for business 365 days per year,” he wrote.
