Wheat markets have been focused on Ukraine’s improving export logistics but they might want to take a sideways glance at a neighbouring country, says an analyst.
SovEcon analyst Andrey Sizov estimates that Russia’s exports for July and August, the first two months of the 2022-23 marketing campaign, will amount to a disappointing 5.9 million tonnes.
That would be 27 percent below last year’s levels and the lowest volume since 2017-18.
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He attributes the poor performance to elevated f.o.b. Russian prices caused by a strong ruble and an export tax that amounts to about US$80 per tonne.
“As a result, farmers remain reluctant sellers,” Sizov said in a recent email.
The export tax remains in place despite having a bumper crop on the way. SovEcon is forecasting a record 94.7 million tonnes of production.
“The tax is permanent and the authorities say that it helps to control food inflation and guarantees that domestic market needs will be met,” said Sizov.
“In my view the introduction of the tax was a mistake from the very beginning.”
The U.S. Department of Agriculture recently upped its Russian production forecast by 6.5 million tonnes to 88 million tonnes. That forecast excludes Crimea, which will produce about 1.3 million tonnes. The SovEcon forecast includes Crimea.
Current average milling wheat prices in Russia are about $201 per tonne, which is down five percent compared to last year, while farmers’ costs have risen by 20 to 25 percent.
Exporters may face even more constraints later in the marketing campaign due to worsening weather conditions in the Black Sea and a seasonal stop of river navigation.
“Additionally, in February 2023 Russia is expected to introduce an export quota, which could limit export flows,” said Sizov.
The government has been implementing a quota the last few years and intends to do it again, he said.
SovEcon is forecasting 42.9 million tonnes of Russian wheat exports in 2022-23, which is near the USDA’s estimate of 42 million tonnes.
“It won’t be easy to achieve thanks to the slow start but probably still doable,” said Sizov.
He believes Russian wheat exports could accelerate in the near term if domestic prices fall and/or global prices rise. A weaker ruble would also incentivize exports.
Russia’s sluggish exports have been one of the key supporting factors in the wheat market.
If exports had been more like five million tonnes per month in July and August, then the December futures price on the Chicago Mercantile Exchange would be closer to $7 per bushel than the current $8, he said.
The opening of Ukraine’s Odesa terminals has had a bearish impact on wheat markets but Sizov said it is “not such a big deal” at the moment.
He expects the country’s Odesa-area ports will export around one million tonnes of grain in August and most of that will be corn.
“Exports could speed up in September though and we will see more Ukrainian wheat,” said Sizov.
“That could be bearish. But it’s not the case at the moment and I’m not sure the Kremlin will allow faster Ukrainian exports.”
UkrAgroConsult reports that Ukraine’s economy ministry said the three Ukrainian ports that have reopened should be able to handle up to 80 ships per month.
The infrastructure ministry has announced plans for five million tonnes of total monthly grain exports from ports and by truck and rail.
UkrAgroConsult thinks 3.5 to 4.5 million tonnes is a more realistic number.
“Shipping from the Odesa ports is still in the trial period now. Market participants are still assessing prospects,” the firm said in an Aug. 19 analysis piece.
A total of 687,000 tonnes of agricultural goods were shipped through the corridor in the first half of August.
“UkrAgroConsult cannot yet confidently say that Ukraine will be able to fully realize its grain export potential,” stated the analytics firm.
Contact sean.pratt@producer.com
