Russia’s Wheat market dominance set to continue…

By Peter McMeekin

With a second consecutive bumper wheat harvest almost complete, a seemingly endless supply of cheap Russian wheat continues to hit the international market, underpinning the nation’s position as the world’s number one exporter and alleviating global price pressures stemming from Putin’s invasion of Ukraine in February last year.

In a speech last week, Russia’s Agriculture Minister, Dmitry Patrushev, increased the Russian grain production outlook for the 2023/24 season to 135 million metric tonne, including 90MMT of wheat. This is second only to last season’s total grain production of 157.7MMT, which included a record 104.4MMT of wheat.

While the official production projection is lower than that of Black Sea analyst SovEcon, who is currently pegging the crop at 91.6MMT, Russian agricultural consultancy IKAR at 92MMT, and domestic logistics giant Rusagrotrans at 92.9MMT, it is significantly higher than the 85MMT plugged into the USDA’s September global supply and demand grid. It will be interesting to see if that forecast is increased in the October update, which is due for release later this week, as the USDA is still lowballing last year’s crop at 90MMT.

According to the European Commission’s Joint Research Centre Monitoring Agricultural Resources (JRC MARS), a good production outlook remains intact for all Russian crops despite some late-season weather extremes. Its latest Russian bulletin, issued on October 2, pegged the wheat crop at 89.7MMT off 28.4 million hectares for an average yield of 3.15 metric tonne per hectare. This is 13.7 per cent lower than JRC MARS’ final 2022/23 production estimate of 103.9MMT off 29.2 million hectares and an average yield of 3.56MT/ha.

Winter wheat only made up 53.1 per cent of the total harvested area at 15.1 million hectares, down 9.3 per cent year-on-year, but with an average yield of 4.22MT/ha, the production forecast of 63.7MMT represents 71 per cent of the projected total wheat output. The harvested spring wheat area is up 6.4 per cent compared to 2022/23 at 13.3 million hectares, but the yield outlook is 18.4 per cent lower at 1.95MT/ha due to an unseasonably hot and dry finish for a final production estimate of 26MMT, 13 per cent lower than last year’s harvest.

JRC MARS is pegging the Russian barley crop at 21.9MMT, 4 per cent lower than last season, despite a 6.2 per cent increase in the harvested area to 8.3 million hectares. The average yield is expected to fall by 9.9 per cent from 2.94MT/ha to 2.65MT/ha.

In complete contrast to wheat, spring planting dominates the barley production matrix in Russia, with 91 per cent of the harvested area and 84.6 per cent of the production estimate. Spring barley production is forecast to be 6.5 per cent lower year-on-year at 18.6MMT, off a harvested area of 7.5 million hectares, 5.3 per cent higher than in 2022, and a projected average yield of 2.47MT/ha, 11.2 per cent higher than last year. The winter barley area of 0.7 million hectares is expected to produce 3.4MMT, with an average yield of 4.55MT/ha.

According to JRC MARS, Russia's 2023 corn crop is likely to be 12.1 per cent higher than in 2022 at 17MMT. With the harvested only 3.3 per cent higher at 2.6 million hectares, the yield has done most of the work, 8.6 per cent higher than last year at 6.46MT/ha.

Russian wheat exports hit an all-time monthly record of 5.8MMT in September, according to the Russian Grain Union, and total exports in the first quarter of the 2023/24 marketing year (July to June) are 59 per cent higher than the same period in 2022 at around 15.3MMT. Russia has captured 28 per cent of global wheat exports in the first three months of the marketing year compared to an annualised share of 21 per cent last year.

Total grain exports for the same period totalled 18.2MMT, with Egypt the biggest buyer on 2MMT, 9.1 per cent higher than Q1 2022/23. Turkiye was the second biggest customer with 1.85MMT, down 10.3 per cent year-on-year, and Iran dropped from first to third on the podium with imports of 1.8MMT, down from 2.4MMT a year earlier.

Wheat exports from Russia’s Black Sea ports in the week to October 4 reportedly increased by 30 per cent to 1MMT compared to the same period in 2022, with Egypt, Bangladesh and Iran the key destinations. However, October exports are forecast at 4.5MMT, much less than the September record and down from 4.9MMT last year.

The USDA has Russian wheat exports for the 2023/24 marketing year pencilled in at 49MMT in its September supply and demand update, 1MMT higher than in August and 3MMT higher year-on-year. This is in line with SovEcon, who are currently assessing export potential at 48.9MMT, 2MMT higher than its final number for 2022/23.

Russia’s official statistical office, Rosstat, reported last week that wheat stocks held on-farm across Russia stood at 28.8MMT, 9 per cent lower than at the same time last year. Following last year’s harvest, stocks have been running at post-Soviet era highs but have dipped below record levels amidst an extremely buoyant Black Sea export program and lower production. Despite the decline, on-farm stocks are still 21 per cent higher than the long-term average.

With the supply glut depressing global prices, Moscow is attempting to use its dominant position to establish a floor in the market. Not only would that placate its farmers, who are becoming increasingly distressed by dwindling incomes, as well as cool domestic flour prices by limiting exports, it would also boost the Kremlin’s war-strained coffers by generating additional tax revenues.

Officials have been trying to enforce a price floor for wheat exports by refusing to grant export documents to lower-cost shipments, forcing some traders to renegotiate or even cancel deals. Last month, Egypt booked a massive quantity of Russian wheat in a private deal at a price well below the unofficial floor for public tenders. Several days later, Egypt said that the successful traders would be permitted to supply the grain from origins other than Russia.

The application of the floor has been quite inconsistent, with sales under more opaque pricing mechanisms fluctuating at much lower levels. It appears the trick is for traders to sell Russian wheat on an optional origin basis, which implies they haven’t violated the unofficial floor price. That way, Russian wheat keeps marching out the door, and the Agriculture Ministry supposedly saves face.

However, the lack of visibility over pricing is creating turmoil in international markets, making it extremely difficult for merchants and global importers to take positions and anticipate market trends. But a huge surplus combined with a weak Ruble/strong Dollar that keeps Russia at the front of the global wheat market and droughts reducing output in other origins, the world’s reliance on Russian wheat supply appears set to continue for much of 2023/24.

Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.