Russian wheat strangling global market

Peter McMeekin - Grain Brokers Australia, March 5, 2024

Highly competitive offers on wheat out of Black Sea ports including Novorossiysk in Russia are putting pressure on global values. Image: Demetra Holding

THE GLOBAL wheat market remains lifeless, and the longer-term mood is bearish, as rising Russian exports, increasingly aggressive Black Sea export pricing, surplus global stocks, waning international demand and the prospect of another massive crop in Russia this year drive global wheat values to their lowest level since the second half of 2020.

Russian agricultural consultancy IKAR reported the prices easing another 2 percent last week. It quoted Russian 12.5pc protein wheat at US$215/t fob late March early April, down $4/t from the previous week.

Black Sea market analyst Sovecon saw values for the same wheat class in the range $216-$220/t fob, down from $218-$224/t a week earlier, the price varying according to loadport. But over the past couple of months, regional operators have consistently called the market much softer than those quoted by official subscription services as Russia searches for demand to keep the hard currency rolling in, and clear storages for another big crop.

It was reported last week that 12.5pc protein wheat traded $210/t fob, and by last Friday, Russian offers for 11.5pc and 12.5pc protein wheat were believed to be as low as $201/t and $206/t respectively, fob Black Sea deep-water port Novorossiysk, having reportedly traded a day earlier at $200/t and $205/t. That would constitute a fall of around $40/t for Russian 12.5pc protein wheat Black Sea ports since the beginning of January. Sovecon suggests that Russian prices must go even lower to compete with European wheat.

Matif futures weak

The Euronext Paris (MATIF) March milling wheat futures contract plunged €8/t on Friday to close the week at €182.75/t. This is the lowest close for the front-month contract since August 2020, its intra-day low being €181.50/t. The contract was down €23.75/t last week and has now lost €39.75/t, or 17.9pc, in the first two months of the year after closing out 2023 at €222.50/t. It begs the question as to whether MATIF is reflecting the Russian wheat market, or leading it lower?

Official Russian port data put grain exports in the week to February 25 at 1.03 million tonnes (Mt), down from 1.2Mt a week earlier. This included 870,000t of wheat, down from 1.12Mt in the previous week. The pace was stronger than expected, leading Sovecon to increase its Russian wheat export estimate for last month by 500,000t to a new February record of 3.8Mt. This surpasses the previous February record of 3.6Mt set in 2021 and compares to 4Mt a month earlier, 3Mt in February last year and the monthly average of 2.6Mt.

Lower domestic prices and a weakening ruble (RUB) have enabled the Russian exporter to buy demand.

Export quota

Sovecon is currently projecting Russian wheat exports of 48.6Mt for 2023-24 (Jly-Jun), 3.6pc ahead of its final 2022-23 number of 46.9Mt. It noted that while it expected Russian exports to rise further in the short term, it believed that the market could be too optimistic about total 2023-24 shipments and needs to properly price in existing bottlenecks.

On the other hand the Russian Grain Union (RGU) sees continued wheat export growth and increased its export estimate to 55Mt, despite Moscow implementing an export quota effective February 15. IKAR is currently taking the middle ground, recently updating its 2023-24 wheat export estimate to 52Mt.

The quota for grain exports from the Russian Federation to states that are not members of the Eurasian Economic Union will be valid from February 15 to 30 June 2024. It is currently set at 24Mt collectively for wheat, corn, barley and rye without specifying a breakdown by individual crops. However, with record stockpiles across the country, the Ministry of Agriculture of Russia has proposed adding another 4Mt to the grain export quota, taking it to a total of 28Mt by season’s end, but the resolution is yet to be ratified by the Cabinet of Ministers.

In its February global supply-and-demand update, the USDA added 1Mt to its forecast of Russia’s January wheat export to 51Mt, 3.5Mt higher than its 2022-23 export number of 47.5Mt, but 18Mt higher than 2021-22 which according to the USDA was 33Mt.

RGU said total 2023-24 grain exports executed before the export quota commenced last month were 42.7Mt, comprising 35.35Mt wheat, 4.2Mt barley, and 3.16Mt corn.

Yield optimism

Weather has been improving over the past couple of months for new-crop production, and in the absence of any severe weather anomalies, Russian wheat yield prospects remain optimistic. The normalised difference vegetation index (NDVI), as a measure of crop health, is among the highest in 20 years. Soil-moisture reserves across most of the winter and spring crop areas are reported as adequate for this time of the year, and production models are currently projecting yields above those of the 2023 harvest.

Thanks to an abundant snow cover, the first severe cold snap of the season reportedly passed without serious consequences for the winter-crop outlook. Soil temperatures at the depth of winter remained above critical levels in all major grain-growing regions, even when the ambient air temperatures dropped below minus 30 degrees Celsius.

Sovecon recently increased its 2024-25 wheat harvest estimate from 92.2Mt in January to 93.6Mt last month, fractionally higher than Sovecon’s final 2023-24 production estimate of 92.77Mt. If this were to eventuate, the 2024 harvest would be second only in size to the record 2022-23 crop, which Sovecon called 104.2Mt.

As long as the Northern Hemisphere weather remains favourable for winter and spring crop production this year, Russia’s grip on the global cash wheat market will continue unchanged through the boreal spring and the bearish tone will likely persist into the new-crop harvest. However, a different wheat market landscape may emerge if the Northern Hemisphere weather turns adverse and the production outlook deteriorates in one or more jurisdictions.


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