MARKETS OUTLOOK Wheat market absorbs Russian export curbs
by John Buckley
“Prior to the export curbs, Russia was expected to supply about 22m tonnes or 14% of the world’s wheat import needs in 2014/15. The lion’s share of this, about 17-18m tonnes, has already been shipped, already more or less matching Russia’s bumper 2013/14 exports - with half the current season still to run”
54 | Milling and Grain
GLOBAL wheat markets have spent most of 2015 to date in retreat from a steep run-up in prices in the final weeks of last year. Many readers may be aware that the main element in that upturn was the decision by fourth largest exporter Russia to curb the too-rapid flow of its once-plentiful milling wheat onto world markets at a time when doubts were rising about the size of its next harvest. As the rouble nosedived with the collapse in value of Russia’s crude oil exports and Western sanctions – keeping Russian exports cheap - there did seem a real risk, as the year turned, that too much of its wheat would be snapped up by foreign buyers, leaving its domestic market short and at risk of escalating costs for that most basic staple, bread. Russia is also thought to need more wheat and other cereals for animal feed this seaso as it tries to boost domestic livestock output to replace embargoed meat imports from Europe and the USA. Mindful that it couldn’t simply embargo exports without reneging on its WTO obligations, Russia initially used various indirect measures to slow them down, led by stricter phytosanitary (plant health and other rd tape. These certainly put the brakes on trade during the late December/ early January timeslot. However, they’ve now been overtaken by the introduction of a more direct instrument in the form of an export duty, recently equal to around E30/$40 per tonne, applying from February 1. This has been effective in cutting off further Russian sales in recent weeks, yet seems to have been absorbed by the markets without less fuss than the earlier indirect measures. Prior to the export curbs, Russia was expected to supply about 22m tonnes or 14% of the world’s wheat import needs in 2014/15. The lion’s share of this, about 17-18m tonnes, has already been shipped, already more or less matching Russia’s bumper 2013/14 exports - with half the current season still to run. That partly explains the muted market reaction, despite the latest news that neighbouring Ukraine’s government had also agreed ‘voluntary’ curbs with its exporters on its Feb/Mar wheat sales. These could be loosened up somewhat if its own winter wheat crop emerges in reasonable condition from what (for both countries) has been a fairly challenging winter to date (dry start, poor crop establishment, some snow cover issues raising greater than usual risk of ‘winterkill’ etc). However, like Russia, Ukraine has already shipped out the bulk of what it intended to export during 2014/15 so this doesn’t leave a huge gap in the market. At worst, the CIS absence means the floor price of wheat on world markets is a bit higher than it would have been, had both continued selling freely (i.e. no longer rock-bottom). Even if Russian sales fall 2m to 4m tonnes short of the target 22m this season, there is no shortage of contenders to take its place. Top of the list has been the EU, which has recently seen some of its best weekly export sales of the season and now seems on course to match, if not exceed last season’s record 30m tonne total. It could sell even more without leaving EU consumers short. Even after consuming an extra 9m tonnes in animal feeds, Europe is still expected to finish with carryover stocks of about 17m tonnes compared with just 10m when the season started, thanks to last year’s massive domestic crop. However, what this good clearance of EU wheat supplies has done, along with the weakest euro/dollar exchange rate for 11-½ years has been to lift internal wheat prices