Russia’s wheat exports will set a record this season, but not by the margin many investors are expected, US officials said, flagging setbacks from a quality downturn and tough international competition.
The US Department of Agriculture’s Moscow bureau backed estimates of a bumper Russian wheat harvest this year, hiking its production estimate by 7m tonnes to an all-time high 72m tonnes – in line with the USDA’s official figure, and a forecast by consultancy Ikar.
The estimate was above those from some other commentators, such as Russia’s own farm ministry and the International Grains Council, both of which peg the crop at 70m tonnes.
However, the USDA bureau was – relatively – downbeat on expectations for Russia’s wheat exports in 2016-17, putting them at 28.0m tonnes, issuing cautious estimates for barley and corn shipments too.
While the wheat export figure would still represent a record high, and likely prove sufficient to lift Russia above the European Union to top rank among world wheat exporters, the estimate is below forecasts from other commentators.
The IGC puts shipments at 30.7m tonnes, and with the USDA’s official forecast pegged at 30m tonnes, an estimate backed too late last week by Russia’s agriculture minister.
‘Very tough competition’
“Russian wheat will meet very tough competition in the world wheat markets,” the bureau said, with world wheat stocks expected by many commentators to end 2016-17 at a record, boosted by a succession of strong harvests.
While this year’s harvest in the European Union, a particularly key rival in grain exports, has bucked the world trend, and is expected to see a sharp dip in shipments, that does not mean that Russia will be able to pick up all the slack.
And Russian wheat exporters, who “maximised their marketing abilities” in 2015-16, winning new buyers in Africa and Asia, may have hit access limits to some import destinations.
“The quality and quarantine requirements of these markets, and their connection with traditional, non-Russian suppliers, may limit Russia’s ability to increase exports to these markets significantly in one year,” the bureau said.
‘Quality is worse’
This factor is especially true given the relatively weak quality of this year’s Russian crop, reflecting something of a global trend (with specification worries most lately rising in Australia), which has put higher grade wheat most in demand.
“The quality of wheat is worse this year than a year ago,” the bureau said.
“Although the same volumes of good quality wheat are likely, due to the bigger crop, it will be more difficult to compose batches of good wheat.”
Furthermore, “the distances to deliver the good quality wheat to ports may be longer”.
While Russia’s ditching of its wheat export tax for two years, as announced on Friday, will “stimulate exports”, it will not do so “significantly”, the bureau said in a report, with the levy running at a low level when it was scrapped.
Indeed, the bureau flagged the stabilisation in the rouble as more significant, with the currency worth some $0.155 on Thursday, well above a low of a little over $0.12 early this year.
“While volatility in still possible, it is unlikely to be similar to its devaluation during the last two years,” the briefing said, with exchange rate a hindrance to shipments of other grains too.
The bureau estimated Russian barley exports in 2016-17 at a three-year low of 4.0m tonnes – 800,000 tonnes below the USDA’s official forecast, and below too the International Grains Council’s 4.4m-tonne figure.
For corn, the bureau forecast 2016-17 shipments at 4.3m tonnes, 200,000 tonnes below the official USDA estimate. The IGC forecasts the figure at 4.6m tonnes.
Besides the currency effect, competition with the huge wheat supplies for transport and storage will limit shipments of other grains.
“Competition with wheat for internal logistics, such as trucks, railcars, storage facilities, will tighten due to the bumper wheat crop, especially in Volga Valley, where logistics are worse than in the southern European Russia.”
(Source – http://www.agrimoney.com/news/worse-quality-firmer-rouble-to-cap-russias-wheat-export-surge–9907.html)