COMMODITIES 2025: Russia wheat exports to slow down sharply in H1 2025 due to lower harvest, export curbs

This is part of the COMMODITIES 2025 series where our reporters bring to you key themes that will drive commodities markets in 2025

Wheat exports from Russia, the world's largest wheat supplier, are likely to see a sharp decline in the first half of 2025 due to limited availability because of a bad harvest this season and tight government restrictions to curb exports.

After having exported record volumes in recent months, Russia's wheat export pace is now expected to slow down next year. The country's wheat exports are seen at 45 million mt in 2024-25 marketing year (July-June), down from 54.7 million mt in the previous year, as per S&P Global Commodity Insights estimates.

Russian wheat crop faced weather challenges such as frost and drought this year, resulting in crop failures and lower harvest. The country's total wheat production is forecast at 81.6 million mt in MY 2024-25, with 58.2 million mt of winter wheat and 23.4 million mt of spring wheat, down sharply from 90.5 million mt in MY 2023-24.

"This marks the lowest production level since 2021," a Black Sea grain market analyst said.

The new season winter wheat crop also seems to be in poor condition. According to market experts, wheat crop is in its worst shape in decades, and about 37% of crops are in poor condition, the highest level in the last 20 years.

Russia's total wheat production is forecast at 87.5 million mt in MY 2025-26, but it will largely depend on the winter crop survival rate, spring crop planting and overall weather conditions throughout the season. "Crops started dormancy in poor conditions, which can result in a lower crop survival rate," Commodity Insights senior grains analyst Victoria Sinitsyna said.

Therefore, to secure wheat supplies for the local market and to rein in domestic inflation, the Russian government implemented tighter measures to constrain exports.

On Dec. 20, the government announced an export quota for wheat of 10.6 million mt for the period Feb. 15-June. 30, and zero quotas for corn, barley, and rye, compared to 28 million mt of grains last year.

However, traders see this quota as "more than enough," given the country is expected to export around 17 million-20 million mt over December-June. "Given how much Russia has left to export, they cannot afford to get more out," one seller said.

In addition, Russia raised export taxes on wheat, which climbed to Rb4,769/mt ($37.30) for Dec. 25-Jan. 12, from as low as Rb257/mt ($2.5) in early August. Also, exporters are told to directly supply grains to state buyers without foreign intermediaries to curb the sale of low-priced grain.

EU wheat faces tough competition from Russia

Russian wheat remained a strict competition to EU origin in MY 2024-25. European sellers struggled to export their grain due to high prices, poor quality of wheat after a wet season in countries like France, strong Russian supplies and increased production in Argentina and Australia. The EU exported just 11 million mt of wheat in MY 2024-25, a 30% decline year on year.

The Romanian and Bulgarian wheat markets have been trying to compete with Russian wheat. "We are too expensive," a Romanian-based trader said. "But now that Russia is out, our chances will improve."

Ukrainian wheat was also highly priced compared to Russian grain. "Buyers do not prefer Ukrainian [wheat] as it is more expensive," a local buyer said. "Also, Asia and the rest of Middle East North Africa region is looking on Russia," a seller of Ukrainian wheat said.

Commodity Insights forecast EU wheat production at 120.7 million mt in MY 2024-25, down 10.5% from last year. Ukraine wheat production is seen at 22.4 million mt.

The Russian wheat market will bottom out shortly and there could be "substantially higher prices" within the next one to two months, a Black Sea grain consultancy expects. Russian farmers were reluctant to sell at the year-end and were deferring sales to next year to minimize their tax costs, it added.

EU winter wheat crop looks good after a wet start threatened to derail planting. The dry weather at the tail end of the planting window helped get the crop in the ground. "The conditions are better than they are in Russia," said a market analyst.

Similarly, Ukraine's winter wheat seems to be in good condition, market sources said.

Import demand likely to turn subdued

One of the biggest wheat importers, Egypt, is expected to remain moderately active in purchases in the coming months.

Egypt slowed down its purchases of Russian wheat in the past few months due to an oversupply of grain amid abundant stocks and geopolitical tensions in neighboring countries that are key consumers of wheat flour, such as Sudan and Yemen.

Traders are optimistic that demand will rebound, anticipating a full-scale import strategy by next year. Another buyer added, "Sudan is coming back slowly, so once we get close to replacement values, we'll resume importing."

However, the increased demand may be short-lived, as the country typically begins its harvest around mid-April, which usually leads to a decrease in import needs and a drop in domestic prices.

Meanwhile, in Turkey, the government halted wheat imports from June 21-Oct. 15. Afterward, a quota system was introduced. As of Dec. 23, buyers are mandated to purchase at least 75% or 100% of their wheat from the stocks managed by the government's grain board, TMO. Those opting for 75% must fulfill this quota through TMO before importing the remaining 25% from global markets. This system is expected to remain in effect until May 31, ahead of the local harvest in June.

Most traders said the new rules will not notably boost imports, as over 1 million mt of wheat remains in bonded warehouses.