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Russian wheat export prices breach $300/mt mark, uptrend to continue: sources

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Russian wheat export prices breach $300/mt mark, uptrend to continue: sources

Highlights

Wheat export tax doubled, will come into effect March 1

Indication of "floating tax" raises concerns

More buyers may switch to other origins

London — Russian wheat export prices breached the $300/mt mark Jan. 18 for the first time since S&P Global Platts started assessing the commodity in 2014, as concerns mount about "floating" export taxes, with sources expecting the uptrend in prices to continue in the near term.

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The Russian 12.5% wheat FOB Black Sea hit a record $302.25/mt Jan. 18, rising 17%, or $43.75/mt, over the past month, according to S&P Global Platts data. On Jan. 19, prices rose again to $303/mt, latest data showed.

Russia, the world's largest wheat exporter, confirmed in December it was imposing a wheat export tax and a grain export quota that will limit shipments to 17.5 million mt, as the country looked to tackle domestic food inflation.

The export quota mechanism is set to begin from Feb. 15 through June 30, and covers wheat, corn, barley and rye.

The export tax was initially announced at Eur25/mt within the quota volume and 50% of the value, but not less than Eur100/mt outside of the quota.

However, the Russian agriculture ministry recently said it will start implementing a higher export tax from March, and further indicated the taxes may not be scaled back to zero when the new marketing season starts in July, sending a price shockwave through the markets.

The proposals to introduce a "floating tax" from July 1, if confirmed, could impact next season's trade, according to US-based advisory firm Agrivisor.

Inflation balloons

To tone down domestic food prices, the government increased the export tax within the quota to Eur50/mt that will come into effect on March 1.

The move comes despite a near record harvest during the 2020-21 marketing season that runs from July 2020 to June 2021. S&P Global Platts Analytics estimates Russia to produce 81.5 million mt of wheat in 2020-21.

But concerns over the Russian winter crop following drought during the planting period began to add a bullish sentiment to the market. The global wheat market also tightened amid the coronavirus pandemic and food security concerns, resulting in a flurry of international tenders.

Wheat exports from Russia rose dramatically to satisfy the soaring demand, pushing prices from $197.50/mt in mid August to more than $250/mt by October.

A weakening Russian Ruble, decrease in yields for numerous crops, and an increase in global food prices, also contributed to the rise in domestic food prices.

Surging domestic food prices created an uneasiness within Russia, forcing the government to initiate the export curb policies.

However, market participants remain skeptical about how effective the taxations will be on controlling food inflation.

"The market is bullish, Russia is pushing the price of wheat up with the Eur50/mt export tax," a trader said. The tax move is not going to reduce local market prices, a source added.

Uncompetitive exports

The rise in Russian wheat export prices could mean more buyers switching to other wheat origins, according to Victoria Sinitsyna, grain analyst at Platts Analytics.

In December, buyers' interest in EU wheat rose following the export duty news, resulting in higher trading activity.

Russian suppliers notably missed out on securing some recent wheat tenders from Egypt's General Authority For Supply Commodities. The agency typically buys majority of its wheat from Russia.

With Russian wheat unlikely to be competitive, opportunities are expected to emerge for other exporters to compete for the market, according to analysts.

Russian agency IKAR recently lowered its estimates for the country's 2020-21 wheat exports by 1 million mt to 37.5 million mt, citing the impact of the export duty.