The Russian export tax, set in February 2021, cut wheat supplies from Russia in the second half of 2020/21 marketing season. The tax will also remain valid in the 2021/22 season (July-June), but the formula to calculate the duty will change.
Will Russia be able to maintain its global leadership in wheat exports during the new season, considering challenging market situations and current weather?
- The Russian export tax, set in February 2021, cut wheat supplies from Russia in the second half of 2020/21 marketing season.
- In the new season of 2021/22 there are chances Russia could obtain impressive wheat supplies for exports and maintain its global leadership.
- Government regulations are in place to keep domestic food prices under control and traditionally slow farmer sales coupled with a stronger competition with other Black Sea countries could make it tough to maintain the position of the world’s leading wheat exporter.
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Results of the 2020/21 season
Strong consumer demand, attractive prices, lower supply from the EU-countries and Ukraine and a weak ruble all contributed to the active wheat exports from Russia in the first half of the 2020/21 season (July-June).
Russia introduced a grain export quota for 17.5 million tonnes and the export tax on February 15, concerned about its food security and trying to curb rising domestic prices. February has been the last month of active wheat exports for Russia this season as exporters tried to ensure shipments before export restrictions came into force.
The wheat export tax doubled in March to €50 per tonne, which made Russian wheat too expensive and less attractive in the global market. Some companies stopped working before the 2020/21 season ends and left the list of Russian wheat exporters. Russian wheat exports between July 2020-April 2021 reached 33.17 million tonnes, which was 5% above the same period the year before, despite a dip in shipments, starting from March 2021, according to Refinitiv Eikon data.
Prospects for the new 2021/22 season
Wheat crop outlooks in 2021
Weather and export restrictions could change what crops will be sown and on which areas in Russia in 2021. Unfavorable weather during autumn and winter with a lack of soil moisture combined with forecasted warmer temperatures and minor rainfall in the European part of Russia during June-July could lower the chances to harvest an abundant wheat crop in 2021. Heavy rains in May have increased soil moisture recently and will provide a buffer against early summer heat/dryness, but the crop cannot withstand that for a prolonged period and remain in a favorable condition.
Winter crop conditions differed much across Russia. The main wheat-producing region, South Russia, experienced more favorable weather with moderate temperatures and rainfall in April. But in some Central regions the plants were so weak and thin, that large areas required replanting. The share of areas where plants were bad or even did not emerge totaled 8% in early March 2021 compared to 4% last year, according to Russia State Weather Services. Therefore, areas where winter crops would be replaced by spring grains could be large in Russia this year.
Rains have delayed spring sowing in most Russian regions. Spring crops were sown on 20.2 million hectares, or 69.1% from the planned area as of May 20, compared to 22.2 million hectares, or 76.2%, at the same date last year, Russian Agriculture Ministry data showed.
Weather and large areas required replanting, which forced Russian farmers to choose the spring crop which could be the best to grow. Spring wheat no longer seems to be the best solution for Russian farmers as the size of the floating export tax in the 2021/22 season is uncertain as well as domestic price trends. Farmers were likely to prefer growing other spring crops.
The area sown to Russian wheat in 2021 could be below last year and may reach 28.26 million hectares, accumulating total wheat production of 78.6 [68.5–91.0] million tonnes, according to Refinitiv Agriculture Research. The wheat crop in Russia would be 7 million tonnes lower than last year (85.9 million tonnes in 2020, according to Russian Statistics), but would remain at a 5-year average if this forecast materializes.
USDA predicted in its May report the Russian wheat export potential in the new 2021/22 season could reach 40 million tonnes. The projected volume could become the second largest one after the previous record of 40.5 million, reached in the 2017/18 season.
Export prospects for Russian wheat
Foreign demand for Russian wheat has picked up recently after some key buyers returned to the market, including those from Southeast Asia and countries from the Middle East. The gap between bids and offers for Russian wheat was large. Russian exporters are hoping to improve their positions and to boost exports in June, when export tax to be changed from a fixed rate to a floating number, which is likely to be less than the current €50 per tonne.
Russian wheat is not offered for July 2021 delivery compared to previous years, Refinitiv monitoring shows. The reason is a possible delay in the harvesting campaign in Russia due to weather and the lack of farmer selling. Exporters, who have their own farming enterprises could benefit and sell more actively, as they could cover some export commitments with wheat grown on their own farms. Russian farmers were not prepared to lose potential profits due to lower CPT-port prices because of the export tax and did not sell much. Farmers holding on to their stocks resulted to lower wheat exports from Russia this season.
Competition could stiffen
Current weather combined with better growing technologies could encourage Ukraine to produce more high-quality milling with a smaller part of feed grain in 2021. A possible higher wheat export potential for Ukraine in 2021/22 season could mean Russian exporters could compete strongly in the consuming areas, as was seen in the 2019/20 season.
Competition among Black Sea wheat exporters in the new 2021/22 season could stiffen due to expected higher exports from Romania. The Romanian wheat crop 2021 is likely to reach 8.5-10 million tonnes due to larger sown area and favorable weather. Romania could offer consumers up to 6-7 million tonnes of wheat, which is nearly double the export in the outgoing season.
To sum up, in the new season of 2021/22 there are chances Russia could obtain impressive wheat supplies for exports and maintain its global leadership.
However, government regulations in order to keep domestic food prices under control and traditionally slow farmer sales coupled with a stronger competition with other Black Sea countries could make it tough to maintain the position of the world’s leading wheat exporter.