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Wheat markets react to Russian export news

Wheat markets react to Russian export news

Due to rumours of Russia announcing an export tax from February 15 to June 30, last Friday we saw wheat markets rally.

UK wheat futures (May-21) closed up £6.85/t on Thursday’s close, the market has since come down slightly again.

Yesterday, a list of measures were signed by the Russian government aimed at stabilising food prices. These included an export tax of €25.00/t on wheat exports between February and June. Although supplies are plentiful at the moment in Russia, rising domestic prices from a weaker rouble have driven this tax.

The export tax will be imposed on top of the 17.5Mt grain export quota that has been introduced for this period (revised up from 15Mt).

Initially the market was supported by this rumour, as the market thought that this imposed Russian export tax would cap global export availability and increase global demand for other origin supplies.

When this tax is added Russian internal grain prices would become cheaper. Helping to stabilise food prices. Although, the extent to which Russian prices reduce will depend on farmer selling.

If we see continued price rises we could see further measures imposed. Russian consultancy SovEcon has suggested that 2-3Mt of could be removed from Russia’s export figures for 2020/21, as a result of the current proposals.

What could happen to wheat markets?

Wheat markets since Monday have come down slightly, with profit taking and suggestion that Russia could export a substantial amount of grain between now and February 15th.

However, the Russian export campaign is usually front loaded. On average c.70% of Russian wheat exports are done before the end of January. This year so far 20.6Mt of wheat has been exported between July and November (IHS Maritime and Trade — Global Trade Atlas ®, Federal Customs, SovEcon). This is around 50% of their export surplus this year (USDA).

Exports between now and February will be watched closely. Particularly if there are any weather related challenges for exporting.

But when the export tax and quota is imposed we could see some support for wheat markets until harvest 2021. The extent of any support will be dependent on the availability of Southern Hemisphere grain, most notably Australian wheat.

Further to this, there is also still an element of unknown around the 2021 Russian production, after a dry planting window. Winter conditions will be key for the health of the crop during its dormant phase. 

Aside from EU exit talks, this again is another political issue that can drive your ex-farm price for wheat.

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