Wheat

by Chris Lyddon
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A plan to limit Russian exports and the start of that plan’s operation have been bullish factors in the world’s wheat market, competing with the fundamental fact of ample supplies and a strong dollar to steer prices in recent months.

“Uncertainty about export prospects in the Black Sea region often dominated market activity during December and January,” the International Grains Council (IGC) said in its Grain Market Report. “Talk of a possible cap on exports from Russia initially saw export prices rise sharply in most countries. However, with a raft of measures to slow Russia’s shipments implemented and with export taxes to begin in February, market sentiment turned weaker more recently, pressured by ideas that availabilities elsewhere were more than ample to cover any shortfall.”

Prices moved higher in December and then weakened during January.

“Activity in U.S. futures was choppy at times, especially during December, as market participants assessed the potential impact of reported constraints on Russia’s shipments,” the report said. “Along with worries about less than ideal conditions for domestic crops, futures posted strong net gains by the middle of the month, more than overriding sustained concerns about sluggish export demand.”

“Beginning in September 2014, Russia’s grain exports were driven almost exclusively by the depreciation of the Russian ruble,” the USDA said in an update on the sector. “The depreciation continued, becoming even more volatile in January 2015. Thus, the stimulus for exports remains strong.”

However, a number of factors are designed to limit exports, including:

the Russian government’s export tariff on wheat, which went into effect Feb. 1;
strengthened phytosanitary control of export facilities and elevators;
delays issuing phytosanitary export certificates by the Russian Federal Service on Veterinary and Phytosanitary Surveillance; and
a move by the Russian Railway monopoly (RZhD) to delay the supply of railcars starting in December 2014 and slow down the servicing of grain exporters.
“Industry analysts report that in December 2014, Russian traders already halted domestic purchases of wheat for export in expectation of tariffs on wheat, current administrative measures and general economic uncertainty in Russia,” the attaché said. “Since there are no tariffs on exports of other grains, such as barley, corn and pulses, exporters may increase exports of these crops. However, the possible further devaluation of the ruble, or decrease of the Euro rate to the U.S. Dollar, may mitigate the effect of export tariffs. In this situation, the administrative measures may have a stronger impact on exports than the wheat export tariff.”

These uncertainties make it very difficult to accurately forecast Russian exports for the rest of the marketing year 2014-15, the attaché said.

“Russian exports have all but stopped since the export duty was imposed on Feb. 1,” British grain traders Gleadell said in a commentary on the market. “They are reported at 18.56 million tonnes, with 1 million tonnes still to be shipped on deals concluded before the duty was imposed.

“News that the Russian government will review the current duty once February’s exports are known throws more confusion into the market. Traders are trying to second guess whether this means a possible extension of the duty if exports are too high, or a reduction or removal of the duty if the government feels comfortable with stocks levels and is more optimistic over new crop prospects.”

The cancellation of an Egyptian tender sent wheat lower. “Egypt, which got a $100 million credit line from the U.S. to purchase American wheat, said it canceled a tender to buy the grain because prices were too high,” the Bloomberg agency reported on Feb. 18. It quoted Mamdouh Abdel Fattah, vice-chairman of the state-run General Authority for Supply Commodities, as saying that U.S. wheat was “much higher than world prices.” The agency explained that Egypt, the world’s largest wheat importer, hasn’t bought U.S. grain though its state-run tender system since September, Bloomberg said.

“U.S. prices are exaggerated,” Fattah told Bloomberg by telephone from Cairo. “We will have to think of other origins to cover market needs.”

Bloomberg noted that U.S. exports have struggled to be competitive in North Africa against Europe, which had a record wheat harvest. “A stronger U.S. dollar also has made the grain more expensive relative to European supplies,” it said.

France, in contrast, has been consolidating its place as the leading exporter to Egypt. “In price terms, French wheat remains effectively one of the most competitive on the market,” the French market body FranceAgriMer said in a monthly report on the market.

It put cumulative French sales to Egypt at a record 1.7 million tonnes, following the Feb. 3 purchase by GASC of 120,000 tonnes.

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