The Export Limit on Russian Wheat Drives Importers to Look Elsewhere

Published 2020년 4월 9일

Top wheat exporter Russia has announced an export limit on the crop for the period of April to June that has contributed to the rising price trend already in place due to the COVID-19 outbreak. Major importers such as Turkey are expected to have to look for additional markets such as Canada and the US.

Due to rising concerns of insufficient food inventory amid the coronavirus (COVID-19) outbreak, the Eurasian Economic Union (EAEU), which includes Russia, Armenia, Belarus, Kazakhstan, and Kyrgyzstan, has limited the export of certain agricultural products to countries outside of the union until June 30. The ban includes export restrictions on buckwheat, soybeans, sunflower seeds, rice, garlic, onions, and most significantly wheat. Of all, limits on Russian wheat exports are projected to further increase its prices that have already been rising due to the outbreak.

Prices Already Volatile Due to the Coronavirus Outbreak

Wheat prices rose considerably during mid-to-late March amid the coronavirus outbreak. Previously traded at USD 170 per ton in the international market in early March, it is currently traded at approximately USD 193 per ton. Russian wheat price also increased by 12% to RUB 15,454 (USD 206) in March from RUB 13,794 (USD 183.87) in February. Prices have risen further in April to USD 217 per ton for 11.5% wheat, and USD 222 for 12.5% wheat in anticipation of the export limit. This is a substantial increase from prices in April 2019 of RUB 12,890 (USD 171.8) per ton

Russia, the Top Wheat Exporter, Limits Export Volume

Russia has been the biggest exporter of wheat for the past three years with an export volume of 33.5 million metric tons in 2019/2020. Russia is the only country in the Northern Hemisphere to see an increase in wheat crop production for this season. Forecast for 2020/2021 is at 80-82 million metric tons, despite insufficient rainfall in March across the Black Sea including Western Russia.

Russia had previously decided to suspend all grain and cereal exports on March 24, before reversing its decision the next day then reintroducing an export limit the same week. Grain exports will be limited to 7 million metric tons from April to June in order to maintain the supply of staple food products within the country. The government also plans to release 1.5 million metric tons of wheat into the domestic market in order to alleviate rising prices of flour-based products such as bread.

Some traders have speculated that the export limit will not have a substantial impact on the market as 7 million metric tons is roughly the amount 5% Russia was targeting to export during the 3-month period. However, in an anticipation of a supply drop along with concerns that the measures could be extended beyond June, prices increased in the Chicago Board of Trade (CBOT) late March.

Wheat Importers Expected to Search for Additional Markets

Importers such as Egypt and Turkey are expected to look for other options such as the US and Canada. Another major wheat exporter, Australia, on the other hand, is not expected to fully take advantage of the opportunity due to continuous drought that has brought 2019/2020 production down to 15.7 metric tons, the lowest in 12 years.

The implementation of the ban is especially alarming for Turkish manufacturers as Russia is Turkey’s biggest source of wheat with an annual import volume of 4.8 billion in 2019, which accounted for 82% of total volume. While wheat is also used for animal feed, durum wheat is mainly used to produce flour based-products such as pasta, for which Turkey is the second-largest worldwide supplier. Due to the stockpiling of non-perishable food products, Turkish pasta prices increased by 32% in March from TRY 3.73 per kg (USD 0.56) in 2019 to TRY 4.91 (USD 0.73) per kg in 2020. As further volatility is expected in the market, Turkish companies are seeking additional sources to maintain the supply in case of a decline in imports from Russia.

Canadian Wheat to Witness Increases in Demand

Russia’s decision is also expected to affect demand for Canadian Western Spring Wheat. As buyers stockpile flour-based items, wheat prices have already been increasing in Canada, the third-largest exporter as well as the US, the second-largest. The demand increase was unexpected as it is unusual to see the demand for wheat increase in the spring.

With wheat demand usually peaking during summer and winter, the Canadian wheat industry is expected to witness a further increase in exports. Canadian suppliers have reported having sufficient stocks of wheat available this season to accommodate rising global demand. Exporters, however, are likely to face logistical issues including shortages of containers and workers at ports.

As of April 27, Russia has completely sold out its 7 million-ton quota set until June and has thus banned wheat exports to countries outside of theEurasian Economic Union until July 1. EU / US suppliers are expected to see increases in sales and top buyer Egypt has already imported a substantial amount of wheatfrom countries such as Franceto ensure enough inventory.