Opinion

Focusing on Russian Wheat: Expected Lower Yield and Implication on Global Prices

Published May 23, 2024
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Adverse weather circumstances, such as drought and frost, have hampered Russian wheat production, resulting in a decreased production outlook. The FOB price for Russian 12.5% protein wheat increased to USD 221 per mt, signaling a possible drop in supplies and concerns about future shipments. IKAR reduced its estimate for Russia's wheat crop to 85.7 mmt as wheat exports fell. This drop in supply from a large exporter, such as Russia, will likely impact worldwide wheat prices. Russia's intention to establish an inter-bloc grain exchange, as well as the European Commission's proposal to raise duties on Russian and Belarus imports, could impact world wheat prices.

Recent adverse weather conditions, including dry weather and frost, have affected the central wheat-growing regions in Russia, leading to a lower production outlook. Anomalously cold weather in early May caused significant damage to Russian crops, with an estimated loss of 3.9 million metric tons (mmt) of wheat. The wheat production forecast has been revised from 89.6 mmt to 85.7 mmt. The Institute for Agricultural Market Studies (IKAR), a Moscow agricultural consultancy, lowered its estimate for Russia's wheat crop to 85.7 mmt from first estimates of 91 mmt, with wheat exports also decreasing. Approximately 5 million hectares (ha) of grain cultivation in Russia needs to be reseeded due to frost damage, further affecting the expected harvest for winter grain crops. This reduction in supply from a major exporter like Russia will likely influence global wheat prices.

Impact on Global Wheat Price

Figure 1: Historical Wheat Prices

Wheat Prices

Source: Market Insider

The concerns over Russian crop losses due to frost drove the Chicago wheat futures to 10-month highs. This indicates a global market reaction to the potential decrease in Russian wheat supply. Wheat prices reached its highest level since July on Euronext, reflecting global market concerns about adverse weather conditions in major wheat-producing regions, including Russia. Additionally, the FOB price for Russian 12.5% protein wheat rose to USD 221 per metric ton (mt) due to these conditions, indicating a potential decrease in supply and concerns over future exports. This underscores the sensitivity of global wheat prices to changes in Russian wheat yield forecasts, a factor that needs to be monitored closely.

With a significant global impact on wheat trade, Russia's entry into the top five largest grain suppliers to Indonesia demonstrates Russia's growing influence on international grain markets and the potential for its crop yields to affect global pricing..

Russian Wheat Industry Outlook

Harsh weather conditions have negatively impacted the Russian wheat yield, leading to lower production forecasts and higher export prices. These developments and government policy changes influence global wheat prices and could lead to tighter global wheat supplies. Additionally, Russia's proposal to the Brazil, Russia, India, China, and South Africa (BRICS)trade alliance to establish an inter-bloc grain exchange is a significant development that could potentially disrupt global grain trade dynamics and pricing. The European Commission's proposal to increase tariffs on grain and oilseed imports from Russia and Belarus is another factor that could lead to changes in trade flows and global pricing.

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