Ruble wheat prices up, government threatens to cap grain prices

Andrey Sizov 26.01.2021

Last week, wheat ruble prices were higher again in Russia’s market, supported by sluggish farmers’ sales. Average 3rd grade prices were up 200 rub to 15,750 rub/mt, 4th grade prices were up 175 rub to 15,700 rub/mt (USDRUB = 75.2). The government tries to encourage farmers to sell more aggressively.

Russian farmers upped their wheat offers last week reacting to strong demand from exporters. Many traders need to secure more grain urgently for the execution of the contract before February 15, when the first wheat tax of 25 EUR/mt kicks in. However, closer to the end of the week demand from exporters began to decline and many started to cut bids in ports.

Demand from domestic buyers remained relatively low, many continue to cut prices, first of all for feed wheat, hoping to see substantially lower prices shortly.

On Wednesday, deputy head of the Ministry of Agriculture Oksana Lut proposed to introduce price caps on grains and pasta as an additional incentive for farmers not to hold the grain. Lut expressed deep concern about the fact the prices for pasta and grains spiked by 8% in the first two weeks after the New Year. The ministry is willing to apply the caps if the prices continue to rise. Price freeze was already implemented by the government in relation to sugar and sunflower oil in the mid of December 2020 after President Putin required some action on rising food prices.

We believe this verbal intervention couldn’t be converted into real actions because of lack of implementation mechanism. However, we expect farmers’ sales to accelerate near term on approaching wheat export taxes (25 EUR from February 15, 50 EUR from March 1).

Supply from farmers was slightly higher last week on export restrictions talks and business activity recovery after long New Year holidays.