Egyptian GASC is holding a wheat tender on April 6 for August shipment. We believe that the Egyptian firm could return to the market to test how the new Russian floating tax will affect offers.
The tax kicks in on June 2. The government is to calculate the average weekly price index based on daily prices and set the tax rate for the new week every Friday. The formula is 0.7*(average weekly index – $200).
The Moscow Exchange started to publish daily price indexes from April 1. It’s available here: https://www.moex.com/ru/index/WHFOB. The index takes into account only deep-sea port deals (Novo, Taman, Tuapse, Kavkaz).
For the last week, the average wheat index was around $282/mt, implying a theoretical $57.4 (0.7*(282-200)) tax for this week. It’s also $282/mt on April 5.
A trader has to report an export deal within a few days to the exchange. The price will be used in calculating the daily index if:
1) the shipment period is within 60 days after the index calculation
2) there are not more than 60 days and not less than 4 days before the index calculation.
I.e. trader A sells wheat on April 6 for June 1-15 delivery at $240/mt, it reports the deal to the exchange on April 8 and starting from April 8 or 9 the deal price will be included in the index calculation until June 16. If there are no other deals the index will be $240 until June 16 implying a tax rate of $28 (0.7*($240-$200)).
Let’s assume trader B sells another wheat lot (same volume) for June 5-20 delivery at $250/mt on April 20 in addition to the above deal. The contract is registered on April 23 and starting from April 23/24 the price index will be $245. Starting from June 16 the first deal price will be taken out of the calculation and until June 21 the index price will be $250.
Overall the system looks unpredictable and not transparent – big risks and additional costs for all market participants.
There is only one good (short-term) thing about the new Russian floating tax. If the current export prices remain more or less unchanged, the real tax sum may significantly decrease from June compared to the current one. For example, when selling for June shipment at $235/mt, the tax may be $24.5/mt (0.7*($235-$200)) against the current fixed tax of €50/mt (~$60/mt). It could support exports at the end of 2020/21 and the beginning of the new season.
I will be talking about Russia’s wheat exports and taxes among other things on April 8 at our webinar – http://webinar.sizov.report
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