Russian wheat is cheaper on record-high on-farm stocks. Will this convert into aggressive exports in 21/22?

Russian wheat tumbled on higher supply from farmers amid approaching new crop and record-high on-farm stocks.

Average domestic wheat prices in Russia were lower last week. 4th grade food wheat (~12-12.5% prot.) dropped 175 rub to 13,600 rub/mt (USDRUB = 72.8). Prices were under pressure on higher supply from farmers amid approaching new crop and record-high on-farm stocks.

Wheat supply has been growing gradually in the domestic market during recent weeks. Some farmers need cash, some – need to clean the storage before the new crop which harvest starts in a few weeks in the South.

Rosstat reported June 1 on-farm stocks at 4.8 mmt (+74% YOY), a record high for a decade. 

Demand from traders and processors remains weak. Processors still wait for lower prices, exporters have to be cautious amid lower FOB and rising floating tax which was upped from $33.3/mt to $38.1/mt on Friday.

Will this convert into aggressive exports in early 2021/22? Not necessarily. 

First, we estimate total carry-over wheat stocks to be close to average as high on-farm stocks are likely to be offset by low processors’ and traders’ stocks. 

Second, the floating tax mechanism remains an additional hurdle as its rate is not clearly predictable. 

Third, later harvest also would slow down sales.

Last but not least, farmers are likely to be very reluctant sellers in early 2021/22 hoping that the export tax could be lifted soon.

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