Russian wheat prices below $200 again, big crop is getting bigger?

Last week, Russia’s 12.5% wheat prices in deep-sea ports fell $1 to $199/mt. The market remains under harvest pressure in Russia, weaker ruble also helps.

Andrey Sizov 24.08.2020

Last week, Russia’s 12.5% wheat prices in deep-sea ports fell $1 to $199/mt. The market remains under harvest pressure in Russia, weaker ruble also helps.

Local analysts IKAR upped their crop forecast to 82 MMT (+5.5 MMT in 4 weeks !), Rusagrotrans, the largest rail cars owner, upped its forecast to 81.9 MMT. Just a reminder – USDA is 78 MMT only (ex.Crimea which is expected to produce around 0.7 MMT).

We were the most optimistic Russia’s crop forecaster all 2020 but we now feel that the market has turned from too much pessimism to too much optimism. There are talks about 82-84 MMT now in the market but we believe now it’s way too optimistic. Crops in Siberia, the largest spring wheat producer, are in the worst shape since 2012, as per our analysis. After the assessment of crop conditions and analysis of updated yields, SovEcon marginally upped its forecast, from 80.9 MMT to 81.2 MMT. Since late July our forecast is up 1.9 MMT.

USDRUB was sharply up last week on weaker crude and stronger USD. The pair has closed the week at 74.8 (+3% WoW).

Traders say that Novorossiysk deep-sea terminals try to increase transshipment rates starting from October by $2-3 from current $15-16/mt. Novorossiysk is the largest grain deep-sea port by far with a total annual capacity of around 18 MMT.

We are slightly bullish Russian wheat short term. Bullish factors – stronger global market and likely increase of transshipment costs; bearish – domestic market harvest pressure and weaker ruble.