Last week, prices in the Russian market went down after several weeks of strong growth. Average 4th grade food wheat (12-12.5% prot.) fell 1.5% to 15,125 rub/mt, as per SovEcon’s assessment (USDRUB 73.6).
The reasons for the weakening are the expectation of an increase in the export tax and a decrease in bids by many buyers in the last 1-2 weeks. This overlapped with the growing need of some farmers for cash to finance the winter planting campaign or to pay off loans. Some also need to free up the storage for late crops, like sunflower and corn, which harvest is starting now.
Domestic processors from the middle of the month have lowered prices by 500-1,000 rub/mt. In deep-sea ports, exporters’ bids dropped on average to 16,700 rub/mt versus 17,000 rub/mt. In mid-August some exporters for a short period of time were paying as much as 17,500 -17,800 rub/mt.
The ruble market has been rising fast for around a month since mid-July adding about 20% amid substantial cuts of the new crop and a rapid rise in export prices.
In the short term, we expect to see a weaker ruble market amid the pressure from growing export tax. At the same time, the downside seems limited. The sunflower harvest is starting and many farmers are likely to switch to selling it instead of wheat. We also believe that many domestic buyers are still short and will have to speed up the buying soon.
The bottom line is don’t expect any substantial harvest pressure to drive down ruble prices and boost exports which are currently lagging. We estimate August wheat exports at around 4.4 mmt (-8% YOY).