Russia is introducing a flat wheat export tax of 25 EUR/mt (EURUSD = 1.21). The tax is to become effective from February 15 to June 30. The tax will be accompanied by 17.5 MMT grain (wheat, corn, barley, rye) export quota for the same period. This has been confirmed today officially by AgMin and the Ministry of Economy.
This is likely to result in smaller Russian wheat exports due to the increased use of wheat domestically for feed and most likely bigger carry-over as some grain owners could postpone their sales till 2021/22.
Our expectations at this stage:
- 2-4% rise in FOB prices for Dec-Jan shipment
- 2-3 MMT lower Russia’s wheat exports in 2020/21, i.e. 37.8-38.8 MMT (November estimate is 40.8 MMT)
- Tax will be mainly absorbed by Russian grain owners, domestic wheat market could fall by around 10% in the next 1-2 months. A decline in corn and barley prices is expected to be smaller.
We will reassess this shortly after getting a better understanding of the domestic market reaction. The next export and S&D update is to be released in around 10 days or earlier.
On November 19, we published a note for the clients saying that the Russian wheat export tax risk was “substantial” and gave an estimate of 30-50% probability that it could happen. Chicago and Paris didn’t pay any attention because everyone was sure at the time that Russia would introduce a relatively non-restrictive quota and wheat export tax was completely off the radar.
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