Russian wheat traders face a tough start to the season

Andrey Sizov 31.07.2019

Russia’s traders face a tough start of the new export season. Farmers remain slow sellers, the ruble is strong and new crop outlook is deteriorating. July wheat exports are projected at 3.1 MMT, -18% YoY.

Last week many large traders upped wheat bids in ports again. Average 12.5% wheat prices climbed 200 rub to 10,700 rub/mt ($169, CPT deep seaports). In fact, a few of them had to pay way more, i.e. 11,100-11,200 rub/mt ($176). Such origination costs and FOB prices around $195 imply that traders were losing money on every tonne.

Buyers had to up prices as Russian farmers remain slow sellers. This is not new, as many of them prefer to store crops as long as possible hoping to receive a higher price. However, this season it probably became a bigger issue than normal. After 2018/19 high ruble prices, southern farmers, which are major suppliers of wheat for exporters during the beginning of the season, have enough money to pay the debts and finance winter sowing campaign.

In addition, farmers’ expectations of higher prices are supported by deteriorating new Russain crop prospects. Last week SovEcon has lowered new wheat crop estimate again, from 76.6 MMT to 73.7 MMT.

Strong ruble, which appreciated by around 5% in June, also doesn’t help exporters.

Exporters are trying to pass their increased costs to customers, but this season it’s not easy. Both key Russian competitors, EU and Ukraine, are expected to harvest bumper wheat crops.

As a result, Russian wheat exports have been slow at the beginning of the season. We estimate that in July Russia will export around 3.1 MMT of wheat which is -18% lower than a year ago.