SovEcon cut 2020/21 Russia’s wheat export estimate by 10%

SovEcon, a leading Black Sea agricultural markets consultancy, cut 2020/21 Russia’s wheat export estimate from 40.8 MMT to 36.3 MMT as farmers are expected to postpone sales till 2021/22.

Initially, we estimated that the introduction of a wheat tax of €25/mt (EURUSD = 1.22) from February 15 to June 30 would lead to a decrease in exports by 2-3 MMT compared to our November forecast of 40.8 MMT. However, the analysis of the season 2014/15 showed that the market may react more sharply to the tax introduction.

In February 1, 2015, Russia has introduced a tax of 15%+€7.5/mt of wheat (not less than €35/mt). The market reacted with a collapse in exports, which fell from about 2 MMT per month in November-January to 0.4-0.6 MMT in February-May 2015. In parallel, the export of duty-free corn and barley has risen.

In 2020/21 a significant part of farmers may decide to postpone sales until the season 2021/22, hoping for rapid strengthening of prices after the tax is lifted. Additional support for this decision can be provided by poor prospects for the 2021 crop. Many growers, seeing that the crop conditions have not substantially improved by the spring of next year, will try to bet on a crop failure in 2021 and higher global prices.

USDA in December estimated Russian exports of wheat in 2020/21 at 40.0 MMT (+0.5 MMT to the November estimate), barley – 5.4 MMT (unchanged), corn – 3.1 MMT (unchanged).

A significant reduction in the forecast of Russian wheat exports may support the global wheat market. An additional bullish factor: we believe the market prices have not fully reflected extremely tight European wheat S&D.

RUSSIA WHEAT EXPORTS SCENARIO IN 2020/21 (SOVECON)

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