Wheat prices sharply up as Russia introduced new restrictions

Andrey Sizov 18.01.2021

From Dec 28 to Jan 15, 12.5% wheat prices in deep-sea ports increased by $25 to $286/mt, in shallow ports climbed $13 to $254/mt. The market was supported by Russia’s authorities’ chaotic export regulation and higher global benchmarks. (And deep-sea offers are above $300 today!)

In December 2020, the Russian government imposed export taxes on oilseeds and 25 eur wheat tax, alongside the 15 Feb-30 Jun grain quota of 17.5 mmt, after President Putin expressed deep concern regarding rising food CPI.

Last week, on Friday, Russia announced that the wheat tax will be doubled to 50 eur from March 1. As per market sources, Russian officials were not satisfied with domestic market prices dynamics in December 2020.

Additionally, they were concerned that the current rally in the global market would fully offset tax impact on the domestic market. In addition to rising wheat tax, the decision was made to tax barley and corn exports at 10 eur and 25 eur respectively starting from March 15.

The government also said it could reinstall the “floating” wheat tax from July 1 as it wants to force farmers to sell their wheat in 2020/21 and to postpone sales until the new season. “There is no point in holding the grain and waiting,” Economy Minister Maxim Reshetnikov said in the statement.

The floating tax works as follows: the government sets a threshold export price in rubles, everything above is being taxed at 50%. I.e. if the threshold price is 16,000 rub/mt, the export price of $280 is converted into rubles 20,720 rub/mt (USDRUB = 74), the tax is 2,360 rub/mt (0.5X(20,720-16,000)).

Farmers are likely to lose the incentive to store wheat till 2021/22 and we could see more aggressive domestic sales and exports. As a result, Sovecon could up its Russia’s wheat export estimate from December estimate of 36.3 mmt.