The News & What it Means – The Russian Factor in World Grain Markets

 

By John DePutter & Dave Milne – Nov. 28, 2017

 

The news:

“The Ministry of Agriculture of Russia does not expect any reduction in the planted areas under grain crops for the 2018 harvest, declared the Minister of Agriculture, Alexander Tkachev on November 23.”

-APK Inform, Nov. 27, 2018

 

What it means:

If accurate – and in the absence of any major weather problem – more price pressure would seem to lie ahead.

Following a massive 2017-18 harvest, Russian production is already flooding world markets and remains one of the biggest factors in the continued malaise in global wheat prices in particular.

 

According to published reports, just over 19 million tonnes of grains had been exported by Russia as of Nov. 15, 2017 up almost 30% year-over-year. At 14.7 million tonnes, Russian wheat exports were running more than 26% ahead of the previous year, while the country had also exported almost 2.8 tonnes of barley and 1.44 million tonnes of corn.

 

In total, the Russian Ag Ministry expects this season’s grain exports to hit 45 million tonnes, including 30 million tonnes of wheat.

 

That’s a lot of extra wheat to slosh around in world markets, especially when one considers that Russian wheat exports the previous two marketing years ranged between 25.5 million and 27 million tonnes. Indeed, as recently as 2008-09 and 2009-10, Russia wheat shipments were actually under 20 million tonnes annually.

 

For those that missed it, the USDA raised its estimate of 2017-18 Russian wheat production to 83 million tonnes in November, up 1 million from its October estimate and more than 10 million above a year earlier. The global wheat supply situation gets even heavier when one also considers the generally rising output trend in other Black Sea countries, including Kazakhstan and Ukraine.

 

Not surprisingly – especially considering the fact Black Sea origin wheat is typically priced below North American supplies – U.S. wheat sales and shipments so far in the 2017-18 marketing year are down 8% from a year ago. That’s obviously taken a toll on prices, with the wheat market suffering more losses earlier this week.

 

“The market seems to have lost patience and concluded the U.S. is simply not going to export enough wheat,” Tobin Gorey, director of agricultural strategy at Commonwealth Bank of Australia, told Reuters in response to the latest losses.

 

Now, the fact Russia may not trim planted area much, if any, in the spring doesn’t assure another monster crop in 2018; the weather will have to cooperate for that to happen. But it seems a safe bet that North American producers are going to have to get used to more competition from the Black Sea region, just as they’ve had to get used to more competition from South America.

 

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