All Russian wheat offers in a recent buying exercise launched by Egypt were at the same price, highlighting what traders see as government intervention from Russia behind the scenes, raising confusion regarding the world's largest wheat-exporting country. Here's a closer look at what's happening.
*What is Russia's Policy?*
In March, sources told Reuters that the Russian government advised exporters to ensure that prices were sufficiently high to cover farmers' production costs. Traders stated that the policy also aims to restrict exports and lower domestic flour prices, similar to the export taxes and quotas imposed in recent years. They noted that the minimum price for exported wheat has become more evident since then. In last Wednesday's exercise by Egypt, one of the largest wheat buyers globally, all Russian wheat bids were set at $270 per ton for shipping costs before delivery. Traders believe this is the current minimum price mandated by Russian authorities for international sales. Sticking to this minimum has made wheat from European origin more competitive. The General Authority for Supply Commodities, the governmental grain buyer in Egypt, secured two shipments of Romanian wheat.
*Why is the Market Confused?*
Traders say that while the minimum price has applied at times, prices have fluctuated at other instances, contributing to a resurgence in Russian exports. The minimum price was clearer in Egyptian practices, as sellers generally presented their bids at a uniform level over the past few weeks. Additionally, traders believe there is a principle of a lower price, about ten dollars per ton below the export minimum for shipping and delivery, applicable for Russian export sales outside international practices. Russia has not confirmed the existence of a minimum wheat export price, and international traders indicated that the instructions are communicated verbally to exporters without formal written rules. The Russian Ministry of Agriculture declined to comment. Market sources report that Russian wheat is regularly offered for sale at significantly lower prices than those announced. On Monday, traders noted that export prices from the Russian port of Novorossiysk on the Black Sea ranged between $243 and $245 per ton for delivery of wheat containing 12.5% protein for October shipment. Russian analysts observed this month that prices fluctuated around $240. Traders indicated that Russian wheat could be used to cover part of an estimated 600,000 tons of wheat believed to have been requested by Algeria in another buying exercise last week, after reports that Algeria's state grain buyer paid between $272 and $275 per ton, including shipping costs.
*Is This a Market Problem?*
The lack of clarity regarding prices in Russia, the world's largest exporter, makes it difficult for traders and importers to take positions and anticipate trends. With a significant surplus in Russia and dwindling shipments from war-torn Ukraine, alongside declining crop production forecasts due to drought in other exporting countries, the international market appears increasingly reliant on Russian wheat this season. Traders cited lengthy negotiations in Egypt and Algeria's exercises last week as evidence of the tensions arising from Russian price levels. Price disparities may alter order costs for importers, with variations reaching several million dollars at a time when importers are already facing soaring prices and a rising dollar against local currencies. Traders and analysts are trying to estimate how long the minimum price may be maintained and whether this will soon slow Russian exports following massive shipments this summer. Analysts currently expect Russian wheat exports to reach record levels this season, backed by the largest crop outputs ever recorded in 2022 and 2023. Western traders and officials are concerned that the war in Ukraine has led Moscow to exploit grain politically, including offering to donate wheat to impoverished African nations and withdrawing from the Black Sea grain export agreement that facilitated shipments from Ukrainian ports. Moscow claims that certain provisions of the grain agreement meant to facilitate Russian exports have not been fulfilled. The exit of global trading firms from the Russian market this year may complicate knowing grain prices and supplies. Meanwhile, state intervention has been a feature of grain exports for years, with Russia consistently imposing export taxes and quota systems.
