Source: Zerno On-Line (Russia)
Global grain market competition is intensifying amid Middle East tensions. Specifically, the situation is driving up prices for Russian wheat. However, logistical and other factors are holding this growth back. Furthermore, other global grain exporters are also influencing the market.
Domestic prices for wheat, Russia’s main export crop, have been rising rapidly for the second week, Tatyana Litvinenko, editor-in-chief of Zerno.Online, told Moskovskaya Gazeta.
Russian Wheat Prices and Export Costs
At the end of last week, the average price of third-grade wheat in the European part of Russia was 13,800 rubles per ton. Furthermore, fourth-grade reached 13,430 rubles per ton. Additionally, fifth-grade was 11,970 rubles per ton. Wheat purchase prices at ports are also rising. As of March 13, the average purchase price of fourth-grade wheat with a protein content of 12.5% at deep-water ports increased to 16,600 rubles per ton. Moreover, this is an increase of 400 rubles compared to the previous week. Furthermore, it is 700 rubles higher than at the end of February.
Wheat prices are indeed rising globally. However, there is a noticeable gap between the FOB (free on board) and CIF (closed on board) prices. This is due to increased infrastructure costs, such as freight, insurance, and so on, Vladimir Petrichenko, CEO of the Pro Zerno analytical center, told Moskovskaya Gazeta:
“The FOB price for Russian wheat in Black Sea ports is currently $240 (19,452 rubles) per ton. Sellers want to raise the price, buyers are resisting, and normal bargaining is underway. Barley and corn prices remain unchanged: $245 (19,857 rubles) per ton of barley and $223 (18,074 rubles) per ton of corn.”
Wheat export prices may be impacted by the export duty. Specifically, it will be 135.4 rubles per ton from March 18. Furthermore, this compares to zero from mid-January to March 17, noted Tatyana Litvinenko.
“The growth of export prices is also limited by higher freight and insurance costs: last week, freight rates from Novorossiysk to Mediterranean ports increased by $1-3 per ton, and to Asian ports by $5 per ton. Freight rates from Azov Sea ports increased even more, by $5-8 per ton,” said Tatyana Litvinenko, editor-in-chief of Zerno.Online.
Global Grain Market Competition: Export Quotas and Producer Challenges
Russia continues to experience a grain overproduction relative to domestic consumption. Oddly enough, both quotas and grain export duties are in effect. Furthermore, even one of these mechanisms would be sufficient to meet the country’s domestic consumption needs and control prices. Pyotr Korotchenko, Chairman of the Stavropol Krai Agricultural Employers’ Union, commented to the Moskovskaya Gazeta newspaper:
“Therefore, despite high grain production volumes, producers are unable to achieve favorable prices that would facilitate production expansion, and the profitability of this type of activity has been declining over the past five years. Meanwhile, our grain export quota is introduced in November (effective from mid-February), when there is no clear understanding of how the winter will play out, what weather conditions will be in Russia’s southern ports, and how they will impact grain shipment capabilities. Producers cannot sell beyond the quota, and this is limiting our exports.” Russian grain prices are already rising and will likely rise by another $10-15 per ton, but this will offer little benefit to producers, as export duties and logistics costs will absorb most of their income.
Turkey is the main buyer of Russian wheat, and Egypt is the main buyer of grain.
“Turkey has already purchased 6.6 million tons of grain from Russia since the start of the season – almost all of it wheat – while Egypt has purchased 5.5 million tons of wheat out of 7 million tons of grain. Iran is the third-largest importer, but its key crops are barley and corn. Russia has shipped 5.3 million tons of grain to Iran this season. Understandably, deliveries have slowed down, but the main problem is not the grain delivery itself, but the settlement of accounts with Iran. Israel is the fourth-largest Russian buyer, having shipped 1.7 million tons of wheat so far,” the expert explained.
Egypt has reduced its wheat purchases from Russia this season, according to the Chairman of the Union of Agricultural Employers of the Stavropol Territory.
“Other exporters, our natural competitors, have apparently become increasingly important for Egypt. Russian wheat, which is superior in quality to, for example, French wheat, is partially diverted to Asia, but in these countries, demand for cheap grain dominates. China buys grain from the US, while it has only purchased 5,000 tons of wheat from us over the past six months. India buys pulses from Russia, but pulse prices in Russia have fallen by 1.5-2 times this season, as many sowed pulses last season to avoid dependence on grain, which is subject to export duties,” noted Pyotr Korotchenko.
Grain shipments to Iran via Black Sea ports are currently suspended, but corn, barley, and soybean exports via Caspian Sea ports (Astrakhan, Olya) continue.
In the near term, the military conflict in the Middle East primarily affects Iran, one of Russia’s main grain buyers. While grain prices are rising, they will be held back by competition, experts note.
“Russia’s main competitors in grain exports are Argentina and Australia. Argentina harvested a record wheat crop this season – 27.8 million tons, while Australia harvested a very high 36 million tons. Argentine wheat is considered to be of lower quality than Russian wheat, but for some buyers – such as Bangladesh and Libya, which also buy grain from Russia – this is not a problem,” noted Vladimir Petrychenko, Director of ProZerno.
Agricultural producers in southern Russia do not expect a significant increase in profitability due to the situation in the Middle East, said Pyotr Korotchenko, Chairman of the Union of Agricultural Employers of the Stavropol Territory. Logistics routes along the Black Sea are complicated, and freight and cargo insurance costs are rising.
Barley is shipped to Iran via the Caspian Sea, which is unaffected by the conflict, and Iran remains one of the leading importers of Russian grain.
“The South produces wheat for export, but many producers sell grain at prices close to production costs and are unable to lower them further, while the tax burden and administrative restrictions complicate crop production. Meanwhile, the introduction of quotas and duties on grain exports in Russia has stimulated global grain production and, as a result, has become one of the factors restraining prices on the global market,” concluded Pyotr Korotchenko, Chairman of the Union of Agricultural Employers of the Stavropol Territory.
