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Global Grain Geneva: Russian wheat exports expected to fall off a cliff

Record export pace cannot continue

Russia cannot maintain its current export pace for long and monthly volumes may soon drop sharply for the season’s exports to come in at expected levels, panellists told the audience at Global Grain Geneva.

Russia has set wheat export records in the start of the current season but with a significant year-on-year decline in production that pace will need to fall dramatically, and soon, to hit forecast export levels.

Russia’s wheat export volumes for this season are a multi-million-dollar question, said Solaris Commodities director, Swithun Still, and the eyes of the world wheat market on Russia. Still believed the USDA Russian wheat export figure of 35 mln tonnes is too high, and his number is around 33 mln tonnes.

“If it is indeed 33 mln tonnes – or even 35 – if we’ve done over 18 mln tonnes of exports to date, we’ve done over half. The export pace needs to slow down,” said Still.

Fryers Report founder Noel Fryer has the figure at 30 mln tonnes. “How do we get there? I think this thing has got to fall off a cliff; I don’t think price can work fast enough,” said Fryer.

Although Fryer saw the domestic market paying more than the export market and it beginning to have an impact, he would not exclude the possibility of government action to curb exports. The possibility of Russia imposing a ban or limiting exports through some market intervention has been in the market since early in the season. Most participants in Geneva wrote off the chance of an export ban, but most saw an export tax as a possibility.

The market has so far resisted attempts to restrict exports. “There are so-called ‘administrative measures’ which have been put in place: informal discussions with exporters on what they’re going to be allowed to do, phytosanitary restrictions, extra controls at loading points. All of these things that were supposed to slow down wheat exports haven’t worked so far,” said Still.

Still hoped there would not be an artificial intervention in the market, but said exports should be falling from 4 mln tonnes per month to 2 mln and could not see that happening in December.

“The catalyst has to be price, and price has to a certain extent done its job, but it hasn’t done it enough,” said Still, who does not expect government market intervention this season.

Dan Basse, president, AgResource Chicago saw this year as a test of whether the 5.9 mln tonnes of wheat left in Russia, based on AgResource estimates for this season, is enough to see the country through until harvest in July.

“I believe the Russian wheat market is broken,” said Basse, citing a lack of signals from the back end of the market that the world’s export demands need to be met by another origin. The threat of intervention has encouraged exports as traders look to get wheat out of the door, preventing the usual feedback.

“At some point world demand needs to shift elsewhere” said Basse, who expected exports continue at pace until some point in December before falling steeply.

With exports in the season so far down 25%, the EU has been on the other side of Russia’s success.  The USDA has forecast 23 mln tonnes of EU exports - level with last year – but Basse saw 18 mln tonnes. “Catching up after the first few months of this season will prove difficult for EU exports,” he said.

“I see a real export opportunity created for US wheat export, both hard and soft from December through June/July,” said Basse. Following those figures Basse came up with a late first quarter/early second quarter price high of USD265-USD285 fob relative to the world market for 12.5% wheat.

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