The American-Chinese battle over the import duties on a large number of products is not yet over, or the United States (US) is already at loggerheads with the next country: Russia. This is causing turmoil in the financial markets. However, the grain market can benefit from this.
The US announced new sanctions against Russia on Friday, April 6, crippling businesspeople. In response, the Russian AEX index closed 9% lower on Monday, April 9. At the same time, the ruble lost 3% in value against the dollar. The following day the ruble falls again against the dollar and the euro, because on Tuesday April 10 the value decreases by 4%. That is bad news for Russian entrepreneurs, but good news for the agricultural sector.
Russia has enormous grain reserves; especially wheat. This makes it ruler of the world market. In addition to good availability, it is the price-quality ratio that ensures that Russia has the market under its control. Even a cheap dollar does not ensure that the Americans can sell their wheat.
Rising prices and volume
The Russian wheat price will reach its highest level in almost 3 years in March. One tonne of wheat with 12,5% protein is now traded for above $200 per tonne (in the Black Sea ports) and the export level is 40% higher than during the same period last year. An export volume of 38 million tons of wheat is expected for the entire export season. Prices could rise to $220 per tonne, analysts think. They currently stand at $213 per tonne FOB. Barley is also being exported significantly more.
A low ruble rate makes it attractive again to buy Russian wheat. In any case, a faltering financial market does not cause prices to fall. The wheat contract is also on the rise on the Matif in Paris; This is partly caused by a weaker exchange rate of the euro.
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Low exchange rates in the European Union and the US mean a lower return per hectare for arable farmers. In Russia the opposite is true. Russian arable farmers are paid for their products in rubles, while grain traders export them in dollars. A low price is positive for the crop yield. In addition, the interest rates in Russia and Ukraine are considerably higher than we are used to. However, the rental prices are much lower.
Less exports
Now that weather conditions in Russia are improving and spring has arrived in large parts of the country, logistical conditions are also improving. A faltering supply has recently worked to the advantage of the European Union; especially towards West African destinations. What can have a counter effect is the fact that arable farmers are mainly busy sowing spring crops and temporarily do not load grain.