Much earlier than market analysts thought, the 'grain tap' of grain superpower Russia has been turned off for almost the world. This means that exports outside the quota can no longer take place until 1 July. What does that do to the market?
Analysts had estimated that Russia's export quota will be reached by mid-May or even early June. This amounts to 7 million tons of grains. However, buyers feared they were missing out and bought a lot of grain, so that the quota was already reached at the end of April. Because the customs paper mill works slower than the exporters work, it is expected that another 3 million tons can be exported before the handbrake is actually applied.
Panic purchases
This does not mean that grain exports will come to a complete standstill, as some media write. This means that no new orders can be accepted beyond the existing quota. This applies until the start of the new harvest, which is July 1. The most recent export from Ukraine actually decreased by almost 37%. Countries such as Egypt and Turkey have recently purchased large shipments of wheat and other grains from Russia. A weak ruble makes that very attractive.
It is not unusual for Russia to curtail its grain exports. This has happened six times before in the last two decades. This last happened in 2, when the grain harvest was hit by a major drought. As a result, the world wheat price rose sharply. Some see it as a reason for the Arab Spring, because food prices suddenly rose sharply.
Falling wheat price
The European Union can benefit most from the current situation. On Wednesday, the Matif wheat futures market fell below €200 to close the week at €197,75 per tonne for the May contract. The market actually slowed down with precipitation in prospect. There will clearly be different weather over the next 14 days, allowing crops to recover from a long dry period. On Monday April 27, the stock market opened lower again, at €197 per tonne.
There is a good chance that the European wheat price will get a boost again, despite the fact that the consequences of the Russian ban will only become noticeable much later. Egypt, the largest wheat buyer, will probably buy more European wheat. That has been noticeable all season. If the drought in the Black Sea region continues, the market may react strongly.