The price of wheat has risen sharply, not only in the futures market, but also in the physical market. This applies to both the EU and the Black Sea region. Despite the price level and high shipping costs, Middle Eastern countries continue to purchase wheat. This strengthens the price floor for wheat.
The price of milling and baking wheat in the physical market continues to rise. Partly due to scarcity and partly due to persistent demand. This is noticeable in both the European Union and the Black Sea region. In Russia, the wheat price has now risen to a level of $300 per tonne. This despite the export tax that must be paid to the government on every tonne. At this stage of the season, the country is fighting with neighboring Ukraine and Romania for the export of wheat to the Middle East.
Export taxes inhibit exports
Russia ships most wheat in the first half of the export season. This year, these exports are expected to be more spread out. Arable farmers are reluctant to sell grain. Because the export tax changes weekly (and depends on the price level), the response time is much shorter than usual. According to market agency SovEcon, 2 million tons of wheat were exported in the first 5,3 months of the new season, compared to 7 million tons last year.
Russia sold less wheat to Egypt than last season. It has to compete with Ukraine and Romania. Both countries have had a good harvest this season, but the quality issue is especially important in Romania. Algeria has lowered its import requirements so that the lower-quality Russian wheat can also be imported. Normally the country is dominated by France, which can supply higher quality wheat. Another country that Russia does good business with is Saudi Arabia. This is also at the expense of the European share.
Drought in Russia
The price for Russian wheat with 12,5% protein rose last week to levels between $295 and $299 per tonne. That's an increase from $8 to $13. The barley price also rose. These are the highest prices in more than 10 years. It is persistently dry in the country. Rain in southern and central Russia comes too late to provide much relief to crops. The drought is particularly detrimental to sunflowers and grain maize. In the east of the enormous country, the Urals and Siberia, the harvest of spring wheat has cautiously started. It has been dry there all season and that is also the case now.
In that respect, the export tax on grains – which was announced in response to rising food prices and inflation – has completely missed its target. Inflation is now at 6,5%. The highest level since 2016. It mainly causes unrest and short-term trading among both farmers and the grain trade. Market prices continue to rise and international prices are also rising. The export tax is now $31,70 per ton of wheat. Insiders expect that new or stricter measures may be announced in the near future to keep prices in check.
Logistics
In addition to hefty prices for wheat and other grains, buyers have another factor to consider. These are the sky-high transport costs they have to cough up. Countries that are logistically convenient for the Middle East, for example, therefore have an advantage. Russia and Romania benefit from this, but so does France.
Historically, a wheat price above €250 per tonne never lasts for long. The last time this happened was in 2012, when Russia suffered a crop failure due to persistent drought. The average price level over the last 5 years is €182,15 and €10 over the last 192,41 years. There is a good chance that the 2021-22 season will be above the average of recent years.