Russia is once again attracting attention on the grain market. After very good wheat exports in the first half of the season, things are now starting to falter. The Kremlin is said to want to slow down exports even further by lowering export quotas. Meanwhile, Argentina sees opportunities for grain exports. According to Argentine exporters, there are gaps due to the possible trade war that Trump seems to want to start.
The December wheat contract on the Matif closed yesterday €2 higher at €211,50 per tonne. On the CBoT, grains also showed a plus. Wheat was the biggest gainer, closing 1% higher at $5.37½ per bushel. Corn gained 0,4% to $4.24½ per bushel. Soybeans lost some ground and ended last trading session 0,4% lower at $9.85¼ per bushel.
Russia continues to stir the mood on the wheat market. According to Russian transport company Rusagrotrans, Russian wheat exports could fall to 3,6 million tons in December, compared to 4,1 million tons in December 2023. The Kremlin is attempting to further curb wheat exports in the second half of the season. Russian news agency Interfax reports, based on information from the Russian Ministry of Economy, that an export quota of 15 million tons will be set for the period from February 30 to June 11.
This measure follows monthly records being broken at the start of the export season. The large supply of Russian wheat depressed prices on the world market. The wheat harvest in Russia was more than 10% smaller this season compared to the previous season. It is therefore not really a surprise that Russia cannot maintain this export pace.
Economic devastation
Export quotas were introduced by Moscow almost three years ago to keep food prices in check on the domestic market. Thanks to very good harvests, the Kremlin has been able to keep these quotas so high over the past two years that in practice they have not been an obstacle for exporters. The Russian economy is groaning under the war in Ukraine. The country is dealing with high inflation (according to official Russian figures 10% in September) and the central bank recently raised interest rates to 21%. The average Russian feels this in his wallet. According to some analysts, one of the measures the Kremlin is now taking to curb inflation is to tighten its grip on the grain market.
As of December 1, Ukraine will operate a system of minimum prices for essential agricultural goods, including grains. With this measure, Ukraine wants to deal with the market disruptions caused by the Russian invasion. The minimum prices are calculated on the basis of customs declarations, corrected for delivery conditions of the previous month. The minimum price is 10% lower than the average price of the previous month.
Export Opportunities
The news from the Black Sea region is bullish for the wheat market, but from the southern hemisphere came bearish news. Abares (Australia's agricultural economic institute) estimates the country's upcoming grain harvest at 31,9 million tons. That is 23% more than in 2023. The crop is also doing well in Argentina's main wheat region. According to the crop tour of the Bahia Blanca grain exchange, the wheat harvest in the southern half of the province of Buenos Aires will amount to 3,9 million tons. That is 18% more than last season, which was very dry. Incidentally, the total Argentine wheat harvest is estimated by the USDA at 17,5 million tons, compared to 15,9 million tons a year earlier.
Argentine exporters hope to profit from the import tariffs of the incoming American president Trump. As is well known, this has put pressure on the relationship between China and the US. Brazil has managed to profit from Trump's first trade war and has become the most important supplier of soy for China. Argentine exporters hope to repeat that trick with wheat, among other things. Argentina does have export duties that vary from 12% to 33%. That makes Argentine products relatively expensive on the world market. Exporters would like to see those duties abolished. Whether that will happen remains to be seen. Argentine president Milei really needs that income to balance his budget.