CME: Will Russia limit wheat exports?

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Export ship Russia’s wheat crop was all the news yesterday as a Russian economic analyst predicted some sort of export restriction is looming due to a drought-impacted crop. The group, SovEcon, cut its estimate for Russian wheat production to 38 million metric tons for this year.

That is significantly lower than USDA’s August estimate of 43 million metric tons which itself was sharply lower than the USDA estimate of 49 million metric tons.

Perhaps even more dramatic is the comparison to Russia’s 2010-11 harvest when the government imposed an export ban to assure domestic supplies remained adequate.

That year, Russia harvested 41.5 million metric tons, over 9% MORE than the forecast crop for this year. In addition, beginning stocks in 2010-11 were 14.7 million metric tons where this year they are estimated by USDA to be only 10.5 million metric tons.

If the 38 million estimate proves correct, the total supply situation for Russia this year (48.5 MMT) is MUCH tighter than it was two years ago (56.2 MMT).

It appears now that USDA’s latest estimate of 8 MMT for Russian wheat exports is far too large even without an embargo. Russia’s exports in 2010-11, which were reduced by that year’s embargo, amounted to only 3.98 MMT.

And Russia is important to the world wheat supply situation.

click image to zoomCME report In fact, Russia accounted for 15-16% of total world exports in the three relatively normal crop years of 2008-09, 2009-10 and 2011-12. Further, Russia has been a major driver of expanded wheat trade in general. Where total wheat exports were once roughly 100,000 MT year in, year out, they have been near or above 120,000 MT since Russia emerged as a major supplier in 20008-09. But weather has made the Russian supply quite variable and government intervention added to that reduction in exports two years ago.

USDA says Russia will use a total of 38 MMT of wheat this year with 15.5 of that going to feed usage. Their forecast for 2012-13 is 37.2 MMT with only 15 MMT of it going to feed. It is important to note that total consumption in 2010-11 was 38.6 MMT. If 38.6 MMT prompted export restrictions then, we think a potential cut to 37.2 MMT will certainly do so.

While there did not appear to be much agreement on the form of intervention or its timing, it has become obvious that most believe the government will do something. WTO member ship is pending for Russia, so they have to be careful. One report claimed that the only WTO-legal action is to impose an export tax.

The big question is whether this situation is “in the market” yet and the answer is difficult to winnow out given all of the other noise that is impacting wheat. But it is important to U.S. livestock and poultry feeders as more wheat will need to be fed this year. Chicago wheat futures are trading at about 1.1 times the price of Chicago corn futures.

That figure is higher than it was from April 2011 through April of this year but lower than the 1.4 multiple that prevailed from mid- 2008 through the end of 2010. Wheat is not as much of a bargain as last year but still may be cheap enough to use in some areas.



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