Russian wheat trade falls silent as price floor leaves market ‘broken’

The introduction of an unofficial price floor has “broken” Russia’s wheat market, those who trade with the world’s biggest exporter say.

Since the end of March, the most competitive FOB offer for Russian wheat has been at $275/mt for a Handysize cargo.
“I don’t see trades at all,” one major trader of Russian grain said. “The market is broken. There aren’t many buyers at this level.”

On this evidence, traders are now confident in the accuracy of a March 25 Reuters report, which cited two unnamed sources as saying that the government wanted to keep FOB prices above that level.

One of the sources said the measure was intended to support local farmers. The other source said the government could withhold phyto certificates from anyone selling wheat below $275/mt FOB.

‘They cannot sell lower’
“They cannot sell lower,” another regular buyer of wheat from the Black Sea port of Novorossiisk said. The person noted that Russian wheat sellers have circumvented the restriction on FOB prices by shipping the wheat themselves and selling there at low prices. “They hide it in the freight.”

“Russians are selling [direct to destinations] at $270/mt FOB equivalent,” said another trader, who had heard of a trade done in early April at $290/mt CNF east Africa, which the trader said would have been for Sudan, Kenya or Tanzania.

The most public evidence of the Russian government’s intervention came April 6. On that day, Egypt’s GASC, the world’s biggest buyer, held a tender in which the state grain board purchased 560,000 mt in 12 separate cargoes, all of which were from Russia and priced at $275/mt FOB.

GASC buys on a CIF Alexandria basis and holds a separate tender for the freight component. Russia’s two largest grain exporters, Grain Flower and Aston, now both have substantial freight businesses. Grain Flower provided most of the Russia-Egypt freight in the GASC tender as a cost of $18/mt.

Assessing ability to control prices
For the global wheat market, traders are now assessing Russia’s ability and appetite for controlling prices. Russia will have provided around a fifth of 206 million mt of wheat that the US Department of Agriculture estimated will be traded between countries in marketing year 2022-23 (July-June).

“In the medium term, it would be difficult” for Russia to control prices, said Dennis Voznesenki, a grains analyst at Rabobank. “Firstly, they need all the foreign currency they can get, and secondly, there’s only so much grain they can store without the quality deteriorating.”

The Russian government’s intervention in the grain market has grown significantly in recent years, with state-owned VTB Group acting as a major investor. This year, Viterra, Cargill and LDC all said they would stop procuring grain within Russia, making assets and new opportunities available for domestic companies.

Quotas and duties
In recent years, the government export has also used quotas to limit the amount of wheat exporters can ship between mid-February and June. In early 2021, the country introduced a duty on exports, which ensured that domestic consumers could buy wheat at a significant discount to export prices.

“Clearly it’s a problem if [the price floor] stays for the long run,” one trader said, adding that sellers from other wheat exporters, such as Romania, could just price a few cents below the Russian price floor.

Russia’s bumper wheat crop in 2022 has allowed it to accumulate large stocks. The USDA expects it to have ending stocks of 35 million mt on June 30, 2023, compared to 11 million mt a year earlier. Traders are therefore curious to see whether offers drop below $275/mt, when the new crop comes on sale in July

“In Russia, they change opinion quite fast,” said the last trader.
Source: Platts