This year, Russia prepared for the global wheat market more surprises than usual. The Russian wheat production estimates for 2020 teased the market from February to late July. Today, the Black Sea dynamic of wheat prices raises a lot of questions, deepening the opacity of this important market.
Russia has been the world’s leading exporter of wheat on average over the past few years and remains closely watched by operators in the agricultural market. The season 2020/21, started last fall in the South of Russia with plantings in dry soil, continued with mild winter and excellent wheat conditions in early spring. The first estimates of the Russian wheat production were at that time optimistic with figures exceeding 80 Mt.
However, the farmers’ hopes of a very large winter crop in the South of the country were blown away with arid spring months. The drought in March, April and May deepened the soil water deficit, the late frosts in April caused damages on wheat ears. We wrote about the Black sea winter crop conditions over this period in our last article.
The central parts of the country and the Volga region, on the contrary, had excellent weather for wheat development with enough rains. The farmers spoke about the best crop conditions for the last five or even ten years. The question was, whether these regions were able to offset the losses in the South, especially when the first rumours about the dry episodes in Ural and southern Volga were reported. To keep it simple, it’s clear now why the analysts have some difficulties to get a consensus on the coming Black Sea region production level.
Today, Russia’s wheat production 2020 is expected to exceed 82 Mt, which would make it the second-largest volume after the record of 2017. And this despite all the difficulties during the season!
With a lot of wheat coming from Russia, it would be logical for prices to decrease. But this year is singular in every aspect, starting with COVID restrictions and ending with mixed commodities markets. Usually, the harvest pressure is felt in Russia from mid-August till mid-September, due to the fact that the farmers sell wheat directly from the fields. Every year, however, Russian farmer becomes smarter and richer, with the possibility to keep new harvest volumes till the better prices. This year, the disappointing yields in the South led to the lower supply at the start of the season. The eternal logistic problems hampered the arrival of wheat from the Center and the Volga region. At the same time, the international buyers returned to the market. All these elements helped prices to rebound.
The market should be cooled down once the supply restored with the normalization of the wheat transport from remote regions to southern ports, but it was not the case. With strong international demand, the low production in France, Germany and Romania, the Russian origin along with Ukrainian wheat was always and sometimes the only chosen for every important tender of the last two months (Egypt, Turkey, Tunisia and the other destinations). In Ukraine, the farmers’ wheat stocks are at low levels now; the export sales showed a very strong pace and could reach very soon the volume of 17.5 Mt, the level of wheat export quota established by the government and the Ukrainian exporters.
With no real competitors, Russia became a global price maker for wheat. The ruble’s devaluation against the dollar supports local prices. The farmers are still reluctant to sell, preferring to keep their wheat rather than have rubles in the banks. The current drought in the South of the country disturbs planting works and starts to worry operators about wheat production 2021.
So, the Russian market is once again very interesting to watch. This year, the country prepared for us the mountains of wheat but also the ups and downs in prices. The story to follow with coming 2021/22 season…