Such decisions will have direct implications for global wheat prices and inflation in major buyers like Egypt, as Russia is the world’s top exporter of the grain.

The trend represents a challenge for President Vladimir Putin’s plan to expand exports and cement Russia’s position as an agriculture superpower, giving it more international clout amid confrontation with the West over its actions in Ukraine.

The country’s wheat harvest will decline to 83 million tons this year due to frosts and drought, down from 92.8 million tons in 2023 and a record 104.2 million tons in 2022. New forecasts point to a clouded outlook for next year as well.

Although Russia has been exporting wheat at a near record pace in the recent months, exports are expected to slow due to a bad harvest and export curbs aimed at containing domestic price growth, including an expected cut in export quota by two-thirds from January 2025.

At a farm in Siberia’s Omsk region, which was hit by heavy rain during the peak of the harvesting season, farmer Maxim Levshunov takes advantage of a rare sunny day to collect what remains in the fields.

He chuckles as he picks up ears of wheat that sprouted early due to the moisture. Now, most of his crops are only suitable for animal feed, meaning the farm will receive a fraction of the price it had hoped for.

“We’ll probably start moving away from wheat, cutting back as much as possible. So, we’ll be thinking about what more profitable crops we can replace it with right now,” Levshunov told Reuters.

As this year’s harvesting campaign comes to an end, Russian farmers are assessing their losses from the exceptionally bad weather and considering their next steps amid falling profit margins for wheat, Russia’s main agricultural export.

Winter wheat became the first victim as areas sown with it are set to shrink by 10 per cent this year, the lowest since 2019, according to data from Rusagrotrans, Russia’s flagship grain rail carrier.

“There are losses on each ton. The selling price does not cover the cost,” said Arkady Zlochevsky, head of the Russian Grain Union industry lobby, predicting that Russia’s 26 per cent share of the global wheat trade will shrink.

More profitable crops

Agriculture Minister Oksana Lut joked that farmers might pray to Saint Ilya, the patron saint of weather in Russia, to improve conditions for winter crops. The joke did not go down well with farmers, who are considering more pragmatic options.

Some say they have already decided to plant less wheat next year. Others are waiting to see how global wheat prices perform in the next few weeks before making a final decision.

“The profitability of grain crops is approaching zero. The company has reduced the volume of winter wheat sowing by 30 per cent. There are two drivers now — soybeans and sunflower,” said Dmitry Garnov, CEO of Rostagro Group, which owns land in the Penza and Saratov regions around the Volga River.

Rising costs of equipment and fuel, high export duties, a rising benchmark interest rate that hit 21 per cent in October as the country’s central bank fights inflation, and the removal of some agricultural subsidies have also eaten into profit margins.

“It is evident that in 2022-2024, the price has been practically the same, while the cost of grain production has increased by at least 28 per cent,” said Sergei Lisovsky, a member of the lower house of Russia’s parliament from the Kurgan region.

Lisovsky argued that the high export duty for grains, introduced in 2021, as well as rising transportation costs for regions with no direct access to seaports, were also factors behind low margins.

“Therefore, as of today, farmers are not planting grain not because of the autumn drought, but because they are waiting to see what the price will be, and have not yet made a decision,” Lisovsky added, referring to spring wheat sowing.

Niche crops

In Russia’s most fertile Krasnodar region, the profitability of wheat is still holding around 10 per cent, but some large local farms are also pondering a change of strategy as droughts become more severe each year.

“It is gradually getting warmer in the south, and we need to think about changing the structure of the sowing areas for the future,” said Yevgeny Gromyko, executive from Tkachev Agrocomplex, one of Russia’s largest landowners, and a former deputy agriculture minister.

The niche crops have the potential to become new export success stories with Russia’s allies among the BRICS countries, aiding the government in achieving Putin’s goal of increasing agricultural exports by half by 2030.

Russia overtook Canada this year as the top peas exporter to China while regulators in India, the leading importer of lentils, used to make daal, a staple for millions of people, gave a green light to Russian imports.

Russia takes great pride in being the world’s top wheat exporter, with the older generation recalling the food shortages of the Soviet era and the humiliating grain imports from Cold War foes like the United States and Canada.

However, for struggling farmers, it is declining profits, not global status, that matter most.

“Many farms that specialized exclusively in wheat crops have operated at a loss this year and will face very serious financial difficulties, potentially leading to bankruptcy,” Levshunov said.

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Russia did not export any pork to China until February, when Beijing authorized three Russian producers to sell pork into the $3.5 billion Chinese import market, which is dominated by EU producers with a 51 per cent share.

The trade adds to the growing economic ties between Russia and China in the face of increasing sanctions against both countries by the West.

The EU recently set provisional duties of up to 37.6 per cent on electric cars imported from China to counter what it says are unfair subsidies. In response, China named Danish, Dutch, and Spanish pork firms as targets in an anti-dumping probe.

“For us, these trade tensions represent a chance to showcase our competitiveness in the Chinese market,” Yuri Kovalyov, the head of Russia’s National Union of Pig Breeders, told Reuters, adding that producers were not seeking to exploit the tensions on purpose.

Kovalyov said Russia’s goal was to supply ten per cent of China’s pork imports within three to four years.

It will face stiff competition from other major pork exporters, such as Brazil, plus rising Chinese output. Demand for pork is also falling in China, though it still consumes about half of the world’s pork, or 53-54 million tons a year.

Premium prices

Russian pork production is expected to reach 5.2 million metric tons in 2024 from 4.9 million in 2023 and a post-Soviet low of 1.5 million in 1999, Kovalyov said. The Soviet Union’s record was 3.5 million tons in 1989.

Current production makes Russia the fourth largest producer, behind China, the EU, and the United States, and puts it on par with Brazil.

China’s imports of pork and offal fell 27.3 per cent year-on-year to 1.11 million tons in the first half of 2024, its customs data show.

Kovalyov sees about 50,000-60,000 tons of Russian pork heading to China this year, around three per cent of China’s total imports, as forecast by the U.S. Department of Agriculture.

Much of China’s imports from the EU are offal, such as ears and feet, rather than muscle meat. Russian domestic demand for offal is low, as it is in the EU.

Kovalyov said Russian pork exports were currently 60 per cent meat and 40 per cent offal – similar to the mix in China’s imports.

The Russian private producers authorized to sell pork to China – Miratorg, Velikoluksky Pig Breeding Complex, and Rusagro – are among Russia’s top five pork producers.

“We cautiously estimate that we will export 10,000 tons to China this year,” Rusagro deputy CEO Alexander Tarasov said. “The prices are at a premium of 30-40 per cent to domestic prices.”

Help from sanctions

The Russian pork industry collapsed after the fall of the Soviet Union in 1991. The industry started growing again in 2005, helped by state support and protectionist measures. Kovalyov estimates that up to $25 billion (C$34.1 billion) has been invested in the sector since 2005.

Meatpackers suffered a major setback in 2008 due to an outbreak of African swine fever, which inflicted heavy losses on producers and effectively closed the Chinese market for Russia for 15 years.

However, pork production recovered quickly and received a major boost from a ban on EU pork imports to Russia in 2014.

Agriculture minister Oksana Lut forecasts Russian pork exports to all countries will rise to 310,000 tons in 2024, including live pigs.

Russian producers have already taken a 50 per cent share of pork imports in Vietnam and are exporting to about 20 other markets.

“As newcomers, we have one of the most modern pork production sectors in the world,” said Kovalyov.

Miratorg said it had made the first deliveries from its logistics hub in Russia’s Belgorod region to the port of Nansha in southern China by both rail and sea.

The company said its overall pork exports jumped 70 per cent last year and it plans to increase pork production by five per cent to match demand growth.

“Russia definitely has the natural resources, feed base, and freshwater reserves to increase meat production multiple times over,” said Marina Demidova, Miratorg’s head of exports.

Expansion plans could be hindered by delays in payments between Russia and China as Chinese banks, under pressure from Western regulators to enforce sanctions against Russia, have become more cautious in processing payments.

Banking sources told Reuters that food exports could be one area where the two countries may experiment with barter trade schemes. Kovalyov said he was not aware of any barter deals.

—Additional reporting for Reuters by Mei Mei Chu

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