Russia muscling into rivals’ wheat markets

Moscow | Reuters — Russia is muscling in on the markets of its European and North American competitors as it overtakes the European Union to become the world’s biggest wheat exporter for the first time.

Russia is expecting a record crop in the 2016-17 marketing season, which began on July 1, while EU harvests are poor. That means traders will be negotiating to ship Russian wheat to countries that have seldom or never bought it before.

“It is already clear that competition will be really severe this year,” a Moscow-based trader said.

The arrival of Russian wheat in new markets could potentially cause problems for other big exporters, allowing customers to drive a harder bargain with North American, European and Australian suppliers in the future.

In the eight weeks since the start of the season, Russia has already supplied wheat to Mexico, which is usually dominated by the U.S., and booked private sales to Algeria and Morocco, traditionally France’s market.

It has also shipped wheat to Mali, Malta and Myanmar for the first time in a long period, according to the state Grain Quality Service. That body said last week it had also met standards for Indonesia, the largest buyer of Australian wheat, which imposed new quality certification requirements in February.

The U.S. Department of Agriculture (USDA) expects Russia to export 30 million tonnes in the 2016-17 season, which would allow it to beat EU exports of 27 million tonnes and become the world’s largest wheat exporter. EU exports have been hurt by weak crops in France and Germany in 2016.

The trend shows how much agriculture in Russia, as well as in fellow ex-Soviet states Ukraine and Kazakhstan, has been transformed since the Soviet era where Moscow was often one of the world’s largest grain importers.

“The small size of the French harvest will alter the flow of imports in favour of the Black Sea. The challenge will be to regain those market shares,” a French trader said.

Competition from Russia in Mexico, one of the most reliable markets for U.S. exporters, heaps further pain on U.S. wheat farmers already struggling with a glut of supply and the lowest crop prices in a decade.

While most U.S. wheat arrives in Mexico by rail, about a third of Mexico’s imports arrive by sea, and Russian wheat could take a chunk of that.

“The Mexican wheat imports that come by water are going to be up for grabs, and the Russians are going to compete for that,” said a U.S. wheat trader.

Russia will also increase supplies to its traditional markets like Egypt this year and will build up sales to Bangladesh and Mozambique, said Igor Pavensky, the head of marketing at rail infrastructure operator Rusagrotrans.

According to IKAR consultancy, Russia exported 2.3 million to 2.5 million tonnes of wheat in July and will supply three million to 3.2 million tonnes in August.

The precise figures can be difficult to confirm because official customs data lag real supplies due to technical issues and do not match significantly higher data from ports and the state Grain Quality Service.

Long exporting season

Russia is now harvesting a bumper crop for the third year in a row thanks to good weather and a weaker rouble, which among other factors has increased farmers’ rouble margins and allowed producers to increase investment per hectare amid stable state support, Dmitry Rylko, the head of IKAR said.

The Russian wheat exporting season is expected to be longer this season than in recent years, when the bulk of its supplies would put significant pressure on the market only in the first months of the season.

“Russian farmers have become richer and are not in a hurry to sell. External demand is also weak because buyers clearly see that there will be a glut in the market,” the trader said.

This and other factors, like a smaller share of high quality wheat than in 2015, means Russia cannot rush its exports, and will therefore still be selling long after the summer harvest ends.

More competition will soon come from next-door Kazakhstan, which is expected to reap a large crop, competing for Russia’s traditional export markets to other ex-Soviet states. Kazakhstan’s grain harvesting will get underway in the coming weeks.

“This year, Kazakhstan is heading to a high crop of high quality. It will be a significant player in the market,” Pavensky said. The USDA sees Kazakhstan’s 2016-17 wheat exports at eight million tonnes compared with 7.6 million tonnes in the previous year.

Russia, Kazakhstan and Ukraine will be able to export additional volumes to the EU’s traditional markets and substitute for a lack of supplies from France, UkrAgroConsult consultancy said.

— Polina Devitt is a commodities reporter for Reuters in Moscow. Additional reporting for Reuters by Valerie Parent in Paris, Pavel Polityuk in Kiev, Karl Plume in Chicago, Colin Packham in Sydney and Nigel Hunt in London.

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