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‘Russian wheat price super-cycle’

10 January 20227 min reading

“Floating tax tends to hamper Russian wheat export flow, but not decisively...I would call what really happens as, ‘2021 Russian wheat price super-cycle’… In foreseeble future Russia will keep the floating tax system as a key to against the domestic grain inflation, if we like it or not.”

Dmitry Rylko
Director General
Institute for Agricultural Market Studies (IKAR)

Supply pressure on wheat continues due to increasing global demand and decreasing stocks. Wheat price has reached its highest level since the 2012/13 season. And the increase in prices has raised food security concerns in many countries as wheat is a staple food. Wheat prices directly affect the cost of many products such as bread and pasta, which directly affect inflation.

As the world’s largest exporter of wheat, the policies to be implemented by Russia are closely followed by the global wheat markets. Miller Magazine has engaged in an exclusive interview with Mr. Dmitry Rylko, the Director-General of the Institute for Agricultural Market Studies (IKAR), to discuss the Russian wheat production and export outlook, the effects of the variable export taxes and trade quota on the prices.

Since June 2021, Russia has introduced a floating duty on the export of wheat, corn and barley. Moscow is now considering imposing higher export tariffs if wheat prices reach 375$ per ton, with a bigger hike proposed if prices reach 400$ per ton. Russia also plans to set its wheat export quota at 8 million tonnes for Feb. 15-June 30.

Rylko has a positive wheat production forecast for the next season. “Our provisional wheat production forecast is 82-83 mmt”, he says. He defines the impacts of the floating duty as ‘Russian wheat price super-cycle. “As the result, our market shares on two key export markets - Egypt and Turkey - drop quite significantly”. At the same time, Russia significantly increased its sales to Saudi Arabia and Algeria, he underlines.

Speaking to Miller Magazine Mr. Rylko assesses recent developments in the wheat markets:

How the floating export duty did affect the pace of the Russian wheat exports? In which export markets has Russia experienced a decline this year? Is there any change in the Top-10 Russian wheat importers list?

Floating tax tends to hamper Russian wheat export flow, but not decisively...I would call what really happens as, "2021 Russian wheat price super-cycle": After deduction duty FOB export price looks as insufficient for motivation of domestic farmers to sell, and importers have to raise a purchase price - Russian exporters raise CPT export terminal prices and farmers start releasing wheat - in reflection of export price rise, export duty is rising - exporters have to lower CPT export terminals prices - farmers stop selling - exporters diminish export contracting rate - importers have to elevate purchase prices - and so on... We have seen 6-7 such full cycles during July - December. During this time, Russian FOB Black Sea IKAR price index has raised by record $105 per ton. Of course, it happened not only due to the Russian export duties, there were some other important factors, such as Canadian drought, etc. but our duties played an important role, too. 


It all happens against the background of lower 2021 domestic wheat crop - 75.9 mmt in comparison with almost 86 mmt last season. As the result, our market shares on two key export markets - Egypt and Turkey - drop quite significantly. Meanwhile, Iran has become the biggest importer. Russia also significantly increased its sales to two very attractive and lucrative markets - S.Arabia and Algeria.   

Do you expect Russia to modify its floating tax system for grain exports? When do you think Russia will lift the export tax?

In foreseeble future Russia will keep the floating tax system as a key to against the domestic grain inflation, if we like it or not. 

Russia will introduce a wheat export quota. Do you think wheat prices would increase further with this decision?

All grains export quota has been deployed in the second half of previous and current seasons. The novelty of this season is wheat quota inside the general grains quota. However 8 mmt what quota basically coincides with the market expectations, so it was taken by the world market quite calmly.

At the Turkish Grain Conference in Antalya, you said that Russia would not be an important flour exporter. Why do you think so?

First, flour export is not able to substitute wheat export in general: For decades, flour represents 10-12% of all world wheat trade. Second, Russia does not have some those advantages as Turkey on the flour export markets. However, having said so, if wheat export is restricted for a prolonged period, of course Russia will become more significant flour exporter, no doubt. Even in the second half of this season we expect an acceleration of our flour export. 

There are reports in the Turkish media that some Turkish flour millers will move their mills to Russia after the historical increase in wheat prices. Do you think these investments will continue? Do you think these investments will be profitable?

It seems there is no big need in Turkish investments, as we traditionally have an overcapacity of flour milling in Russia. However, some spot projects as well as strategic alliances are possible and desirable.  

Could you give information about the winter wheat plantings in Russia? How is the wheat production outlook? Could share the prospect for the 2022/23 season?

Winter wheat planting may be second largest in our history, while state of the crop is generally very good, with only couple of rather minor exceptions. That's why our current - very provisional - wheat production forecast is very positive - 82-83 mmt. But again, all risks are ahead, so these are very provisional figures. 

Do you think Russia can maintain world leadership in wheat exports despite export restrictions?

We hope so. 

Global wheat prices climbed to their highest since 2013 on expectations of lower output among top exporters. Do you think prices will be even higher? Which factors will drive the markets? What do you expect from 2022?

Global wheat prices have gradually descended from their highs since the middle of December. The analysts mention several factors behind it, but in our view the real trigger was Mr. Powell's statement regarding serious struggle against the inflation in the US. speculative funds started to  retreat from commodities, including agriculture, including grains, including wheat. However, we can't deny possibility of another wave of price strengthening, which may be provoked by internal wheat market factors, such as a visible disaster of winter wheat in key important production regions. 


Global grain production is poised to hit an all-time high but stocks set to decline. There are concerns that there will be a food crisis in 2022. Do you share these concerns?

High prices provide high motivation for growth of production. However, there are factors of risk, associated with weather, or ammonia availability problems. However, demand must be regulated by prices, and in well-functioning market economy there should not be physical shortage. 


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