Slower Russian Wheat Sales to Benefit the U.S.

MOSCOW, Russia -- In 2017/18, Russia exported a record-high 1.5 billion bushels (41 MMT) of wheat and became the largest world wheat exporter taking the market from the U.S. and the EU.

However, since that time, export volumes have been declining. This trend is likely to remain in place in 2019/20 when the country is expected to ship abroad 1.18 billion bushels (32 MMT).

In the July-September 2019/20 marketing year, Russia has shipped 440 million bushels (11.8 MMT) of wheat which is -10% YoY. The domestic supply is tight. Many farmers prefer to store wheat for as long as they can, while selling other crops, like barley or sunflowers, when they need cash to repay loans or finance the winter seeding campaign. This is a common scenario, however, this season a farmer has more cash in his pocket after the 2018/19 season with relatively high prices. This is especially true for major export regions, like central or southern Russia. The South is important because it's a key growing region that has almost all sea export grain terminals.

Low carry-in stocks are also not supporting exports. We estimate them at 290 million bushels (7.9 MMT), which is two times lower than in 2018/19.

As a result, domestic prices remain relatively high and exporters' margins are razor-thin or negative in many cases.

Currently, the domestic wheat market is going down. This will support exports in forthcoming months but the overall effect will be limited as prices in many regions are still above the export parity.

In the second half of the season, we believe that domestic prices are likely to remain relatively high due to projected low carry-out stocks. We estimate them at 0.25 billion bushels (6.8 MMT). Stocks-to-use is projected at 9%, which is the lowest value for more than 10 years.

Overall exports in the current season are estimated at 1.18 billion bushels (32 MMT) (-10% YoY). Russia's share could be partly taken by Ukraine, the EU, and the U.S. Currently, USDA estimates Russian exports at 1.25 billion bushels (34 MMT). We believe this is a bit optimistic and should be lowered later during the season while figures for the U.S. could be upped.

With lower exportable surplus, Russia is likely to focus more on its traditional markets, like the Middle East and Northen African countries. Supplies to more distant markets, like Mexico, the Philippines, or Nigeria, could suffer, which also could be beneficial for U.S. wheat exports.

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Written by Andrey Sizov, managing editor of The Sizov Report on the Black Sea grain market.