With an 85 million-tonne wheat crop in 2017/18 and 35 million tonnes of wheat exports forecasted, Russia has certainly earned the title of Wheat King.
However, they’re starting to run into a little bit of trouble because of one thing: the Rouble.
Last week, we discussed one analyst’s projection on U.S. exports in the year ahead. He expects that a string of bullish factors are aligning that will fuel a surge in U.S. exports. But – as we noted – there was one critical element that was left out of his projection: Russia’s currency.
If U.S. exports are going to surge this year, we have to pay closer attention to the exchange rate between the U.S. Dollar and the Russian Rouble. If Russian prices push higher, U.S. wheat prices grow more attractive.
When the dollar rises, the opposite transpires.
Last week, we saw evidence of the former scenario.
Russian wheat exports figures increased thanks to a higher value in the rouble. In addition, harsh weather limited shipments out of the Black Sea.
Those higher prices are having an impact on demand. SovEcon noted that the country will likely ship about 20% – or 1 million tonnes – less wheat in January compared to December.
Total grain shipments are expected to be down about 5% in January compared to December.
While this isn’t going to stop Russian from exporting a massive amount of wheat exports in the year ahead, it does fit our argument that exchange rates will be just as important as U.S. acreage figures and protein levels.
This exchange rate is a critical factor to watch for but it’s one that tends to move in slow motion with each pop and drop creating new headlines (including this one).
More simply put, we cannot call exchange rates a winter wheat factor because it’s just not necessarily bullish or bearish in nature.
Of course, we will provide regular updates on the exchange rate with the US Dollar, Russian Rouble, Canadian Loonie, etc. and what it will mean for feed / winter wheat prices in the weeks ahead.
Just for perspective though, 12.5% protein wheat are sitting at the Black Sea port available for purchase at $193 USD / tonne (or $5.25 USD and $6.55 CAD / bushel).
Comparably, US hard red winter wheat (12% protein) is sitting at Gulf of Mexico ports at $5 USD / bushel while Canadian winter wheat (11.5% protein) is available for purchase out of Vancouver at nearly $6 USD / bushel.
Keep in mind that Russia’s wheat exports coming out of the Black Sea is usually getting shipped to the Middle East, North Africa, or southeast Asia, making it more competitive from a freight perspective when compared to the American-sourced wheat coming out of the Gulf of Mexico.
Stronger rouble helps push up Russian wheat export prices
MOSCOW – Russian wheat export prices rose last week on the back of a strengthening rouble and stormy weather in ports which complicated shipment, analysts said on Monday.
Black Sea prices for Russian wheat with 12.5 percent protein content were at $193 a tonne on a free-on-board (FOB) basis at the end of last week, up $1 from a week earlier, Russian agricultural consultancy IKAR said in a note.
SovEcon, another Moscow-based consultancy, quoted FOB wheat prices in the Black Sea area up $0.5 to $193 per tonne and maize (corn) prices up $1 to $168 per tonne. Prices for barley remained at $191.5 per tonne.
Russia is expected to export 3.9 million tonnes of wheat, barley and maize in January, down from 4.9 million tonnes in December, SovEcon said on Friday.
Despite the stormy weather in ports, Russian grain exports remain strong for this time of the season after a record grain crop of 134 million tonnes in 2017. Robust exports are stimulating new investment into the agriculture sector and are providing farmers with enough money for the upcoming spring grain sowing, the Agriculture Ministry said.
By Jan. 17, Russia had exported 29.0 million tonnes of grain since the start of the 2017/18 season on July 1, including 22.6 million tonnes of wheat, the ministry said. The pace of grain exports was up 36.4 percent compared to the same period in the previous season.
The Agriculture Ministry upgraded its forecast for Russia’s 2017/18 grain exports to 45 million-47 million tonnes last week from the previously expected 45 million tonnes. IKAR currently expects them at 47.5 million tonnes.
Domestic prices for third-class wheat fell 25 roubles to 8,575 roubles ($152) a tonne in the European part of Russia on an ex-works basis, according to SovEcon. Ex-works supply does not include delivery costs.
New crop sunflower seed prices jumped 400 roubles to 19,575 roubles per tonne, the highest level since August, SovEcon said.
Domestic sunflower oil prices and export prices were flat at 43,825 roubles and $735 per tonne, respectively.
Russia harvested 10.3 million tonnes of sunflower seeds in 2017, down from 11 million tonnes in 2016, according to SovEcon’s estimate. The official data is yet to be released.
IKAR’s white sugar price index for southern Russia rose $7
to $449.3 a tonne as of Jan. 19.