Russia holds to minimum grain export price: Supply chain tensions rise

Russia blocked the delivery of 480,000 tons of wheat to Egypt in September since the sale price was below the minimal threshold of $270 per ton FOB allowed by the government, Russian newspapers Kommersant and Forbes reported, citing their own sources.

Agricultural Ministry believes that foreign buyers cannot live without Russian grain, they will buy at our price…

Russian publications assumed that by sticking to the minimal export price, Russia targets to use its dominant position in the global market to the advantage of the Russian farmers, who see their financial health worsening, and secure additional income to the federal budget.

Farmers suffering

Russian publication Gorodn disclosed that the Russian strategy has already put pressure on the supply chain. In the southern regions, largely trade companies have already suspended purchasing grain from farmers, citing a lack of available warehouse capacity to store it.

Andrey Sizov, director of SovEcon, a Moscow-based consultancy, admitted that the government policy slows down Russian grain exports, and the country could end up with record carryover stocks similar to what happened a year before.

One source who wished to remain anonymous told Gorodn that wheat, similar to Russian wheat, is now sold on the global market for a maximum of $240 per ton FOB.

Losing competition

“Agricultural Ministry believes that foreign buyers cannot live without Russian grain; they will buy at our price; we just need to wait. But there is a question for how long,” the source said, explaining that Algeria recently purchased the amount needed until the end of the year, Egypt will hold a couple more tenders and will stop purchasing until January.

“So, wait until January? But in November, harvesting starts in Argentina, then in Australia, and everyone sells [grain] on the same market. So, it is not guaranteed that prices will rise to the desired level in January, especially given that the market is oversaturated with grain, including Ukrainian, the supply of which has again resumed through Odesa,” the source told Gorodn.

Grim forecasts

A minimal export price is set also for the sunflower oil. As a result, some Russian oil factories suspended the start of work towards the end of September, while usually they open their doors around September 10. On the domestic market, farmers are trying to sell sunflower seed at the level only covering the production costs.

Some farmers complain that the new measure puts heavy pressure on the industry, already troubled by export duties. As a result of the duties, the average profitability in the industry plummeted from 17% to 3%, estimated Alexander Yaroshenko, director of grain company Ural-Don. The minimal export price has proved to be another blow for farmers.

“I believe that 4 more years of such restrictions and there will be no more grain export from Russia,” said Yaroshenko. “Perhaps we will not roll back to the state when we buy grain in Canada, like in Soviet times, but we will definitely lose an opportunity to export it,” he said.