Page 89 - bne IntelliNews Country Report: Russia Dec17

export, up from 37.7mn a year earlier, according to SovEcon consultancy. Analysts and officials say that’s about as much as the country’s infrastructure can cope with for now. If it was not the issue of infrastructure Russia would be able to ship over 50-55mn tonnes, according to said Andrey Sizov, managing director of SovEcon, one of leading agriculture consultancies in Moscow. In 2000-01 Russia only exported about 1.3mn tonnes of grain, according to USDA data. The surge in Russian exports has contributed to a global grain glut. The world’s wheat market is set for a fifth surplus in a row in 2017-18 with stocks climbing to a record 268mn tonnes, according to US Department of Agriculture data. World wheat prices, meanwhile, have steadily declined. The Chicago Board of Trade's wheat futures contract Wv1 hit $9.16 (7.02 pounds) a bushel in November 2012. It is now trading at $4.21 and fell below $4 in September last year for the first time since 2006. Russia is also set to overtake the United States as the world’s biggest wheat exporter this year - regaining the top spot it last held before World War One - and cement its leading position over other major wheat exporters such as the European Union, Canada, Australia and Ukraine.
The $20m loss by US agricultural trader Archer Daniels Midland on hedge positions in Black Sea grain has raised questions about traders’ commitment to traditional North American derivative benchmarks as Russia takes a bigger slice of the global grains market. The company said two weeks ago that its loss stemmed from a “lack of correlation” between its hedges in North America and the underlying movement in the prices of grains in the Black Sea region, representing Russia, Ukraine, and Kazakhstan. The loss shone a spotlight on how agricultural companies have continued to rely almost entirely on North American benchmarks for their hedging and trading even as the global grains market has undergone a fundamental shift east. Rising productivity in Russia made the country the world’s largest grain exporter for the first time last year, vying for top position with the US —, which has seen its share of grain exports fall from 45% three decades ago to just 15% today. But while trade flows have shifted dramatically the derivative market has been far more stable. The dominant contract has remained the soft red winter (SRW) wheat future traded in Chicago, which debuted 140 years ago, which has at least 70% of the market. The CME tried to launch a Black Sea wheat derivatives contract earlier this year after a first attempt in 2012 failed, suggesting that there is little appetite from traders.
Russia this year collected 83mn tons of wheat, according to preliminary data, sending wheat prices down. American farmers who sowed less acres of wheat in 2017 than ever before. Wheat prices on the Chicago Mercantile Exchange on November 10 dropped by almost 25% to $4.19 per bushel (approximately 27.22kg), amid a record harvest in Russia. In mid-October, Prime Minister Dmitry Medvedev reported that the grain harvest in Russia in 2017 was a record for the past 100 years. At that time, 132mn tons of grain were harvested.
The record high wheat harvest in Russia is pushing down global prices, The Wall Street Journal reported on November 11. The 83mn tonnes of wheat Russia is forecasted to reap this season will cement the country’s resurgence as an agricultural superpower and the world’s biggest grain exporter, but it has also exerted pressure on the US where farmers who are reducing their wheat volumes. Wheat prices at the Chicago Mercantile Exchange (CME) declined by nearly 25% to $4.19 in the week of November 6, according to reports.
89 RUSSIA Country Report December 2017 www.intellinews.com