February 20, 2013

 

Russia's wheat sales prospect improves after US, EU wheat prices drop

 

 

Russia's wheat sales prospects have improved after a fall in wheat prices in the US and Europe to the lowest levels in seven months.

 

Russia has emerged as a potential market for its rivals this season after drought reduced the size of its harvest last summer. Tight supplies have sent domestic prices to record highs, and the government has announced it will suspend a 5% grain import duty before the end of March.

 

Russia is currently importing wheat from Kazakhstan, which does not have to pay the duty, but rising prices in the Black Sea region's top producer of hard wheat are likely to lead to imports from other countries soon. Soft red winter wheat prices on the Chicago Board of Trade fell to a seven-month low this week as much needed rains improved US crop prospects.

 

"If something is going to move other than Kazakh wheat, it will be soft red first. But depending on the shipping period and the supplies available in the EU, we could see some of that also," said Shawn McCambridge, an analyst with Jefferies Bache Commodities.

 

Front month CBOT soft red winter futures have fallen around US$0.50 a bushel so far this month, which equates to almost US$20 a tonne.

 

Some dealers said that after Russia removes the 5% duty, the price of feed wheat from Brazil and US soft red winter would be close to a competitive level, particularly if global prices continue to fall. By blending that feed wheat with higher-quality supplies, Russian importers could offer wheat that would be acceptable for human consumption.

 

US soft red winter wheat is currently offered at about US$304 per tonne on a free-on-board basis (FOB) for March shipment, while hard red winter wheat costs about US$336.50 per tonne FOB and for March shipment.

 

In Russia, the average domestic EXW (ex-silo) price in the European part of the country for third-grade and fourth-grade milling wheat was seen at about US$390 per tonne last week. Imports are subject to a 10% value-added tax, while the cost of freight must also be added to the FOB price. Traders said some ports in northern Russia may be able to handle only smaller handy-size vessels, adding to the cost of shipping grain.

 

Russia imported 47,000 tonnes of Kazakh wheat in January, according to official data, which included only supplies by rail, not by truck, said Andrei Sizov, the head of SovEcon agriculture analysts.

 

For the first week of February, official data shows Russia imported 35,000 tonnes, and imports could reach about 150,000 tonnes by the end of the month, according to Sizov.

 

The USDA forecasts Russian wheat imports for the whole 2012-13 season at 1.5 million tonnes. Talk circulated this week that a Russian buyer may have purchased about 100,000 tonnes of US soft red winter wheat at US$337 a tonne on a cost and freight free out (ciffo) basis, with shipment to Saint Petersburg. Ciffo prices include extra costs for unloading the ships. The deal could not be confirmed, however, and some traders said that EU wheat could be more attractive for the Russian market.

 

"I would think Europe should be the most competitive (beyond Kazakhstan), and of course delivery is quicker," Wayne Bacon, president of grain trader Hammersmith Marketing, said.