May 21, 2015


Russia's wheat duty ends: Pressured world prices, competition with EU expected


Russia's wheat supplies are at adequate volumes while inflation in the country is slowing down; in the light of these developments, Moscow rescinded a duty on wheat exports in order to deliver up to an additional one million tonnes by June 30, and maintain prices above production costs.


The decision arrived close to more than a month ahead of schedule and could exert pressure on international wheat prices which have been trading below US$200/tonne since January 2015, the Wall Street Journal reported.


In addition, EU's wheat deliveries are expected to be challenged by Russian exports, with France possibly suffering the biggest export decline of 80% (2015/16) among member states.


Stratégie Grains forecasts that the EU will deliver a lower 28.6 million tonnes for the 2015/16 season.


Previously, wheat exports were placed under a US$40 tax which was effected on February 1. The consequence was a fall in international sales, with deliveries lower in early May compared to late January.


According to the Russian agriculture ministry, late January's export volume was 30% ahead of 2014's record while early May was 17% ahead of the same period last year. In the latter period, the price of milling wheat also dropped to US$182 compared to a sum of more than US$201.21 seen at the end of March. 


The output from the present harvest, which concludes in June, is expected to achieve 100 million tonnes in volume, lower than 105 million tonnes in 2014.


Additionally, a more positive outlook is projected for the next harvest year, which commences in July 2015. During that period, winter damages on crop areas are estimated to be lower, with 1.3 million hectares affected compared to 3.5 million hectares as given by the agriculture ministry early this year.


The export duty on wheat was connected to concerns over an escalation of Russian wheat sales to markets outside the country, despite the possibility of a bountiful grain harvest. A catalyst for the upward trend is the declining ruble currency due to falling oil prices and trade sanctions against Russia.


The measure was a way for the government to ensure ample wheat in the local market and prevent unwanted swelling in prices. However, farmers had objected to the tax, believing they were losing profit due to its implementation.


Thus, the country is devising a more flexible structure of export duties, Arkady Dvorkovich, Russia's Deputy Prime Minister, said.


According to the agriculture ministry, the new system will tax wheat sales at 30% to 40% of the export price. That will happen when local prices venture beyond 12,000 rubles (US$242) for a tonne.


At the bottom of the sum, the tax will withdraw to US$1.50/tonne.

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