August 4, 2014

Recent sanctions on Russia's banks over Moscow's support for rebels in Ukraine are expected to drive wheat prices higher.

As Russia is anticipating a bumper crop of about 50 million tonnes in 2014, traders feared that the country will attempt to flood the market with supplies ahead of sanctions, thus pushing down wheat prices which have plunged to four year lows.

However, ANZ agriculture economist, Paul Deane, said that markets are not too concerned about developments from the Ukrainian-Russian tensions. He added that most of the concern was focused on next season's crop, particularly after the EU imposed sanctions aimed at stopping Russian banks to raise capital on Western capital markets.

Deane believes that this would most likely tighten access to credit for Russian farmers when they begin planting next season's crop in October.

"The concern is the wheat planted in that region might be pulled back significantly because of the difficulty in farmers getting finance, and higher input costs with their currency as well is an issue," Mr Dean said. "That's going to be one of the factors that will potentially support the market next year. Once we get into the first half of 2015, we'd expect to see higher wheat prices."

About 20 million tonnes of Russia's wheat crop is slated for export. Global wheat prices have skidded 27.6% since May, after having rallied when Ukrainian-Russian tensions broke out in February.

Farm commodity forecaster, the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), is expecting global wheat prices to average US$300/tonne in 2014–15, compared with US$317/tonne in 2013–14. The organisation expects world wheat supply to remain high at 888 million tonnes.