August 8, 2012
As Goldman Sachs forecasts a 70% collapse in the country's shipments and cutting hopes for world grain production, Russia will prove prepared to impose wheat export curbs.
The bank, cutting to 652.1 million tonnes its estimate for the global wheat harvest, downgraded its estimate for the Russian crop to 43.0 million tonnes, citing drought.
"Forecasts for continued hot weather in Russia in August could further damage the spring wheat crop," said Goldman, whose estimate represents a 24% slump in Russia's overall wheat harvest on year.
The estimate also leaves the crop only 1.5 million tonnes above the drought-hit 2010 result which spurred Russia to ban grain exports, curbs which, with the country typically a major supplier of competitively-priced wheat, sent prices soaring worldwide.
This year, an outright ban looks less likely, given that Russia's overall grains harvest will, at 70 million-77 million tonnes, be at least eight million tonnes higher, and with five million tonnes still left in government stocks from buying programmes aimed at supporting prices, including some in 2011-12.
Furthermore, Russia will on August 22 join the World Trade Organisation, a factor which many commentators have pointed out limits the country's scope for imposing trade restrictions.
However, Goldman, forecasting a 70% slump in Russia's grain exports to 6.5 million tonnes in the newly-started 2012-13 marketing year, said that "if needed, this [crop in exports] would be achieved through export restrictions, such as taxes".
"This would be a similar approach to what Russia did in 2007-08, when it shipped its export surplus before imposing an export tax."
The comments come amid considerable speculation over trade curbs, ahead of a meeting on Wednesday (Aug 8) of a Russian government food security committee.
US broker RJ O'Brien on Tuesday (Aug 7) reported "talk in the market that Moscow will impose a 20-30% wheat export tariff". However, separately, SovEcon, the Moscow-based analysis group, downplayed the threat of restrictions, flagging the "limited" scope the government has for cutting exports, given WTO membership.
"An export ban now looks politically unacceptable," SovEcon said, highlighting the role of differentials between domestic and foreign prices in determining exports, which it forecast an 8.5 million-2.0 million tonnes above the Goldman forecast.
Goldman's comment came as it revised estimates for a swathe of wheat crop forecasts, leaving its global estimate 13.2 million tonnes below that of the USDA - whose estimates, which are up for revision, set world benchmarks.
The weakened production prospects had raised upward pressure on wheat prices, although this would be felt more in Paris than in Chicago futures markets. Thanks to geographic proximity, and a discount to Chicago prices, export demand displaced from the former Soviet Union would "initially be directed to EU wheat supplies".
Indeed, the bank's models suggested that "these stronger EU exports will push European wheat prices back to trading at a premium to Chicago wheat prices in coming months".
Goldman recommended a trade of hedging a long bet on Paris wheat, for March, against a short on Chicago's March contract, to exploit a price gap set to turn from a negative US$17.50 per tonne to a positive US$25 per tonne.