October 15, 2015

Russia to become influential force in feed market despite wheat levy

Russia is poised to become a rising influence in the world's feed market even as the country's wheat export tax is stiffing prospects for its farmers.

This is because, despite a potential disruption of Russian wheat production, farmers will eventually switch to planting corn, Jack Watts, a lead analyst in cereals and oilseeds for the UK's AHBD agriculture bureau, explained.

Until recently, Russia has been more of a minnow in corn exports when compared to Ukraine and the US; while the Federation exported 2.9 million tonnes of the grain for the 2014-15 season, Ukraine shipped out 20 million tonnes and the US at 50.7 million tonnes, based on USDA data. 

However, a strong likelihood - that farmers would soon be planting more corns - emerges as the current wheat tax continues to undermine Russian farmers' profit margins and production, and could spell a "key medium-term consequence" involving the government's regulation of wheat prices, said  Andrey Sizov Jr, the managing director of analysis group SovEcon.

"From 2017-18, we might see a gradual decline in both wheat output and exports if the export tax remains," he warned.

Even then, Watt expects that, with the latest developments, Russia could instead hold more sway over the grain market. "It would become a force in the global feed grain market," he remarked.

All that's required to fulfil such lofty ambition is for the country to maintain its levy on wheat exports. When revised, Russia will reap half the price of deliveries above 13,000 rubles (US$208), higher than the current 50% for exports above 11,000 rubles (US$176).

"With the presence of the Russian wheat export tax, farmers could be increasingly enticed towards corn, especially if grain prices rise," Watt added. The scenario could also prompt farmers to seek technical expertise in addressing the agronomic challenges of growing crops.