Bids for 12.5% wheat in Russian deep-sea ports witnessed a decline this week, SovEcon, a leading agricultural consultancy, said.
The price range dropped from 17,800–18,400 rubles per ton the previous week to 17,300–17,800 rubles per ton this week.
This decrease suggested a potential easing of wheat prices in the global market, influenced by factors such as supply and demand dynamics, currency fluctuations, and geopolitical developments.
Shift in market dynamics
The decline in bids, the first observed since the beginning of the year, signals a shift in market dynamics.
This downward trend in prices can be attributed to a softening in demand from exporters, who are likely purchasing less due to a variety of factors, including changes in international markets, currency fluctuations, or decreasing demand for their products in overseas markets.
The implementation of an export tariff quota on February 15 has negatively impacted exporter demand, SovEcon said.
This policy measure, which imposes limitations on the quantity of goods that can be exported at a preferential tariff rate, has created uncertainty and additional costs for exporters, leading to a decrease in their overall demand.
SovEcon added:
Previously, traders rushed to move grain before quotas began, ensuring it wouldn’t count against their allocation.
Strengthening of Russian currency
The recent strengthening of the Russian ruble has had a significant impact on the wheat market, putting downward pressure on wheat bids.
This pressure arises from the inverse relationship between the value of the ruble and the price of Russian wheat exports.
As the ruble strengthens, Russian wheat becomes relatively more expensive for foreign buyers, leading to decreased demand and lower bids.
On February 14, the Central Bank of Russia took action to influence the exchange rate, setting the official USDRUB rate at 91.0.
This represents a notable decrease of 6.1% compared to the previous week.
This move by the Central Bank further strengthened the ruble, exacerbating the downward pressure on wheat bids.
The implications of this development are significant for both Russian wheat exporters and global wheat buyers, as it affects the competitiveness of Russian wheat in the international market and may lead to shifts in global wheat trade flows.
Quotas rise, but exports likely to fall
Export quotes for wheat saw a continued rise last week, with an increase of $1, reaching $242–246 per metric ton free on board, according to SovEcon.
The profitability of exporters is being severely impacted by a combination of factors.
While exporters are facing increased costs due to higher free on board prices, they are also receiving lower revenues from transshipment activities.
This has resulted in significantly negative profit margins for wheat exporters, which is a major contributing factor to the overall decline in export volumes.
Russian wheat exports in February are estimated to be 2.0 million metric tons, compared to 4.1 million last year and a five-year average of 2.9 million, according to SovEcon estimates.
Andrey Sizov, managing director at SovEcon, said:
In the near term, exports from Russia are expected to remain weak due to low profitability.
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