Permanent Russia export curbs may reduce wheat output

A permanent floating duty on wheat exports from Russia, which will be imposed from 2 June, may lead to a decrease in wheat production as the new export tax calculation mechanism would be based on market price benchmarks rather than cost of production, the Russian grain union (RGU) said.

Russia confirmed last week the introduction of the tax for the 2021-22 marketing season, with the formula to be set at 70pc of the difference between a basic export price and a market benchmark, calculated using reported export transactions.

To keep Russian wheat production at current levels of around 80mn t, production profitability should be at about 40pc, with the cost of production at 9,500-10,000 roubles/t ($128-134/t) for the 2021-22 wheat crop, according to RGU.

"If we subtract all costs, including a €50/t export duty, transport, transshipment and other costs from the current market price for Russian wheat of about $285/t fob, we get only Rbs9,000/t, which is below the cost of production," RGU president Arkady Zlochevsky said today.

Farmers may react to this lack of profitability by reducing planted wheat areas for 2021-22 marketing season spring wheat, which accounts for about 40pc of the total wheat production in Russia, Zlochevsky said.

A big drop in 2021-22 production could be still avoided since the planted area of winter wheat reached a record 19mn hectares, although achieved yields for this crop are still unclear.

By Victoria Blazhko