Russian grains stocks likely to rise: Agrozan

Slower Russian grain exports for the the remainder of the 2020-21 marketing year are likely to result in the country's stockpiles building sharply, trading firm Agrozan Commodities DMCC country manager Sabina Sodikova told Argus.

Russia, the world's largest wheat exporter, has moved to strengthen its state control over the grain market, having introduced export restrictions earlier this month.

The measures are designed to protect domestic prices from spikes triggered by the international market, but are likely to see producer stocks building over the next year as farmers' options for sales narrow, and Russia lose ground to competing exporting countries, Sodikova said.

"Russian wheat export potential, with record crops having been harvested over the last three years, is 50mn t without any risk for local consumption," she said. "But in the new season, Russian producers could find themselves sitting on wheat stocks owing to low exports sales, while rival exporting countries could sell wheat at high prices."

Ending stocks to rise

Russian grains exports are unlikely to exceed a 17.5mn t export quota set by the government for the 15 February-30 June period, Sodikova said.

Considering that around 10mn t of the quota was allocated to the largest Russian exporters, grains shipments through the remainder of the current season could be in line with that volume, as medium-sized and smaller exporters cannot compete with the large ones on equal terms.

Wheat will make up the bulk of the quota, amid thin global demand for Russian barley and corn exports, with total shipments unlikely to surpass 1mn t until the end of the season, Sodikova said. Overall 2020-21 wheat exports from Russia could reach 38mn-39mn t, with around 30mn t having already been shipped by 1 February, she said.

Russia will face strong competition from France and Romania in Egypt's GASC wheat tenders for the remainder of the 2020-21 marketing year, while Turkey — the second-largest buyer of Russian wheat after Egypt — appears in no rush to return for wheat purchases following Russia's export duty implementation.

Russian farmers are also reluctant to sell their wheat stocks, amid high forward prices for new crop wheat and continuing weather risks for future production. And as a result, 2020-21 wheat stocks in Russia could increase by at least 5mn t compared with the previous season, Sodikova said.

Clarity needed over grain tracking system

Beyond the end of the current season, fixed export duties will be replaced with a floating export duty and a state grain tracking e-system, which will continue to affect Russian wheat exports in the new 2021-22 marketing year.

The new export tax calculation mechanism is due to be launched from 1 April, with market price benchmarks being calculated by the Moscow Exchange on the back of reported export transactions, which require Russian exporters to register their contracts on a trading exchange platform.

But further clarity is still required over the method for calculating these benchmark prices, Sodikova said.

"There are many things that should be clarified, at first about methodology of benchmark pricing," Sodikova said, adding that there are questions over possible changes to Russia's grain law.

The changes, which are likely to include the launch of a state grain e-system tracking quality and origin, will take partial effect from 1 July 2021, with total implementation from 1 January 2022.

The new system will involve quality certification for all crops, and include transportation and storage tracing "from field to ultimate consumer". On the one hand, these moves should be welcomed by the market, as this would facilitate transparent and accountable grain trading, but on the other hand, issues are likely to be encountered during the transition period and could take time to be smoothly enforced, Sodikova said.

And these new bureaucratic procedures could have a further adverse effect on the pace of Russia's grains exports in the new 2021-22 marketing year, despite the likelihood of plentiful supply availability in the local market.

By Alexey Yeromin