Despite the weak performance of Russian grain exports in the first months of the season, due to market players’ difficulties with vessel chartering, cargo insurance and payments, shipments reached record levels by the end of the year . According to analysts, 4-4.8 million tons of grain can be shipped in December, which will be a new all-time high for the month. But market participants note delays in exports due to worsening weather conditions in the south of the Russian Federation. And experts warn of increased competition with Ukrainian grain and a possible loss of price advantage for Russian grain due to a decrease in its cost in other countries.
In December, Russia may export 4-4.2 million tons of grain, which will be comparable to the December 2017 record, according to an analysis by Sovecon. The forecast is based on strong recent sales, especially tenders for Algeria, Pakistan and transactions with the Egyptian GASC. For the first half of the season (July-December), exports are estimated at 22.8 million tons, says Andrey Sizov, director of Sovecon. And according to full-season results, the agency expects grain exports of 43.9 million tons. 38.1 million tons were shipped last season.
The analytical center of Rusagrotrans has even more optimistic estimates. They predict that a historically record volume of wheat, up to 4.6-4.8 million tons, could be shipped in December. According to analysts, in November Russia has already exported the maximum for the month 4.8 million tons of grain, taking into account deliveries to EAEU countries. More than 0.5 million tons were transferred in December due to weather problems in southern ports. More wheat has been shipped and sold to Pakistan, Saudi Arabia, Algeria, Brazil and Mexico since the start of the season than in any previous season, according to Rusagrotrans analysts.
Director-General of the Institute for Agricultural Market Studies (IKAR) Dmitry Rylko says grain exports in December were initially estimated at 4.2 million tons. However, he clarifies, a sharp deterioration in the weather in the Sea of Azov due to strong winds and difficulties in the Black Sea could lead to the figure falling below 4 million tons. And the delays in exporting grain are putting pressure on the domestic market, where there are already storage difficulties due to a record harvest, adds the expert. A Kommersant source at a major exporter says that “due to worsening weather in the south, ten days have been lost and predictions of record exports may not come true.”
In the first months of the season, exports of grain from Russia lagged far behind last year’s figures. In the period July-August shipments were estimated to be less than 6 million tons – at least from 2017-2018 and lower than last year by 27%, in the period July-October the difference decreased to 4.5%. Since the beginning of military operations of the Russian Federation in Ukraine and the new sanctions, exporters themselves have noted difficulties with chartering vessels, insuring cargo and making payments. In November, however, market participants assured that they were able to adjust to trade barriers alongside buyers from the Middle East and Africa.
Sovecon believes that the shortage of transport wagons and the resumption of competition with Ukraine after the extension of the grain corridor could also hold back Russian exports in December. The agreement regulating the export of grain from Ukrainian ports was concluded in Istanbul on July 22 and was valid until November 19. At the end of October, the Russian Federation announced the freezing of participation in the agreement in connection with the attacks on the infrastructure of the Black Sea Fleet in Sevastopol. In addition, Russian officials have repeatedly stated that the unhindered access of Russian food to world markets, which is stipulated in the agreements, is not guaranteed.
However, on November 17, the agreement was automatically extended for 120 days due to the absence of objections from the participating Russian Federation, Ukraine, Turkey and the United Nations. In December, Russia’s foreign ministry said it was continuing contacts with the United Nations on the issue of unhindered supplies of Russian agricultural products. As of Dec. 4, more than 13 million tons of grain and other foodstuffs have left Ukraine’s ports as part of the deal, according to the Joint Coordination Center.
Andrey Sizov adds that the ongoing collapse of grain prices on world stock exchanges, caused by active sales of hedge funds, carries more and more risks. Thus, on December 5, shares in Chicago fell by almost 3%. According to the expert, the active export of Russian grain in recent months has been supported by relatively low prices compared to competitors. In October-November, the closest contracts for Black Sea wheat averaged $10-25 cheaper than contracts for French wheat, Sovecon calculated.
As prices fall on world trade, Russian wheat is losing its competitiveness, which could lead to a decrease in demand and exports in the first quarter of 2023, and possibly by the end of December, Sizov believes. According to IKAR data cited by Reuters, Russian wheat with 12.5 percent protein cost USD 315 per ton (FOB) in early December, Sovecon estimated the cost at USD 314-318 per ton.
At the same time, a Kommersant source in the grain market notes that France has almost exhausted its export potential and shipments from Ukraine are slow, so demand for Russian grain will continue. According to him, several large plots with deliveries for January-March 2023 have already been sold under interstate tenders and contracts. Eduard Zernin, Chairman of the Board of the Union of Grain Exporters, believes that the decline in world prices can stimulate the demand for grain, and the weakening of the ruble will increase the profitability of sales. Among the risks of the second half of the season, he notes a possible deterioration of the situation with bank payments due to the extension of the sanctions. Dmitry Rylko points to a record Australian crop, which should be of good quality, with which Russian wheat will compete.
