RUSSIA – Russian authorities have introduced new export regulations targeting intermediaries and price controls in a strategic move to protect its grain market from low-priced sales and unauthorized resales.
These measures are in response to the market challenges posed by some exporters’ aggressive discounting and an ongoing shift in the country’s grain export dynamics.
As of October 11, 2024, the Russian Ministry of Agriculture has endorsed the Russian Grain Union’s proposal, which mandates that Russian grain exports should be carried out exclusively by Russian exporters.
This is aimed at eliminating the practice of intermediaries, particularly foreign winners of tenders, reselling Russian wheat at reduced prices.
“The vicious practice of recent months, caused by the vigorous activity and dumping of some new exporters, must be eradicated,” the Union emphasized during a meeting with exporters.
The core of this initiative is to prevent Russian wheat from being sold at undervalued prices on the international market, a problem that emerged following the exit of major multinational companies from Russia in July 2023.
After these companies sold their assets and focused on other origins, the Russian grain market consolidated, leaving exports in the hands of a smaller number of local players.
Despite this consolidation, some intermediaries continued purchasing Russian grain on a free-on-board (FOB) basis and reselling it internationally, further distorting prices.
Introduction of a Price Floor
Adding to these restrictions, traders reported on October 14 that an unofficial price floor for Russian wheat with a 12.5% protein content has been set at US$250 per metric ton FOB.
However, it is expected that October shipments will trade at US$240/t, with November at US$245/t, and December at the full US$250/t.
As of mid-October, offers for November shipments stood at US$245/t, but limited buyer interest suggests market participants are awaiting further clarity on the mandate.
The Russian Ministry of Agriculture has yet to officially confirm the price floor, though industry insiders expect a formal declaration soon.
In contrast, Platts, a commodity price reporting agency, assessed Russian 12.5% wheat at US$234/t on October 14, marking a 2.18% increase from the previous week and the highest level seen in three months.
Despite the price rise, concerns remain that the new regulations could stifle some exporters’ ability to remain competitive in key markets.
This is not the first time Russia has attempted to set a price floor. A similar unofficial price floor of US$275/t was imposed in March 2023, which traders circumvented by selling on a Cost, Insurance, and Freight (CIF) basis.
It is expected that similar tactics could be employed this time around to navigate the FOB price floor mandate.
Russia’s wheat exports have been under significant pressure in recent months, despite high export volumes.
As of September 2024, Russia had exported 14.73 million metric tons (MMt) of wheat, nearly matching the 15 MMt exported during the same period last year.
However, a poor harvest and severe droughts across several Russian regions have raised concerns about future output, with the 2025-26 crop potentially affected.
Forecasts for the 2024-25 marketing season suggest that Russia will harvest 82.1 MMt of wheat, down from 89.4 MMt in the previous year. Export volumes are projected to drop to 47 MMt from 54.8 MMt in 2023-24, further tightening supply.
The increasing scarcity of Russian wheat has also led to calls for tighter export quotas. Russia typically enforces export caps between February 15 and June 30, with quotas allocated to exporters based on their performance in the previous marketing year.
Discussions for the 2024-25 quotas are underway, but the Russian Grain Union has hinted at an export potential of 55-57 MMt, slightly higher than current projections.
Rising Export Taxes
In addition to the price floor and quota discussions, the Russian Ministry of Agriculture announced an increase in its variable export tax for the week of October 16-22.
The new tax stands at 1,872 rubles per ton (Rb/t), up 40.96% from the previous week’s rate. Russia’s export tax on wheat has been in place since February 2021, initially set as a fixed tariff before transitioning to a floating rate.
The tax is recalculated weekly based on a 60-day rolling index of wheat prices, with the government applying a 70% tax on the price difference between the market price and a set baseline.
As of October 2024, that baseline price is set at 18,000 Rb/t, up from 15,000 Rb/t earlier this year. For the latest tax period, the average market price for wheat stood at US$215.80/t FOB, driving the higher tax rate.
This increased export tax, combined with the price floor and quota expectations, adds to the mounting pressures on Russia’s grain export sector, raising concerns about potential export slowdowns.
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