Russian wheat market situation

“Our current Russian wheat production forecast is between 81 (“base conservative”) to 85.5 (“base optimistic”) mmt scenario. Ceteris paribus, it would allow export 38 to 42 mmt, so that Russia may keep its number one place on the world market. In the coming year we expect numerous structural changes and investments on the domestic export market. VTB Capital, the new major state-owned player, aggressively enters the grain export infrastructure. There will be important investments across several export terminals, while one big facility would emerge from nothing. We continue to observe strong investments into modern grain railway hoppers, river – sea barges, and innovative developments inside grain truck transportation industry.”

Dmitri Rylko
General Director
IKAR LLC
Moscow, Russia
Over recent years Russia has become the world biggest wheat exporter. I remember some fifteen years ago we at IKAR forecasted such a development, but we thought it would happen sometime in early 2020-s. But time moved faster than expected… Moreover, being No. 1 in the world, Russian farmers, especially in export-oriented South, continue to enjoy very strong production margins.

Such factors, as ruble devaluation (due to sanctions and crude oil price weakening), good weather, reasonable government regulation, not too bad wheat and other grains international prices, and perpetual improvements across our private vertical supply chain – from input supplies to farm to ports – altogether made this story of success.

The country has a peculiar farming structure: from largest farmsteads of hundreds thousand hectares (some produce and sell more than 1 million tons of grains) to relatively small commercial farms of “just” 500-1000 ha. It allows have a combination of the economy on scale and quality orientation. On the top of it, in recent years farmers, especially in the South of the country, enjoy probably strongest competition on the local origination markets: dozens of buyers, including most reputable exporters, strongly compete for farmers’ grain. It’s not a rare situation when several big names compete for the single wheat lot tendered from one major farmstead…

As the result of strongest production margins in 2018/19, coming 2019/20 is featured with largest area of winter wheat ever in Russia. The winter kill has been quite large: according to preliminary estimates, it may exceed 800 tha. However, it almost did not occur in export-oriented South, and, moreover, will be re-sown mostly with spring wheat.

Up-to-date, as of the end of May, both winter and spring wheat growing conditions are quite beneficial. Of course, for winter wheat one should watch if there is last moment bad surprise (such as heat or showers in the South of Russia), while spring wheat is just at early stages of establishment or just being sown.

Our current production forecast is between 81 (“base conservative”) to 85.5 (“base optimistic”) mmt scenario. Ceteris paribus, it would allow export 38 to 42 mmt, so that Russia may keep its number one place on the world market.

In the coming year, we expect numerous structural changes and investments on the domestic export market. VTB Capital, the new major state-owned player, aggressively enters the grain export infrastructure. There will be important investments across several export terminals, while one big facility would emerge from nothing. We continue to observe strong investments into modern grain railway hoppers, river – sea barges, and innovative developments inside the grain truck transportation industry.

In 2018/19 the country would export about 250 tmt of wheat flour, and our millers dream on how to raise this figure in the nearest future. The export of wheat bran may reach 550 tmt, predominantly to Turkey.

Under any scenario, it is important to keep a highly competitive industry environment. The industry players also need to work on grain safety issues, as during past seasons some foreign customers expressed concerns over the quality and safety of our wheat. We see the efforts of our regulators to improve it.

Our industry participants fully understand that being the first is not only, and not so much a matter of proud, but the great responsibility before the millions of people in more than 70 countries, who need and rely on the Russian wheat.

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