Kremlin price floor fails to prevent wheat market decline
Intense diplomatic efforts have freed Ukraine’s grain shipments, allowing it to feed the world.Photo: Bloomberg
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Intense diplomatic efforts have freed Ukraine’s grain shipments, allowing it to feed the world.Photo: Bloomberg
Russia’s second consecutive year of bumper wheat harvests has strengthened its position as the top exporter, but also eased price pressures stemming from Moscow’s invasion of Ukraine.
The Kremlin’s war, which included port blockades and shelling, hampered Ukraine’s food exports and solidified Russia’s grip on the world wheat market. This is reflected in Russian shipping records, with Russian traders overcoming the financing and logistical challenges some faced in the aftermath of the invasion.
But Russia’s grain ports are overflowing, offering a glimmer of hope for wheat consumers hit by a cost-of-living crisis. Prices are at their lowest in almost three years. Chicago markets are trading at less than half of the highs reached after Moscow first invaded, even as the Kremlin attempts to take advantage of the situation by raising wheat prices to replenish its own coffers.
Illustration: TBS
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Illustration: TBS
“Russian wheat doesn’t have a lot of competition,” said Hélène Duflo, grain market analyst at Strategy Grains. She said: “At the moment Russia is the price maker.”
As oversupply drives prices down, Russia is using its dominant position to set a floor on the market. That would not only appease the country’s farmers, who are reeling from declining incomes, but also generate additional tax revenue and boost the Kremlin’s war-strapped coffers.
Officials say Russian authorities are trying to impose unofficial price floors on exports. This has forced some traders to renegotiate or cancel trades, the people said, asking not to be identified as the matter is private.
Officials say the government can enforce price floors by refusing to grant export documents to low-cost cargoes. Still, the way the floors are applied is inconsistent.
Egypt booked a large quantity of Russian wheat in a private deal this month at a price below the unofficial minimum price in an open auction. A few days later, Egypt announced that it would allow the trader to supply grain from sources other than Russia. This will allow the Russian Ministry of Agriculture to “save face” in deals below the floor price, said Andrei Sizov, managing director of research firm Sobuecon.
“If they don’t necessarily sell Russian wheat, it means they are not violating Russia’s price floor,” Sizov said.
Russia’s Ministry of Agriculture did not respond to questions about whether it enforces a minimum official price. “We support prices determined by the increase in production costs,” said Eduard Czernin, head of the Russian Grain Export Union.
Nevertheless, the price floor is another sign that the Kremlin is seeking to tighten its control over Russia’s grain exports and, by extension, global markets.
International trading companies fled Russia earlier this year as government criticism of foreign companies intensified. The Russian government has also attacked Ukraine’s agricultural export infrastructure, mixing grain from the occupied territories with its own output while continuing to attract buyers from Africa and the Middle East.
Underscoring the dominance of Moscow’s wheat market, the U.S. Department of Agriculture earlier this week lowered its forecast for global shipments while raising its export forecast for Russia.
As a result, Alexander Karavaitsev, senior economist at the International Grain Council, said that while uncertainty remains about Ukraine’s shipments, those concerns are more than offset by Russia’s own abundant wheat fields. It is said to belong to
“Russia’s continued bountiful and competitively priced exports have been a major factor weighing on exporter sentiment in other major producing regions in recent months,” he said.
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