There is good news and bad news about Russia’s wheat crop.
The good news is that it is going to end up huge – hitting 100m tonnes for the first time, according to SovEcon.
Such a huge harvest, beating by a distance the country’s previous record of 86m tonnes, represents just what the world needs.
The United Nations after all warned this week “the number of people facing acute food insecurity worldwide is expected to continue to rise precipitously… driven by rising conflict, weather extremes, and economic instability aggravated by the pandemic and the ripple effects of the crisis in Ukraine”.
Output vs exports
The bad news is where the crop is.
While Russian farmers are outperforming, their merchants are struggling to get grains onto ships.
The country’s wheat exports will, according to SovEcon, in the July-to-September quarter average 14% below the five-year average, despite the huge harvest.
Investors have cited as behind the lag factors ranging from the strength of the rouble, to crop quality concerns, to Russia’s wheat export tax, to logistical hiccups caused by the Ukraine war, to nerves over buying from a country subjected by the West to so many sanctions.
(… even though these sanctions do not directly involve food).
It doesn’t look likely that many of these obstacles will be resolved any time soon. So Russia’s shipments look likely to remain well below the exportable surplus of 47.5m tonnes, as calculated by Ikar using a 99m-tonne harvest estimate.
Price of stocks
That isn’t just regrettable for importers. It could prove a headache for Russia itself.
A huge harvest and limited exports is a recipe for massive inventories.
And these come with a price – depressing domestic values, crimping farm margins and so curbing plantings for the next harvest.
This is, in fact, the pressure that Ukrainian growers are negotiating, with the country’s depressed exports since Russia’s invasion meaning a back-up of domestic stocks, full silos, and farmgate prices well below those on the international market.
It is little wonder that Ukraine’s farm ministry forecasts a 20% drop in domestic winter wheat sowings this year (on an unoccupied territory basis), with consultancy Barva Invest pegging the fall above 25%.
Will Russia’s winter wheat sowings for 2023 fall too? There is no reason to expect anything dramatic. But the country is certainly having to get used to learning lessons from its smaller neighbour.