Ruble strength and low supply squeeze Russian wheat exporters

SovEcon, a leading agricultural consultancy, has revised its projection for Russian wheat exports during the 2024-25 season. 

The firm has decreased its initial forecast by 1.5 million metric tons, bringing the new expected export volume down to 40.7 million metric tons. 

This adjustment reflects a reassessment of various factors that could impact Russia's wheat export capabilities in the upcoming season. 

The current forecast level is lower than the 52.4 million metric tons shipped last year. 

Furthermore, the estimate is also below the five-year average of 40.9 million metric tons, SovEcon said. 

Russia's wheat exports

This decline can be attributed to a combination of factors, most notably low supply levels within Russia and negative exporter margins, which disincentivise export activity.

Russian wheat exports saw a slight decline in the first eight months of the current marketing year. 

From July to February, total exports reached 32.6 million metric tons, compared to 33.8 million metric tons during the same period in the previous year, according to SovEcon analysts. 

This decrease suggests a potential shift in the global wheat market or adjustments in Russia's export strategy.

Additionally, Russian wheat exports in February experienced a significant decline, reaching 1.9 million metric tons.

This figure represents a notable decrease compared to the 2.3 million metric tons exported in February of the previous year. 

Furthermore, it falls considerably below the five-year average export volume for February, which stands at 4.1 million metric tons. 

Lower profitability

“Wheat exports continue to slow due to their low profitability,” SovEcon said. 

The dwindling wheat supply is causing significant concerns for the export market. 

As of March 1, the current wheat stocks are alarmingly low at 11.6 million metric tons.

This represents a substantial 34% decrease compared to the same period last year and falls 9% below the average stock levels. 

This scarcity of wheat is inevitably going to restrict the amount of the staple grain that can be exported in the coming months, potentially impacting global food security and market prices.

Ruble’s strength

The ruble's rapid appreciation is creating a challenging environment for traders.

The Russian ruble has experienced a steady appreciation over the past two months. 

While the export duty mechanism is designed to adjust to fluctuations in the currency exchange rate, there is an inherent delay in this process. 

This lag creates a challenging situation for exporters, as they are unable to fully capitalise on the ruble's gains during this period. 

The delayed adjustment of the export duty essentially puts exporters at a financial disadvantage, according to SovEcon. 

“The current forecast suggests an acceleration of exports after a period of extremely slow shipments in recent months due to rising export prices, increased activity from importers, and a possible weakening of the ruble,” the consultancy further said. 

SovEcon has raised the forecast for exports in the new season to 39.1 million metric tons from 38.9 million metric tons previously, due to higher initial stocks. 

Andrey Sizov, managing director at SovEcon, said in a note: