NEWS that Russia has set an all-time record for monthly grain exports in August is, at first glance, potentially at odds with the tightening of the global balance sheet.
Along with European Union supply being down, and demand up, has been the news that Russian grain supply will be down year on year.
The US Department of Agriculture’s latest forecast puts 2018 Russian new crop wheat supply at 68 million tonnes, down 20 per cent year on year.
Despite this, Russian grain exports of 5.33 million tonnes, including 4.6 million tonnes of wheat, in August have been reported.
This is not only a record August export volume, but exceeds the previous monthly export record of 5.27 million tonnes in November last year.
September is also shaping up to be a strong export month for Russia, with various sources expecting grain volumes to again approach five million tonnes for the month.
A few of factors support the strong export numbers. Firstly, the ruble has depreciated since the beginning of the year, and in August found its way to two-and-half-year lows – not quite the bottom reached at the beginning of 2016, but close.
A strengthening US dollar, as well as trade sanctions on Russia, have pushed the ruble lower, and, as such, increased the competitiveness of Russian grain in global markets.
Secondly, it’s estimated Russia ended 2017/18 with more than nine million tonnes of wheat in stock. That’s down 10pc to 15pc year on year, but 40pc above the five-year average.
Even with current year production forecast to be only 68 million tonnes, higher ending stocks support export volumes above 30 million tonnes, and second only to Russia’s record wheat export supply of 42 million tonnes last year.
There have also been rumours the Russian government was planning to put in place a wheat export ban.
The prospect of a ban would have created an urgency to export ahead of potential market intervention, and expedited sales programs.
The Russian Federation Ministry of Agriculture last week ruled out limiting grain exports, and in fact announced the possibility of selling 1.5 million tonnes of the government’s grain stocks.
However, given precedents for Russian government intervention in the grains market – an export ban as recently as 2010 and a floating export tax since then – a rumour of such action would have been enough to expedite exports.
However, more than any other factor explaining high Russian export volumes, the downturn in production needs to be seen in context.
While the current expectations for 68 million tonnes of Russian new crop wheat this year are down 20pc year on year, this is still 3pc up on the five-year average, and the third highest harvest record of all time.
And then there‘s the possibility Russia has an idea there is more new crop supply on the cards.