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ANALYSIS: The rouble's precipitous drop rings alarm bells for grains

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Sharp falls in Russia’s currency, by around 9% in the past week, have prompted fears that its agriculture ministry might re-impose a grain export duty, as Agrimoney was first to report.

 

The ministry has forecast total exports of 45m tonnes during this marketing year, up to June, without drawing on grain needed for domestic consumption.

 

The ministry says it sees no need to impose a duty on grain exports.

 

But how long can Russia live with a rouble now at its lowest against the US dollar in four years?

 

Russia’s grain exports have been slowing

 

Grain exports so far this crop year are down 19% year-on-year. For grain exports to reach the government’s official forecast of 45m tonnes, at least 15m tonnes could still be exported before mid-year.

 

The context is of course the crude oil ’war’. In the face of falling demand, Saudi Arabia convinced Opec to cut production by 1.5m barrels per day, contingent on Russia agreeing to participate. Russia declined.

 

After Russia’s refusal to join in production cuts, the Saudis said they would increase production. And crude oil prices have collapsed.

 

We have been here before, in 1985 (and in 2014-16). In 1985 Saudi Arabia, independently from Opec , increased its crude oil production by more than 39% to more than 5m barrels per day. Crude oil prices slumped to as low as $10 per barrel.

 

That crash deprived the then Soviet Union of export revenue and could well have accelerated its collapse.

 

Cheaper Russian grain - for now

 

The rouble’s slump makes Russian wheat relatively attractive on export markets - the prices of Russian wheat and barley have slid, but how long can or will Russia permit this?

 

Russia’s central bank has said today that the rouble’s slump against the dollar poses significant albeit short-term risks for inflation, which was 2.3% in January (against an annual target of 4%).

 

One worry is that Russia’s wheat could be hoovered up by exporters, leaving Russian stocks vulnerable.

 

The Russian government appears ready for a long siege in the crude oil tussle.

 

One of its weapons is the so-called ’sleeping’ wheat export tax. The export duty was introduced in February 2015 but is currently zero. It could quickly be re-introduced.

 

Last July, the government extended the 0% rule until July 2021, but we could soon see it back before then, unless peace breaks out in crude oil.

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