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Morning Markets: Russia’s export tax weighs on wheat rally

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Speculation over a Russian wheat export tax drove wheat futures values higher over recent days, only to burst when yesterday’s confirmation came with a two-month delay. The prospect of accelerated Russian wheat exports in the interim depressed global wheat values.

 

Monday saw funds as net buyers of 17,500 lots of wheat; 8,500 lots of soybeans but only 500 lots of corn.

 

The Chicago December wheat contract closed last week at $608¼ a bushel and rose to $6.15½/bu in early Monday trading on the back of speculation that Russia was about to impose wheat export taxes.

 

But the two-month delay in these levies when announced by Russia’s Agriculture Ministry saw a retreat back to a Monday close of $5.93½/bu. Early Tuesday’s trading saw a partial recovery in the now nearby March contract to $5.98¾/bu.

 

UK analyst CRM Commodities terms yesterday’s slide in values an “export tax hangover”. It notes that Russia’s $30/tonne wheat export tax will come into force from February 15th to the end of the grain marketing year on June 30th 2021. But Russia has increased the cereals (wheat, corn and rye) volume that could be exported to 17.5 million tonnes.

 

Agritel believes the effect of the tax on international trading will be limited, since the levy is on sales by Russian growers, and so affects domestic prices. But the two-month delay before implementation will potentially increase farmer sales in Russia and consequently market supplies, which could be bearish for world values.

 

Will Russia watch bread prices rise?

 

Will the measure be effective? Analyst Tobin Gorey of Commonwealth Bank of Australia warns that aggressive Russian export sales ahead of the tax might provoke further restrictions.

 

“Russia’s most senior politicians are worried about the prices of consumer staples like bread. We doubt that those politicians are going to sit idly by if wheat exports accelerate, frustrating, or even confounding, their attempts to ‘solve’ their bread price problem. Those politicians would likely instead take further action – so the benign announcement yesterday may not be the final word on this matter.”

 

At the same time, Black Sea consultancy SovEcon has reduced its wheat production estimates for Russia’s 2021 crop to 76.8 million tonnes from the earlier 81m tonnes, after factoring in a loss of 3.2 million hectares of crop due to winter kill. The 16.3m hectares of winter grains planted this fall in that country is a record area.

 

Egypt has launched a new wheat tender for shipments from February 1st-15th 2021, i.e. before the Russian tax. Its last tender was fulfilled by 170,000 tonnes of Black Sea wheat.

 

Europe’s futures values followed the US downwards, with the nearby Paris wheat contract losing €4.25/tonne to close at €206.25/tonne.

 

EU wheat exports down 17% yoy

 

Europe’s wheat exports are now at 11.61m tonnes for the 2020/21 year, down 17% at the same stage of the previous season. Barley exports are down 8% at 3.48m tonnes while corn imports are 23% lower at 7.56m tonnes. France is the major EU wheat exporter, with sales to China of 1.32m tonnes since July 1st.

 

The CBOT corn contract saw little change. The December position had closed last week at $4.24¼/bu and fell back over Monday to $419¼/bu, although the new March contract was back up to $4.21½/bu in early Tuesday business.

 

The Paris corn contract fell €2.50 to €188.50/tonne over Monday. Brazil’s Conab has reduced its corn production estimates to 102.5m tonnes due to “adverse conditions for full season corn”.

 

Brian Henry at Benson Quinn Commodities International noted that “corn searched for direction between firm beans and sharply lower wheat - US corn looks like a tough spec sale right here. Despite wheat dropping, the market was able to come back to unchanged.

 

The Chicago soybean contact gained 10c to $11.70½/bu as Monday’s markets opened, only to finish the day at $11.69½/bu, with a further 5c slide early Tuesday to $11.64¾ bu.

 

La Nina drives soya markets

 

Mr Henry noted Brazil’s prospects in a La Nina season continue to drive markets – better soil moisture in the south of Brazil has helped the crop, with Conab lowering its 2020/21 soybean harvest estimate by just 500,000 tonnes to 134.4m tonnes.

 

“Beans are leveraging a tightening balance sheet to trade firm,” he said. “This market always has the undertow of support that stems from the rapid pace of export sales through late summer and fall. Right now, the demand picture isn’t robust. However, the demand to this point can’t be ignored.”

 

In Europe, the Euronext rapeseed contract lost €2.75/tonne to close at €405.75/tonne. The Winnipeg January ’21 canola contract gained 0.4% to Can$589/tonne.

 

Agritel reported that rapeseed gave up some ground, while canola, palm and soybeans values progressed. But coronavirus restrictions in many countries and their effect on future demand continue to concern traders.

 

 

 

 

 

 

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