No Grain, No Gain

PHOTO by Egor Eremov / RIA Novosti
Russia plans to compete for US market share

Russia is planning to compete for traditional US grain markets in Latin America. Year-on-year exports have already grown and it's hoped that entering new markets will remedy Russia' excess supply problem.

Mexico in particular is being eyed by Russian grain producers. According to the US Department of Agriculture, it is the third largest buyer of American grain. Russia’s Ministry of Agriculture is also keen on the Brazilian market, which imports grain from Argentina, its closest neighbour. However, the Brazilian market has been on the US' books for the last two years. In 2014 American suppliers succeeded in increasing the sale of grain to Brazil after wheat export tariffs were introduced in Argentina (they were then removed in 2015).

“Mexico, the closest neighbour of the world's largest grain exporter, the United States, imported 389,000 tonnes of wheat from Russia in the 2015/16 season. But we are also interested in the Brazilian market,” said Vladimir Volik, the director of the department for the regulation of agribusiness markets, in an interview with RNS.

Latin American markets could become especially attractive for Russian grain producers after currencies fell in a number of countries, due to global currency devaluation in developing countries and the victory of Donald Trump in the US presidential election.

Mexico has been affected the most. The peso has dropped by more than 15% against the dollar since the beginning of November alone, falling from 18.3 pesos to the dollar to its current level of 20.5. Brazil has experienced a similar situation: the real fell by 16% against the dollar since the beginning of 2016 thanks to lower oil revenues, the corruption scandals which have engulfed the government, and the country's overall economic slowdown.

After the tumble of their national currencies both Mexico and Brazil face difficulty buying American grain. So even with the delivery costs, Russian wheat may be more affordable than American. The price of 4th grade wheat in Russia's southern ports is $181 per tonne, according to Rusagrotrans.

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Drying of grain gathered at rice fields at AFG National agricultural holding fields in the Krasnodar Region, southern Russia

The Mexican market is no stranger to Russian wheat: imports from Russia started taking place as far back as five years ago.

Since then, Russia has significantly increased its exports, said Igor Pavensky, Rusagrotrans’s Deputy Director of Strategic Marketing. In the 2015/16 agricultural year, Russia exported 447,000 tonnes of wheat to Mexico. Since the beginning of the current season, the amount has already reached 163,000 tonnes.

However, Mexico's total share is low: less than 1.5% of Russian exports go there and it's ranked 24th among importers of Russian wheat. Mexico, according to USDA forecasts, will import 4.6mn tonnes in the 2016/17 agricultural year, most of it from the US and Canada.

Brazil, on the contrary, has never bought Russian wheat before. Its traditional supplier is Argentina, which fulfilled about 80% of the country's overall demand in 2015, while another 8% came from the United States. The USDA expects that exports from Argentina to Brazil will increase by 3-4mn tonnes in 2016/17, while the Brazilian agricultural ministry, Conab expects the total volume to reach 5.3mn tonnes.

Other Latin American buyers of Russian wheat are Peru (120,000 tonnes in 2015/16) and Nicaragua (66,000 tonnes). Exports are on the rise this year: from July to October, Peru bought 99,000 tonnes, compared to 46,000 a year earlier.

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Harvesting wheat on the fields of Agrofirma Rossiya in the Krasnodar Region, southern Russia

Russia has also begun the delivery of grain to North African markets which traditionally buy French wheat. A poor grain harvest in Europe this year forced Morocco and Algeria to look for alternative suppliers.

“We are now entering new markets. For example, large volumes of corn are going to Japan and Vietnam. This year Bangladesh is also importing more wheat.

Low prices, cheap freight and the decent quality of Russian grain have opened new markets,” says Pavensky.

This year Russia will enjoy a record grain harvest. According the Ministry of Agriculture’s forecast 35mn tonnes of the 117mn harvested will be sent abroad.

But despite high yields, overall exports have slowed. Since the beginning of the season, Russia exported 14mn tonnes of grain (according to the Ministry of Agriculture on Nov. 14), of which 11.2mn tonnes were wheat. Year-on-year growth fell by 4.7%. In September, Vladimir Petrichenko, head of research company ProZerno, estimated Russia's capacity to export grain at 42.5mn tonnes. Hopefully, the search for new markets can help to solve the issue of grain surplus.

Author: Elena Platonova