Russia got rid of the price discount for its wheat on the world market.
By Alexander Labykin
After withdrawing from the grain deal, Russia got rid of the price discount for its wheat on the world market. However, the growth of exports and profits of grain producers is limited by the current export duty
With the termination of the grain deal, wheat exports from Ukraine decreased by a third, and the profitability of foreign trade operations fell by half. The lack of security guarantees from Russia in the Black Sea basin has led to a sharp increase in the cost of chartering ships and cargo insurance for Ukrainian traders, and as a result, to a rise in the price of Ukrainian grain. Now the country can no longer sell its harvest at dumping prices to the detriment of not only Russian but also European competitors.
On the other hand, domestic traders, on the contrary, now sell wheat without forced discounts, which during the period of the Black Sea agreement reached $50 per ton or more (an average of 20% of the cost). However, experts believe that the reduction of Ukrainian agricultural exports is unlikely to help Russia strengthen its position in the global grain market. Many countries are now striving to occupy the niche of Ukraine, and the prices for our wheat due to the effect of the export duty are comparable to the prices for grain from Europe, Australia, Argentina. And this duty is only growing due to the weakening of the ruble.
In early September, Turkish President Recep Tayyip Erdogan is expected to meet with Vladimir Putin to, among other things, try to persuade him to extend Russia's participation in the so-called grain deal, which the Turkish leader considers his significant geopolitical victory. But this time, he is unlikely to be able to convince his Russian colleague, since the previous conditions under the Black Sea Grain Initiative have not been met. Moreover, last week Vladimir Putin announced that the first 25,000-30,000 tons of grain would be delivered to six countries in Africa that are experiencing food shortages free of charge, while subsequent batches will be supplied with significant discounts. Probably, these countries will be Ethiopia, Yemen, Sudan, Lebanon, Kenya and Somalia - the very ones for which the UN concluded with Russia,
According to the signed document, during the period of the NMD, Russia agreed to let merchant ships pass from three Ukrainian ports, Odessa, Chernomorsk and Yuzhny, through which Ukraine traditionally exported most of its agricultural products (and not only). It was assumed that grain from there would go mainly to the poorest countries in Africa and Asia, over which the threat of starvation loomed even at the beginning of the pandemic. Russian inspectors inspected ships entering and leaving these ports, and the military guaranteed their safe passage through the Black Sea area. In return, Russia demanded that the conditions for agricultural exports be softened: as part of the sanctions imposed by unfriendly countries on domestic farmers, the cost of ship charter, bank transfers, and, most importantly, cargo insurance, has doubled or tripled in price.
None of the clauses of the agreement was fulfilled, so at the end of last year Russia suspended its participation in the grain deal. However, she soon returned to it with new demands: to restore the connection of Rosselkhozbank to the global SWIFT payment accounting system (the bank was deprived of access to it in June 2022), as well as to resume the operation of the Togliatti-Odessa ammonia pipeline. And although UN Secretary General António Guterres and Recep Tayyip Erdogan assured Vladimir Putin that they were making every effort to fulfill his conditions, they did not succeed in getting trade concessions from the collective West either for Russian agricultural producers or for the Russian Agricultural Bank. Ukraine, although it was interested in extending the grain deal, as if to spite itself in the spring, blew up the ammonia pipeline, which, apparently, was the last straw for the Russian authorities.
The President of the Russian Federation has repeatedly drawn the attention of the world community to the fact that the poorest countries, for whose sake the Black Sea Grain Initiative was signed, received almost nothing from it. “The main beneficiaries were three states: China, Spain and Turkey, where more than half of the total volume of goods shipped from Ukraine under the grain deal was imported,” said Irina Deryugina, head of the Center for Agricultural Research and Food Security, leading researcher at the Institute of Oriental Studies of the Russian Academy of Sciences. “Africa got less than five percent of Ukrainian deliveries.” This is also why, on July 18, Russia's participation in the grain initiative was terminated. The Ukrainian Black Sea ports are now inactive due to the military threat, so far only one ship has left from there, but without food. The President of Turkey said that he will try to convince Putin to return to the grain deal, but this is already unlikely, since none of the parties to the agreement did not comply with Russia's requirements - sometimes defiantly, - says Natalia Shagaida, head of the RANEPA agricultural policy laboratory. “And this is a big plus for us: those countries that used to buy wheat in Ukraine are now themselves interested in easing the terms of trade for Russian farmers.”
Grain stuck in Ukraine
Ukraine is now looking for the possibility of exporting its agricultural products to Europe by land and river routes, including through ports on the Danube. The task is not an easy one: the Black Sea ports served as a traditional export channel, and there is no necessary infrastructure on the Danube. In the last agricultural season, according to the Ukrainian Grain Association, the export of grain and oilseeds amounted to over 56 million tons, of which more than half (about 60%) was exported through the now closed Black Sea area. “The ports on the Danube were overloaded last year due to the departure of some exporters from the turbulent Black Sea basin, since the beginning of the NWO, transshipment there has increased almost tenfold,” says Vladimir Petrichenko, General Director of ProZerno. - In addition, the ports should be deepened, new entrances to them should be built.
Now over 2,600 wagons with food have already accumulated at the railway crossings - earlier there were half as many of them. European states are in no hurry to let Ukraine into their markets. Last year, the European Union imposed a restriction on the supply of Ukrainian agricultural products to Bulgaria, Hungary, Romania and Slovakia - precisely because of dumping. And apparently, he is not going to lift this ban in the near future, even as a “consolation” for the lost opportunity to export grain across the Black Sea. The US is calming down its satellite by promising to “open bottlenecks” in the Danube ports, but it is obvious that this is not a matter of the near future. The question remains, where to put Ukraine's current harvest - 20 million tons of wheat and oilseeds.
Export from Russia is growing steadily
Russia and Ukraine are among the five largest grain exporters, providing about 30% of world supplies. In addition, our countries accounted for almost 80% of the sunflower oil market and about 30% of barley. Of course, the loss of part of Ukrainian agricultural products could not but have an impact on world prices. This was evident even at the beginning of the CBO: in March last year, the price of wheat jumped sharply, and by June it reached almost a record $430-500 per ton, with an average annual price of $230-250. After the conclusion of the grain deal, world prices returned to their usual levels, including because Russia set the second-ever record for grain harvest (157.7 million tons), and the country ranked first in the world in wheat exports last agricultural season ( 57 million tons). Even before the withdrawal of the Russian Federation from the agreement, on the mere rumors of its non-renewal,
Further more. According to Sovecon, in August, Russian grain rose in price by an average of $10 - from $240 to $250 per ton, and deals for the fall were made for even larger sums. In August, exporters exported agricultural products at a record pace: according to Sovecon, as of August 15, contracts for wheat alone (the main export grain crop) were signed for 5 million tons against 1 million for the same period last year. Following world prices, domestic prices have also grown - from 13 thousand rubles per ton to 16.3-16.8 thousand. This is an extremely rare case when world and domestic prices rise during the harvest period: usually the opposite is true. Moreover, this year a no less good harvest is expected than last year (about 140 million tons). “These were the games of speculators on the stock exchange, but they have already won back the theme of canceling the grain deal, and prices have gone down again, - comments analyst and grain market expert Alexander Korbut. - Now world prices have adjusted, they will be affected by other factors - first of all, forecasts for the harvest from leading producers. As long as they are good, there is no reason to keep prices high.” According to him, falling Ukrainian grain volumes in global exports (about 250 million tons) is about 6%. “They will not affect the market, since such volumes will easily replace, for example, the countries of Eastern Europe. The same Poland exported about 10 million tons of grain last year, ”says Alexander Korbut. falling Ukrainian volumes of grain in global exports (about 250 million tons) is about 6%. “They will not affect the market, since such volumes will easily replace, for example, the countries of Eastern Europe. The same Poland exported about 10 million tons of grain last year, ”says Alexander Korbut. falling Ukrainian volumes of grain in global exports (about 250 million tons) is about 6%. “They will not affect the market, since such volumes will easily replace, for example, the countries of Eastern Europe. The same Poland exported about 10 million tons of grain last year, ”says Alexander Korbut.
The cancellation of the grain deal is unlikely to lead to an increase in exports from Russia. “We are not talking about replacing Ukrainian wheat: France, Australia, Argentina, and other leading producers are in line for this niche,” Arkady Zlochevsky, president of the Russian Grain Union, believes. According to him, the only thing that Russia wins is a fairer price for domestic wheat and other cereals. The fact is that after the start of the NWO, despite the absence of sanctions against Russian food, Western insurance companies, banks and shipowners increased the cost of their services for our traders by two times or more. “Plus, we had to sell our grain at a discount, for example, $ 50 cheaper, because the buyer saw our difficulties, our need to sell a large crop and took advantage of this by lowering the price, - says Arkady Zlochevsky. “After the cancellation of the grain deal, the situation reversed: the discount on our wheat immediately decreased to seven dollars, and now to two.” The reason for this is the double or triple rise in price of the same accompanying services for Ukraine: now its agricultural cargo is ready to be transported and insured only for an additional fee.
According to Zlochevsky, over the period of the grain deal, due to this forced discount, farmers have lost about a billion dollars. Now there is no agreement. However, there are no prospects for a serious increase in exports, since Russian wheat (and barley) from 2022 are sold with a customs export duty, which regularly changes depending on the world market. “If before the cancellation of the grain deal it was 2,300 rubles per ton, then after the jump in world prices, and most importantly, the depreciation of the ruble, it rose to 3,700, and will soon reach 4,000,” says Vladimir Petrichenko. - Traders include this duty in the purchase price for agricultural producers, that is, they reduce their profits. As a result, agrarians have reduced opportunities to increase production, and many are switching from grain crops, for example, to oilseeds.” “If the duty is canceled, we will be able to increase the production and export of high-quality grain, but for now the quality is only declining (less protein in grains, etc.) due to the lack of a safety margin for people to develop. Now they have to apply less fertilizer, update equipment less often, or even reduce the area under crops,” Arkady Zlochevsky concludes.
Last week there was a message that India wants to buy wheat in the amount of 9 million tons, and for Russia this would be a significant sales channel. However, in addition to Russia, India has made an offer for deliveries to several other countries: Australia, the USA, Argentina and France, and it is not yet known whose grain it will choose. China, which bought 6 million tons of grain from Ukraine last agricultural season, does not intend to switch to Russian wheat. “China has not imported a single ton of wheat from Russia due to its phytosanitary requirements for our grain. This year, China has tightened them even more, so we can’t get into their market,” Alexander Korbut adds.
This article originally appeared at expert.ru
