Home Nation/World Profit Center

Russia may focus more wheat sales in its own ‘backyard’

Increasing freight costs and competition for land from other crops may mean Russia will focus sales closer to home, Vince Peterson, president of U.S. Wheat Associates, says.
Matthew Weaver

Capital Press

Published on March 6, 2018 9:57AM

U.S. Wheat Associates president Vince Peterson says market changes may mean the Russian wheat industry will focus more on its own “backyard” in the next 20 years.

Matthew Weaver/Capital Press File

U.S. Wheat Associates president Vince Peterson says market changes may mean the Russian wheat industry will focus more on its own “backyard” in the next 20 years.

Buy this photo

Increasing regional demand, competition for acreage from other crops and higher shipping costs may force the Russian wheat industry to market its crop closer to home in the coming years, a top U.S. Wheat Associates official says.

“While we are not done with Russian competition and they are here to stay as a main player in the world market, they will behave more responsibly (due) to these changing market signals in the next 20 years,” said Vince Peterson, U.S. Wheat president.

Peterson gave the Capital Press a summary of the presentation he recently delivered to the Australian government’s Grains Research and Development Corporation.

Peterson believes Russia will not be as motivated to sell to Southeast Asia and South America customers as they were several years ago.

The country has seen record yield after record yield for the last five years, with crops during the most recent years “off the charts,” he said.

But acreage devoted to other crops increased at more than double the rate wheat acreage increased, Peterson said.

Ukraine has not increased wheat acreage in more than 20 years, but has added acreage for other crops.

“Now that all this investment in Russian ag has been made, will the Russian farmers/investors not be looking for the best possible return on that land 10 to 20 years from now?” Peterson said. “That implies a shift in future growth away from a wheat concentration and into other crops.”

According to U.S. Wheat, Russian freight on board prices — the cost of the wheat to buyers as it leaves elevators, not including freight and insurance — are $204 per ton, compared to $237 per ton for U.S. hard red winter wheat and $276 per ton for U.S. dark northern spring wheat.

USDA estimates Russia had 96.3 million metric tons of wheat for the marketing year that ends May 2018 — 36 million metric tons for exports, 45 million metric tons for domestic use and 15.3 million metric tons in ending stocks.

About 82 percent of Russia’s wheat exports go to Africa and the Middle East. The population there will continue to rapidly grow in coming years, increasing demand for imported wheat, Peterson said.

“Russia will be far more consumed in these markets in the future than they are today, and rightly so,” Peterson said. “This is their backyard, and they will be the most profitable sales for them.”

The U.S., Australia and Canada are breeding and producing wheat to meet specific market demands, while Russia’s customers in that 82 percent export category are not as particular.

“They will likely continue to tell Russia by market signals that they need low- to moderate-protein, cheap wheat,” Peterson said. “And that is what Russia will be best placed to do.”

The cost of shipping wheat has shifted wildly in the last 15 years, Peterson said. Commodity price and trade spikes from 2007 to 2012 incentivized the expansion of the dry bulk carrier fleet. Capacity peaked in 2015, decreasing ocean freight rates and allowing Russia to economically ship wheat almost everywhere.

The pendulum is beginning to swing back, Peterson said.

“The next cycle is going to make it far more expensive, and far less economical, for Russia — any origin for that matter — to be shipping their goods halfway around the globe and right into a competitor’s backyard,” Peterson said. “Particularly if those supplies are just of moderate, fair quality parameters.”



Marketplace

Share and Discuss

Guidelines

User Comments