Global Markets: Grains – Rising Russian Supplies Drive Record Exports

With bumper supplies, Russian grain exports overall are forecast to reach record levels in 2017/18. The expansion is primarily driven by record wheat exports, set to exceed both the United States and the European Union. Corn and barley exports are forecast to be the second-highest on record. Russian barley and wheat exports each account for nearly one-fifth of global trade, while corn exports account for a small share in the world market.

Russia’s ability to export has been assisted by favorable exchange rates and low prices compared to other traditional wheat and barley exporters. Another key advantage is geographic proximity to rapidly growing markets in the Middle East and North Africa. Recent investments have been made in Russian port capacity, and the country has the flexibility to use smaller vessels to accommodate infrastructure constraints in nearby countries.

Ports on the Black and Caspian Seas give it easy access to the Middle East and North Africa where feed demand has grown in burgeoning poultry industries. Russia’s wheat sales are booming to Egypt, the top importer, while barley exports are strong to Iran, Saudi Arabia, and Libya.

Plentiful supplies have enabled it to expand exports to reach markets farther afield in Africa, Asia, and even to Mexico, demonstrating Russia’s growing influence in the global grain market. See pages 5 and 20 for additional details.

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As recently as the early 2000s, Russia was a net grain importer. Even as its production grew, its reliability as a global exporter was uncertain. For example, from time to time the government enacted export bans – often on short notice – to secure domestic supplies when production was low.

In the past few years, production has expanded rapidly with higher yields, particularly for wheat and corn. Because of surplus production, the government is now supplying a much more supportive framework for exports. Just last month, the Russian government began providing subsidies to facilitate grain transportation from production regions.

Russia Becomes Major Player In Global Coarse Grain Trade

Ample supplies of corn and barley have positioned Russia as a prominent exporter. Corn and barley exports for 2017/18 are expected to be the second-highest on record. Russia has gone from a small player to a top-five exporter in the last decade. Burgeoning supplies, low global prices, and competitive prices have improved prospects for Russia’s exports to supply both traditional and new markets.

Historically, the Middle East has been the primary destination for both barley and corn, particularly Saudi Arabia, Iran, and Turkey. The region’s strong demand for barley is utilized for sheep and camel feed, while corn is used in the region’s growing poultry industries.

Russia’s access to the Black Sea and Caspian Sea provides for timely and low cost transportation. Starting December 2017, the government began subsidizing grain transportation, particularly in regions adjacent to both seas to dispel any capacity constraints.

Russia’s outreach is spanning to Asia, threatening market opportunities for major exporters, including the United States. Record corn exports to East Asia and Vietnam in 2016/17 have underpinned Russia’s diverse network of destinations compared to 5 years ago.

Shipments to Japan were a record, in addition to South Korea being the third-largest destination for Russian corn. Vietnam was the fourth-largest – no exports were recorded to the country in the past 20 years – supported by a free trade agreement between Russia and Vietnam that went into effect in late 2016. Rising production, competitive logistics, and low prices could further spur Russia’s influence on global coarse grain trade.

Full report.

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