Global Markets: Wheat – Despite Restrictions, Russia to Reclaim Top Export Position

    Texas A&M AgriLife Communications photo by Kay Ledbetter

    In December 2020, the Russian government announced trade-restrictive measures for certain grains and oilseed products in response to high domestic prices. This comes despite record wheat production and near-record production for total grains.

    Russia was the largest wheat exporter in 2017/18 and 2018/19 and is forecast to rebound to again be the leading exporter for 2020/21, despite these new trade distorting measures which have pressured global prices higher.

    The new measures include the introduction of an export quota of 17.5 million tons on specified grains, including wheat, rye, barley, and corn, to be in effect from February 15 to June 30, 2021. Within this quota, wheat will face an export tax of 25 euros per ton, and above the quota will face a tax of 50 percent, but not less than 100 euros per ton.

    Barley, corn, and rye are not subject to a tax within the quota, but given low anticipated trade volumes during this period, coarse grains are unlikely to be substantially restricted by the measure. Russia has only once exceeded a combined volume of 17.5 million tons between February and June for these grains.

    As a result, the wheat export forecast was trimmed only slightly this month, with the in-quota tax expected to dampen competitiveness.

    Already between July and December, Russia has exported around 25 million tons of wheat, nearly two thirds of the forecast for the year and almost exceeding the full-year forecast of the United States, the next largest global exporter. Russian exporters have already sought to increase shipments in advance of mid-February, and shipments thereafter are expected to decline seasonally.

    Given Russia’s record production and export restrictions, its ending stocks are expected to rise. This is notable since most other major wheat exporters’ stocks are declining this year.

    Russia’s top wheat markets are beginning to respond to these measures. As the largest global wheat importer, Egypt relies on Russia for more than half of its imports. However, Egypt’s recent tenders have sourced instead from Ukraine and Romania for February shipment.

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    Turkey typically originates about three-quarters of its wheat imports and more than half of its other grain imports from Russia. The Turkish government has extended its zero import tariffs on wheat, corn, and barley in its own attempt to keep prices low for consumers.

    Bangladesh has also recently been a significant wheat market for Russia. However, it is beginning to shift its purchases toward India. Until recently, India’s exports had been minimal with its domestic support price making it uncompetitive.

    But with strong global demand and tight exportable supplies from traditional exporters resulting in higher export prices, India is now relatively competitive to its nearby markets such as Bangladesh with its forecast rising to the highest in 6 years.

    This is not the first time that Russia has imposed trade-restrictive measures on its grain, but now as Russia accounts for higher production and proportionally more export share, the restrictions have a larger impact in the global arena. Russia is projected to account for 20 percent of global wheat trade, even with a downward adjustment to account for these new measures.

    Morocco Implements Import Tax Exemptions for Wheat Amidst Production Crisis

    Morocco is projected to increase wheat imports by 1.9 million tons to a record 6.5 million during the current 2020/21 marketing year, making it a key player in global wheat trade.

    Rising imports in Morocco are a direct result of low domestic production following 2 consecutive years of drought. While Morocco wheat production is normally volatile, the 2020/21 crop was particularly affected by dry weather and fell to nearly half of the 5-year average.

    In response, the Moroccan government issued an exemption on import tariffs for common (non-durum) wheat beginning January 2, 2020. The exemption was also expanded to include durum wheat beginning April 1, 2020.

    The Moroccan government typically reduces and increases its import duties according to the local harvest schedule and the local supply and demand situation. However, a zero-rate import tariff, particularly for a sustained period, is unprecedented, and reflects the severity of Morocco’s supply situation.

    The exemption allows for an influx of international wheat to fulfill the country’s consumption needs, thus removing typical protections for domestic producers while lowering prices for consumers. Recently, the tariff exemption was once again extended through May 31, 2021.

    Morocco wheat imports are typically sourced from Europe and the Black Sea. France has dominated the market over the past few years; however, its reduced 2020/21 crop, increased shipments to China, and price disadvantage compared to Black Sea wheat suppliers have limited exports from France to Morocco to date for 2020/21.

    Instead, Ukraine has dominated the non-durum market given its competitive pricing, nearly doubling its exports over the same period last year. Canada continues to be Morocco’s primary supplier of durum wheat.

    The United States has not exported large amounts of wheat to Morocco since 2016/17 when Morocco’s domestic wheat crop was similarly small. The European Union also experienced diminished wheat production in 2016/17, allowing U.S. wheat to increase market share in Morocco.

    Despite a similar situation occurring this year, there have been no sales or exports to Morocco from the United States so far this marketing year. U.S. wheat is currently priced out of this market given its freight disadvantage compared to Black Sea suppliers, and the recent import tax exemption nullifies any price advantage gained by the duty-free access guaranteed by the U.S.-Morocco Free Trade Agreement.

    If supplies begin tightening in the Black Sea, however, U.S. wheat may be able to enter the market when Morocco wheat demand rises seasonally between March and May.

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