In agricultural news this last week, Moscow has announced the cancelation of export duties on wheat via the Russian government’s Twitter feed. The abolition of duties this season will help eliminate a glut in the grain market, and prevent a fall in prices accordingly. A resurging economy in the Russian Federation now bolsters an already burgeoning wheat market worldwide. Experts say world wheat prices may be the lowest in years this year.
According to the Russian Ministry of Agriculture, a new mechanism for calculating export duties will be the end goal for regulators during the coming marketing year to begin July 1. The report said:
“This measure will allow the flow of some 1 million additional tons of wheat to be exported. The move will allow Russian agricultural producers additional means for carrying out of spring field works. This decision will also help to avoid oversaturation of the market of grain and downs (internal – if) prices in the harvest below the cost of production.”
Previously the export duty for wheat is 15% of the customs value plus 7.5 euros, but not less than 35 Euro per ton. The fee was introduced from 1 February 2015. The Ministry of Agriculture contends this formula is too complex and proposed a new minimum bet of €1,with a maximum rate determined by the market situation. A base price to calculate the rate is set at 12 thousand rubles, which ministry officials say is acceptable for producers of grain and livestock. The ministry spokespersons went on to detail additional measures to allow for flexibility during extreme price jumps.
Currently traders may export 1.2 million tons through the end of the season on June 30, according to Igor Pavensky, deputy director of the marketing department at ZAO Rusagrotrans, which carries grain by rail. In the first months of 2015, monthly shipments averaged 516,000 tons. Slowing inflation and other positive economic factors helped stabilize Russia’s economy recently. Given the uptrend, the has a lot more room to ease restrictions which were designed to rein in soaring food prices during last year’s big crisis.
According to Vedomosti, a mechanism that offers the Ministry of agriculture is as follows: if the price in the domestic market will be below or equal to 12 thousand rubles, with each ton of grain exporter will pay $1. If the price is higher, the duty may be 30% of export prices per 1 tonne minus $69, or 40% minus $93. Using these options to calculate the fee, the Ministry may optimize the situation more easily and readily.
With the liklihood of more wheat entering the market this year, entities such as the Chicago Board of Traded have seen a five year low in contracts already this year. Futures prices for July delivery traded at $5.03 a bushel on Thursday. It seems clear that not only will Russia have record breaking stockpiles of wheat, but consumers may well see the lowest downstream price reductions in many years.