Market Insider

Wheat Pops on Russia Export Tax, Record Chinese Use

Wheat markets pushed higher through the middle of January on a bullish WASDE report from the USDA and expectations of a Russian wheat tax being implemented sooner than later. Supporting the wheat complex is ongoing dryness concerns in the U.S. Southern Plains, as well as in South America, which has pushed corn prices higher, and in turn, helping the wheat complex.






Looking into the USDA’s monthly WASDE report, global wheat stocks for the 2020/21 crop year were lowered by 3.3 MMT on slightly smaller supply and greater consumption. This include a record level of wheat’s domestic use in China of 135 MMT, thanks to more cereals going into feed rations as corn supplies remain limited (and hence their higher values). Nonetheless, a worldwide carryout of 313 MMT is still 13% more than the five-year average and a record volume.

On a regional level, Canadian and EU wheat exports were both raised by 500,000 MT by the USDA, only slightly offsetting the 500,000 MT reduction in Argentine wheat exports, and 1 MMT decrease for Russian wheat exports. On that note, rumours continue to build that, while a tax of $30 USD/MT will be implemented on all Russian wheat exports on February 15th, 2 weeks later, on March 1st, 2021, the tax will be basically doubled to $61 USD/MT (or $1.66 USD and $2.12 CAD/bushel if converting metric tonnes to bushels).

The higher tax rate will run until June 30th, 2021 as the Russian authorities aim to stabilize domestic food prices and curb inflation. As expected though, the average price of Russian wheat at port positions jumped $25 USD/MT in a single week in response to the levy rumours, as exporters scramble to secure supply in order to meet their international obligations before the tax becomes reality. Between Russia’s wheat export tax and the Argentine government’s outright ban of corn exports through February, domestic prices may be insulated a little for a temporary breath, but grain prices around the rest of the world are climbing on the reduced exportable supplies.

Here at home, I continue to look at new crop opportunities, which, like the futures markets, saw some benefit to the bullish headlines last week. Both old and new crop cash HRS wheat prices rose in tandem with the futures rally, with spot prices for 13.5% protein up 4.8% on the week and new crop (September 2021 movement) climbing by 6.1%, as the table below shows. It’s a bit early to be make a definitive statement, new crop pricing climbing more than old crop prices is a positive sign. While it’s obviously incredibly difficult to know when this price action to the upside slows, volatility is sure to continue as long as COVID-19 and politics are forcing food policies be in flux.

Therein, as we draw closer to the middle of February, the market will have a better sense of what Russia’s final plan is regarding wheat exports and corresponding taxes. Thereafter, the market could settle down a bit, especially since new crop supplies currently contracted by buyers can give a healthy indication of Plant 2021 acreage intentions. If you’re looking to shop some old or new crop around, we’ve built a great tool on the Combyne Ag Trading Network that allows you post customized target prices with multiple buyers at the same time, without risk of you grain being double or triple contracted. Learn more about our Target Offer feature, as well as a few other exciting things in the Combyne pipeline for 2021.

To growth,

Brennan Turner
President & CEO |