By SovEcon, a leading agricultural consultancy, has revised its forecast for Russian wheat exports during the 2024-25 season.
The firm has decreased its initial projection by 600,000 metric tons, bringing the new export estimate down to 42.2 million metric tons.
This adjustment reflects a potential tightening of exportable supplies from Russia, which could impact global wheat trade flows and prices in the coming season.
Last season, Russia exported 52.4 million metric tons of wheat, exceeding the three-year average of 44.2 million metric tons.
Slow exports
However, the initial projection for this season has been revised downward due to a slower-than-expected shipment pace.
This adjustment highlighted the challenges faced by Russia’s grain export sector, which may be attributed to factors such as infrastructure limitations, logistical bottlenecks, or adverse weather conditions.
The current rate of wheat exports from Russia continues to lag behind the usual pace.
SovEcon has projected that wheat exports for the month of February will reach only 2.0 million metric tons.
This figure represents a significant decrease compared to the 4.1 million metric tons exported during the same period last year and falls considerably below the five-year average of 2.9 million metric tons for February exports.
This suggests that a number of factors may be contributing to the sluggish export activity, including potentially lower production or changes in international demand.
Declining profitability
The primary challenge impacting wheat sales is the declining profitability of export operations.
This is largely due to a combination of factors, including fluctuating exchange rates, increasing transportation costs, and changes in global demand.
The current profit margin for Russian exporters has dropped significantly and is now in the negative, indicating that they are incurring losses on each sale.
This is in stark contrast to the situation in November, when the profit margin was approximately $10 per unit, suggesting a healthy and profitable export market at that time.
This dramatic shift in profitability has created significant uncertainty and financial strain for Russian wheat exporters, potentially leading to reduced export volumes and a subsequent impact on global wheat supply and prices.
The Russian government has set a wheat and meslin export quota at 10.6 million metric tons.
“We believe that major traders, who received the main quotas for February through June, will not rush shipments, primarily focusing on increasing their margins,” SovEcon said.
Against this backdrop, the quota may not be fully utilized.
Appreciation of ruble
In the short term, the appreciation of the ruble poses a challenge to Russian exports.
This is because a stronger ruble makes Russian goods more expensive for foreign buyers, potentially leading to a decrease in export volumes.
The Central Bank of Russia’s efforts to stabilise the ruble have resulted in a significant appreciation of the currency.
For instance, on February 21, the Central Bank set the official dollar exchange rate at 88.5 rubles, compared to 102.0 rubles just a month earlier.
This rapid appreciation of the ruble has created a discrepancy between the current exchange rate and the weekly export duty, which is adjusted with a lag to reflect changes in the ruble’s value.
As a result, exporters are currently facing a situation where the export duty, calculated based on a weaker ruble, is higher than it would be if it were calculated based on the current exchange rate.
Global prices
Global prices have been supported in part by the slow pace of Russian exports.
Since the start of the year, free-on-board (FOB) prices for Russian 12.5% wheat have risen $12 to $248 per metric ton.
In February, the US Department of Agriculture (USDA) lowered its forecast of Russian wheat exports by 0.5 million metric tons to 45.5 million metric tons.
Due to lower export rates this season and larger carryover stocks, SovEcon has raised the export projection for the 2025-26 season by 0.6 million metric tons to 38.9 million metric tons.
Andrey Sizov, managing director at SovEcon, said:
The market remains too optimistic about Russia’s wheat export potential this season. Limited domestic supply, a strong ruble, and negative exporter margins suggest that the export pace is unlikely to accelerate substantially in the near future.
“With historically tight global wheat supply and demand balances, this should provide support to global prices until the end of the season.”
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