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ANALYSIS-Importers to pay the price as Russia hikes wheat export tax

Reuters, 19.01.21


LONDON/CHICAGO, Jan 19 (Reuters) - Russia's decision to raise and extend a tax on wheat exports deals a blow to importers and consumers, as higher prices for the staple stoke food inflation in economies reeling from the COVID-19 pandemic.

The World Bank said last month that food price increases, combined with reduced incomes, had aggravated chronic and acute hunger, hitting vulnerable households in almost every country.

World food prices rose for a seventh consecutive month in December, leading the United Nations food agency monthly index to a five-year high.

Domestic food price hikes, which President Vladimir Putin has criticised, lay behind Russia's decision last week to apply a higher export tax on wheat from March 1.

While that may help to limit price rises domestically, it is likely to raise them everywhere else.

Following the Russian decision, wheat prices on the Chicago Board of Trade Wv1 jumped to $6.93 a bushel on Friday, the highest since May 2014.

Russia has exported about 28 million tonnes of wheat so far this season, around three-quarters of expected shipments.

Tight global market conditions mean some importers needing to buy will be forced to pay higher prices.

"The importers are set to be the losers as they will probably not receive the cheap Russian grains they had been expecting," one European trader said on condition of anonymity.

"This will keep prices higher in coming months as importers are forced to compete for available supplies."

While Russia loses some international business, it will regain its mantle as the biggest global wheat exporter in the 2020/21 season, beginning on July 1, as competitive prices have secured sales in the Middle East and North Africa as well as destinations such as the Philippines and Bangladesh.

IMPORTERS LOOK ELSEWHERE

Bangladesh will step up purchases from Ukraine to compensate for any shortfall in supplies from Russia, a senior Dhaka-absed government official told Reuters.

Prices of Ukrainian milling wheat, however, rose after Russia's decision. The country has limited availability, with traders agreeing in August to cap wheat exports this season in return for government pledges to keep export rules unchanged.

The European Union, the world's top exporter in the 2019/20 season, harvested a much smaller crop last summer, leaving less wheat to sell. Canada has availability, but its high protein spring wheat doesn't typically compete directly with Russian supplies.

Buyers in southeast Asia, including the world's number two importer Indonesia, will rely heavily on Australia, which has harvested a near-record crop.

"Looking at similar quality, Australia wheat is quoted at $305 a tonne, including cost and freight, to Southeast Asia as compared with Russian wheat (which is) $10-$15 higher for shipment in the first quarter. Buyers have already shifted to Australian wheat," one Singapore-based wheat trader said.

MODEST RUSSIAN EXPORT CUT

The International Grains Council said before the tax announcement that Russia would export 38.8 million tonnes of wheat this season.

Russia's IKAR agriculture consultancy said on Monday it had lowered its forecast of Russia's wheat exports to 37.5 million tonnes while Sovecon on Friday saw exports of 37-to-38 million.

The modest downward revision implies that Russian farmers will tend to sell regardless rather than wait until the tax ends as it is expected to continue in the 2021/22 season.

"The way they are structuring this, it may force the Russian farmer to sell, so I don't think it will slow down exports that much," said Mike O’Dea of StoneX commodity brokerage.

Some were more bullish on the prospect for more U.S. sales.

Dan Basse, president of Chicago-based AgResource Co., said the new tax could translate into 3 million to 4 million tonnes of additional U.S. wheat exports.

With the tax, Basse projected Russia’s 2020/21 wheat exports at 31 million to 33 million tonnes.

"That basically means that...6 to 9 million tonnes has got to flow elsewhere. The U.S. could pick up 3 to 4 million tonnes, and boy, does that really start to change some balance sheets," Basse said.

The head of Brazilian wheat millers' association Abitrigo, Rubens Barbosa said an additional tax on wheat exports would stifle Russian sales to Brazil.

Argentina is the major supplier of wheat to Brazil although Russia sales to Brazil rose 159% last year to 237,590 tonnes, Brazilian government data showed.



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