With food security of increasing concern globally – the Russian Government have decided to impose a quota on certain grains exports of 7MMT. The quota is to be in place from April 1-June 30, 2020 (marking the end of the current marketing year for grain) and has already been fulfilled – surprising the market as to the speed with which preliminary customs clearance has taken place.

Graph 1 – Export Production vs Use (2019/20)
Graph 2 – Export Projection
Source: USDA, 2020

At the end of March Russia’s Agriculture Ministry put a quota in place limiting grain exports for the final three months of the marketing year to 7 MMT. This news came as a concern to traders as any limits/ quotas coming from the world’s largest wheat exporter can strongly influence the global market.

This week it became clear that Russia has already reached its self-imposed quota, on April 26 the country announced it was suspending its further export of grains until July 1 2020.  This means that preliminary customs clearance has been applied for the full 7 MMT and physical exports will continue during the rest of the marketing year – but the speed with which the 7MMT has been fulfilled surprised many in the trade.  This is particularly important in a world that has heightened sensitivity around food security issues due to COVID-19 placing pressure on supply chains around the world.

Some other nearby nations have also restricted grain exports, Kazakhstan had initially put in place an export ban on wheat flour which was swiftly cancelled and shifted towards a monthly export quota. Kazakhstan will allow a maximum monthly quota of 200,000 tons of wheat and 70,000 tons of wheat flour for export. 

Ukraine has established a wheat grain export quota which will continue until the end of the trading year. The quota limits the country to a total export quantity of 20.2 million tons. Ukraine has exported approximately 90% of its current quota restrictions, leaving approximately 2.5 MMT for exports in the remaining 3 months of the year.

Russia has a history of disrupting the wheat market through restrictions or export tariffs; the country last imposed an outright ban in 2010 after drought destroyed crops. Historic bans have in the past caused wheat futures to rally with restrictions thought to benefit other suppliers such as the EU and the U.S. Demand in the latter stages of the marketing year are expected to be driven from nations such as Turkey and neighbouring North Africa. The USDA suggests Turkey’s total wheat imports are projected to surge by more than 60 percent in 2019/20 to a record 10.5 million tons, meanwhile Egypt relies strongly on Black Sea grain imports which are expected to come under pressure due to the current quotas in place. 

The markets over recent weeks have become focused on weather, due to lack of rainfall across most of Central Europe and the black sea region.  Plantings of corn in the U.S. are anticipated to be up, just at a time when Ethanol production has been dramatically cut by 47% due to the collapse in energy markets around the world.  So whilst there is short term pressure on markets, overall 2020/ 21 global production is anticipated to be a record high (USDA).  However, food security issues are placing increased pressure on supply chains and the carry over effects of COVID-19 mean that market volatility is likely to be significant for the coming period.