While the world is dealing with food shortages, Russia is enjoying a very good harvest. The conditions in Russia this summer have been favorable for farmers, so the harvest has been very good.
Normally, any surplus crops would be exported to foreign markets, thus increasing market supply and lowering prices. This is not quite happening now as Russian wheat exports are severely constrained by Western sanctions, government export taxes, and logistics problems associated with the war in Ukraine.
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While the sanctions are not directly applied to food exports, there is still some risk and so some banks and insurance companies have avoided Russian commodities and now remain rather cautious. Then there are a large number of Western companies that do not want to do business with Russia for various reasons.
Thus, in Russia, farmers are struggling to store their wheat and a large excess of supply over demand is gradually taking shape in the Russian domestic market.
Wheat was a big issue globally
Wheat, and grain in general, has been the talk of the town this year, mainly about Ukraine and its exports. After the Russian invasion, it looked like initially no wheat would be exported from Ukraine.
Then we saw a breakthrough and an agreement on the possibility of exporting grain from the war-torn Zaporizhzhya region. Another agreement was made by France with Romania, which will help export more Ukrainian grain. Thus, in July Ukrainian grain exports increased by 22.7%.
Meanwhile, we also saw export problems in the world’s other big exporter, India. The latter banned wheat exports from the country altogether out of concern for its lack of domestic market. This was after India announced to the world that it would feed the world and fill the hole in the world market.
But then, under the threat of heavy monsoon rains that could devalue stored wheat, it allowed the export of at least some of its stocks.
We will see what Russia decides to do with its surplus wheat. Many analysts do not expect exports to increase in any significant way, so perhaps in the same way that Russia burns surplus gas, it will burn surplus grain. We will have to wait for further comments from Russian officials.