Wheat rose to a six-year high in Chicago after top exporter Russia said it’s ratcheting up efforts to cool domestic food inflation by curbing grain exports.
Russia said Friday that a new duty on shipments will rise even more than expected, just a few weeks after being imposed in mid-February, and taxes will continue at some level after the current season ends in June. The government had announced an initial tax in December, alongside a grain-export quota, after President Vladimir Putin demanded action following sharp increases in prices for pantry staples.
The Russian measures, combined with tightening supply elsewhere and surging Chinese demand, have already helped drive global grains prices to multiyear highs. That’s stoking worries over global food inflation at a time when hunger is surging around the world.
Russia’s wheat duty will double to 50 euros a ton ($61) on March 1, the Economy Ministry said in a statement on Friday. Earlier in the week, the Agriculture Ministry proposed an increase to 45 euros from March 15. Levies on corn and barley will also come into force from mid-March.
While other wheat shippers like Australia have bumper harvests, Russia plays a vital role in global supply and its grain will still be needed in the latter part of the season, said Andree Defois, president of consultant Strategie Grains. Chicago wheat futures reached the highest since 2014 after the government announcement and Paris milling-wheat is set for the biggest weekly gain in four years.
That puts extra pressure on big importers like Egypt, which purchases large amounts of wheat from Russia each year because its prices tend to be cheaper than most other sources.
“If the world could afford to go without Russian wheat, it wouldn’t be a problem,” Defois said. Importers will try to postpone purchases, but “they still need to buy for nearby positions.”
Analysts also previously speculated that the protectionist measures could prompt Russian farmers to delay sales until the curbs were lifted at the end of the season -- putting more pressure on shrinking global supplies. Consultant SovEcon in December cut its estimate for exports this season by 11%. However, the government made it clear Friday that duties will remain in place for the longer-term.
“There is no sense in holding the grain and waiting,” Economy Minister Maxim Reshetnikov said in the statement.
Argentina, another major crop exporter, caused similar disruptions in the corn market with a brief suspension on exports late last year, before the government backtracked.
Eduard Zernin, head of the Russian grain exporters union, said the increased tax will likely be absorbed by export markets and partly by the domestic one. The group is seeking talks with the government on how to set a formula for duties on shipments from July 1, so that traders can have more predictability.
“I don’t think the traders’ exports will be seriously adjusted from the plans,” he said. “The global market remains in high demand for our grain.”