Explained: Why are Russian export prices roiling the wheat market

Russian wheat offers at a recent import tender by Egypt were all made at the same price, highlighting what traders see as behind the scenes intervention by Russia's government that is sowing confusion about the world's biggest wheat exporting country.
 

Here is a more detailed look at what is happening.

What is Russia's policy?
 

In March, sources told Reuters that the Russian government was recommending exporters ensure prices were high enough to cover farmers' production costs. Traders say the policy is also intended to limitexports and cool domestic flour prices, like with export taxes and quotas applied in recent years.

Since then, traders say an export floor price has been increasingly apparent.

Last Wednesday's tender by Egypt, one of the world's largest wheat buyers, showed offers of Russian wheat all at $270 per metric ton, free on board (FOB) before shipping costs. Traders believe this is the current minimum price sought by the Russian authorities for sales in international tenders.

Adherence to this minimum made European Union origins more competitive and Egyptian state buyer GASC booked two cargoes of Romanian wheat.

Why is the market confused?
 

Traders say while the minimum price has been applied at times, in other cases prices have fluctuated around lower levels, contributing to brisk Russian exports.

The floor price has been most visible in Egypt's tenders, with sellers in recent weeks generally bidding at a single level.

In addition, a lower floor about $10 a ton FOB below the minimum export price is thought to apply in principle to Russian export sales outside international tenders, traders say.

Russia has not confirmed the existence of minimum wheat export prices and international traders say indications are given orally to exporters without formal written rules.

Russia's agriculture ministry declined to comment.

Market sources say Russian wheat is being regularly offered for sale well below reported floor levels.

Traders said export prices from the Russian Black Sea port of Novorossiysk on Monday were around $243 to $245 a ton FOB for 12.5% protein wheat for October shipment. Russian analysts have this month reported levels either side of $240.

Russian wheat may be used to supply part of some 600,000 tons of wheat thought to have been booked by Algeria in another tender last week, in which state buyer OAIC reportedly paid $272 to $275 a ton, cost and freight (c&f) included, according to traders.

Is this a problem for the market?
 

A lack of visibility over pricing in top exporter Russia makes it difficult for traders and importers to take positions and anticipate trends.

With Russia having a huge surplus, shipments from war-torn Ukraine curtailed and drought reducing harvest prospects in other exporting countries, the international market looks more reliant on Russian wheat this season.

Traders cited lengthy negotiations in last week's tenders held by Egypt and Algeria as a sign of tensions created by Russian price levels. Price disparities can alter by several million dollars the cost of orders for importers already faced with high prices and the dollar's strength versus local currencies.

Traders and analysts are trying to understand how long the minimum price may apply and whether it may soon slow Russian exports after huge volumes shipped this summer.

Analysts currently expect Russia to achieve record wheat exports this season on the back of its two largest-ever harvests in 2022 and 2023.
 

Western traders and officials worry that the war in Ukraine has spurred Moscow to politicise grain exports, including through its offer of wheat donations to poor African states and its withdrawal from a Black Sea grain deal allowing shipments from Ukrainian ports. Moscow says parts of the grain deal to facilitate Russian exports were not respected.
 

The exit of the global trading firms from the Russian market this year may also reduce insight into grain prices and supply.

At the same time, Russian state intervention has been a feature of grain exports for years, with an export tax and quota regularly used.