ODA Market Alert: How would a new Russian floating export tax work?
To protect their domestic prices, Russian 🇷🇺 officials believe they have found a solution to elevated world prices by implementing export taxes. When the Government recently lifted their wheat export tax to €50/t, from March-Jul onwards, they also touted the idea of a ‘floating’ tax on NEW CROP exports, from Jul21 onwards. How would it work? Firstly, The government would set a threshold export price in rubles. Secondly, contract prices (in US$) would be converted into rubles. Thirdly, everything above the threshold price would be taxed at 50%. There is no doubt that this will dis-incentivise Russian farmers to store their old crop wheat stocks into new crop, which could be considered as a bearish medium-term element. However, markets await more detail and still feel they wish to move higher. For now.
After having recently been a follower to corn and soya price direction, the wheat market is finding its own story. With an export tax starting next month and rising to €50 in March, alongside ideas of a potential floating tax for new crop exports, we can only anticipate Russian 🇷🇺 exports will fall from their 4 to 5Mt pre-Xmas monthly pace to maybe only 1 to 2Mt now. This situation is adding pressure on other origins such as EU 🇪🇺 exports. But these are insufficient to fully compensate. We can only consider it as bullish in the short term, but we also need to take into consideration that wheat stocks in Russia remain ample and she can still review her trade policy before the end of the current season. Buoyant short term situation, particularly for old crop positions.
The persistently wet conditions in the prior few months is starting to have an impact on LIFFE wheat prices. The new crop spread (🇬🇧 LIFFE / 🇪🇺 MATIF) has narrowed by around £5/t in the last 10 days alone, as the market appears to be pricing in a smaller UK wheat crop. It is still likely that the UK will be a net exporter in 2021, requiring the price spread to remain negative, but improved spring conditions will be crucial. If we do become a net importer again, then this spread would likely turn positive (£+15 from current price). For the UK to become a net importer, our wheat domestic production should reach 13.5Mt or lower.
AHDB data for Jul-Nov shows the 🍞 milling sector used the smallest volume of wheat in over a decade, with domestic wheat usage in sharp decline and imported wheat showing a sharp increase. This makes sense, as local supplies are very tight and prices relatively expensive. The 🍺 brewing industry has used the least malting barley since 2010/11, as pubs/restaurants shutter, due to COVID restrictions. 🐄 Feed compounders continued to focus their needs on barley supplies, over wheat, simply due to the huge price difference. This data confirms our earlier expectations on how the demand profile would develop this season, bearing in mind the 2020 wheat crop disaster, alongside more than ample barley supplies.
Russia 🇷🇺 is considering imposing a tax on exports of barley and corn of €10 and €25 per tonne, respectively, two sources, familiar with discussions at the government said today. According to one of the sources, the taxes are being considered for the period between Feb. 1 and March 31, 2021. Global and UK prices are reacting positively to the news, with 🇬🇧 UK wheat futures adding a further £1.25/t to yesterday’s £4.75/t gains.
|t-ice||WHEAT||Jan '21||213.15s||213.15||s||-0.65||213.15||213.15||213.15||30||ICE||01/19/21||17:37:42||LONDON FEED WHEAT||LONDON_FEED_WHEAT|
|t-ice||WHEAT||Mar '21||213.65s||213.65||s||-0.65||213.65||213.65||213.65||ICE||01/19/21||17:37:42||LONDON FEED WHEAT||LONDON_FEED_WHEAT|
|t-ice||WHEAT||May '21||213.75s||213.75||s||-0.65||215.45||217.00||213.50||746||6688||ICE||01/19/21||13:00:00||LONDON FEED WHEAT||LONDON_FEED_WHEAT|
|t-ice||WHEAT||Jul '21||209.55s||209.55||s||-1.15||209.55||209.55||209.55||27||ICE||01/19/21||17:37:42||LONDON FEED WHEAT||LONDON_FEED_WHEAT|
|t-ice||WHEAT||Nov '21||170.00s||170.00||s||-1.40||173.25||173.25||170.00||333||5717||ICE||01/19/21||13:00:00||LONDON FEED WHEAT||LONDON_FEED_WHEAT|
|t-ice||WHEAT||Jan '22||172.70s||172.70||s||-1.45||172.70||172.70||172.70||ICE||01/19/21||17:37:42||LONDON FEED WHEAT||LONDON_FEED_WHEAT|
|t-ice||WHEAT||Mar '22||174.35s||174.35||s||-1.45||174.35||174.35||174.35||ICE||01/19/21||17:37:42||LONDON FEED WHEAT||LONDON_FEED_WHEAT|
|t-ice||WHEAT||May '22||175.25s||175.25||s||-1.60||177.00||177.00||177.00||3||171||ICE||01/19/21||13:00:00||LONDON FEED WHEAT||LONDON_FEED_WHEAT|
|t-ice||WHEAT||Jul '22||174.10s||174.10||s||-1.75||174.10||174.10||174.10||ICE||01/19/21||17:37:42||LONDON FEED WHEAT||LONDON_FEED_WHEAT|
|t-ice||WHEAT||Nov '22||159.60s||159.60||s||-1.80||159.85||159.85||159.35||4||147||ICE||01/19/21||13:00:00||LONDON FEED WHEAT||LONDON_FEED_WHEAT|
Click and drag mouse across chart to zoom in.
In an ever changing world farmers need a better understanding of market volatility to optimise returns and manage their price risks.
ODA captures and analyses global as well as local market information. Work with ODA to improve your grain sales performance and limit your risks.
Join us today, we can save you time and inform your decisions. Become part of the ODA community of farmers and improve your grain marketing.
A membership delivering stimulating grain marketing news, analysis and advice, both Daily and Weekly.
An interactive membership embracing regular meetings and advice hotline,
helping you identify and manage your risks and set your sales strategies.
An individual business support delivering bespoke analysis, advice and strategy, embracing futures and options alongside physical sales.Learn more
Invest in yourself: ODA Grain Marketing and Price Risk Management Training Course.Learn more
ODA’s team is based in the UK. However, we provide our services to farmers all across Europe and the Black Sea. This large community of farmers enable us to be precisely informed of market changes. This information network is key to provide our clients with the most accurate market information, analysis and advice.