Market Morsel: Putin putting barriers up

Market Morsel

What happens in the Russian grain market drives the rest of the world. In recent weeks there have been rumours of the introduction of export barriers.

Despite a very large Russian crop, the falling ruble has resulted in very high domestic wheat prices. This has resulted in food prices rising throughout this year. The result is that Putin has expressed his dissatisfaction with the increases in the price of staples.

EP3 contributor, Andrey Sizov discussed that an export tax was a strong possibility in his article in late November (see here).The rumours which are quickly solidifying are that an export tax has been proposed. The proposal is for an export tariff of A$40/mt. The proposal is expected to be reviewed in the coming days.

It is hard to imagine that a wheat export tariff will have a substantive impact on Russian food inflation.

A consideration to take into account is that that wheat is a relatively small proportion of the overall cost of bread. Therefore, the impact will be negligible, only a small percentage of the A$40/mt tariff would flow through to the actual bread price.

This tariff has already resulted in a large rally in wheat futures at the end of last week, which will likely flow through to Russian pricing if maintained. The reality is that the tariff will likely assist some domestic millers, but may have a detrimental impact on Russian producers pricing.

The price in other parts of the world could increase as Russian export competitiveness decreases by the tariff. This is generally good news for Australian producers.