Last summer, the worst drought in many decades slashed FSU wheat output. Major exporters Russia, the Ukraine, and Kazakhstan saw 2010-11 production fall from the previous season by 33%, 43%, and 19% respectively. Exports for 2010-11 fell from 37 million tonnes, or 27% of world trade, in 2009-10, to 13 million tonnes, or 10.5% of world trade. Russian exports, normally the largest of the group by far, tumbled to 4 million tonnes, down from 18.56 million tonnes in 2010-11.
In response, the Russian government instituted an export ban to avoid domestic shortages and to keep prices from spiraling out of control. On May 30, with an anticipated recovery in grain crops, the government announced that the export ban would be lifted as of July 1.
The market reacted swiftly, shedding as much as much as 50¢ per bushel over the next few sessions. Will Russian wheat exports now flood the market and mark the end of the bull market?
There is no question as to whether this development was bearish – clearly, it was. The degree of bearishness, however, may have been overstated. There was never really any doubt that the Russians would allow wheat exports. The total lifting of the ban, however, was something of a surprise to the market, and that was what the market reacted to.
Early press releases were ambiguous regarding the amount of wheat that was involved. The estimates for total Russian 2011-12 exports that we’ve seen range between 13 million tonnes and 15 million tonnes. That compares with the USDA’s estimate of 10 million tonnes contained in the May crop report. So the additional amount of wheat that would otherwise have become part of Russian ending stocks was 3 million to 5 million tonnes.