Russian wheat prices hit a fresh high supported by strong ruble. What does high Russian inflation mean for the grain market?

Last week, 12.5% wheat prices in deep-sea Russian ports rose $3 to $316/mt FOB, the highest level since 2012/13. The market is supported by higher global benchmarks and stronger ruble.

SRW wheat in Chicago rose 3% to $7.56/bu ($277/mt) and French wheat surged 1.4% to EUR280/mt in Paris ($326/mt). Matif wheat remained in the uptrend hitting new highs for the contract, SRW broke the downtrend last week and kept pushing higher.

Minneapolis spring wheat hit $10/bu ($367/mt) for the first time since mid-2012. Partly this is being explained by poor crops in Russia and Kazakhstan on top of the poor crop in the US and Canada. However, there is no special “spring wheat” market in Russia. Typically, the market trades here just common wheat with desired specs (i.e protein or gluten) and there is no separate spring wheat market.

USDRUB closed last week at 69.8 (-1.2%) Russian Central Bank substantially upped the interest rate which was increased by 0.75 p.p. vs expectations of +0.25-0.5 p.p. to 7.5%. This makes Russian wheat less competitive in dollar terms. The ruble has appreciated by 4% since September. The Central Bank increased the interest rate in order to battle the rising inflation.

Annual CPI stood at 7.4% in September and good CPI – at 10.2%. Both indicators have more than doubled since September 2020. Among other things, this implies that the chance of the export tax removal or easing remains low in our view.

We expect the ruble to remain firm short term, domestic supply is expected to be limited. This will help Russian FOB to continue to move higher short term.