Russian Wheat Prices Tumbled on Bumper Crop Expectations but Starting Yields Don’t Confirm Them

Last week, 12.5% wheat prices in Russia’s deep-sea ports tumbled $12 to $234/mt FOB. This was driven by weaker global benchmarks and expectations of the bumper crop. However, we feel that the market could be too optimistic about the new crop size.

As of the end of the week, Russian farmers have harvested 2.9 MMT of wheat (11.4 MMT a year ago) from 948 ths ha (3.5 mln ha), with average yields of 3.07 mt/ha (3.27 mt/ha).

Such winter wheat yield doesn’t match well with bumper crop expectations. However, a relatively low starting yield is somewhat misleading at this stage. The explanation is that it currently reflects yields in Stavropol where the harvest lag is smaller compared to Kuban. Stavropol harvested wheat from 408K ha with an average yield of 3.2 mt/ha while Kuban harvested only 53K with a yield of 6.3 mt/ha. Typically, Kuban harvests ahead of Stavropol.

Still, we feel that the market could be too optimistic about the new wheat crop. Kuban’s yields are great but we suggest not to extrapolate them for all winter wheat regions. Stavropol’s yields are close to average, Rostov (#1 wheat region) above average but below record-high, very early yields in the Volga Valley are far from record-high.
Additionally, recent abundant rains in the Russian South slowed down the harvest which could lead to some quality issues and yield losses.

SovEcon’s June wheat crop estimate is 84.6 mmt, USDA – 86 mmt (ex.Crimea, which could harvest around 0.7 mmt). We expect USDA to up their crop number today reflecting a bigger spring wheat area.