Miller Magazine Issue: 143 November 2021

74 INTERVIEW MILLER / november 2021 despite the historical higher ruble prices. And I think in some cases, farmers actually could lose money this season, despite high prices because yields suffered as well, especially in the Volga Valley. The weather was bad, it was very dry. One story if you have a yield of three, four, or five tonnes per hectare, but anoth- er story when you have a relatively fixed price, and you have less than one tonne per hectare, which for example happened in Orenburg, a large wheat-growing region in the Volga Valley. I think many farmers in Orenburg actu- ally lost money this year on wheat. That's why they are cutting the area for the 2022 crop already. I'm afraid if taxes stay, this trend will continue. On top of that we would likely see a decrease in in- puts application, which implies when the weather is un- favorable, we could see a poor crop. The area is slightly below last year but the farmers started to cut the inputs substantially. So, if we have adverse weather, it could result in a quite unexpected drop in production. PERMANENT TAXES DESTROY FARMERS' MARGINS In the FT article, you also talked about the Russian grain industry’s transformation. You mentioned that the factors driving this transformation have changed. What has changed in recent years? The biggest change is that the government started to mess with the market badly, which is very unfortunate for Russian farmers, Russian traders and importers of Rus- sian wheat, including Turkey. It hasn't started just one or two years ago, it has been evolving relatively slowly. Our readers remember the Russian wheat exports ban in 2010 but that was temporary. However, starting from this year, we have a permanent wheat tax and other grain export tax. For grains we have permanent taxes and that which will destroy farmers' margins, we already talked about that why it will happen. It's not a question of if this will happen, it is just a question of when this will hap- pen. So and yes with such substantial state intervention, if taxes stay, the consequences will be very grave for the Russian grain industry. There are some claims that Russia intends to im- pose restrictions on wheat exports next year. That caused raising fears of a possible drop in supplies globally. Do you expect such a measure? What can you say about the possible effect of such a decision on wheat markets? Yes, that's what they've been talking about just recent- ly, but it's not really big news. It confirms that the state messes more and more with the market. But compared to the tax, it's not a big story. We've seen those quotas in the previous two seasons. They are very likely to impose that quota again in this season, starting from mid-Feb- ruary. At the same time, I don't think that is going to be really restrictive. So its effect is likely to be relatively muted. What was more important, when they were discussing that quota, they mentioned that they estimate the Rus- sian wheat exports in the current season at only 31.5 million tonnes. And that's a very low number. That was a pretty bullish number compared to, for example, US- DA’s estimate of 35 million tonnes. We estimate exports at around 34 million tonnes and the Russian agriculture ministry says 31.5 million tonnes. ‘WE COULD SEE WHEAT PRICES RALLYING TO AS HIGH AS $350/T Global wheat prices climbed to their highest since 2013 on expectations of lower output among top exporters. Do you think prices will be even higher? Which factors will drive the markets? Indeed prices rallied substantially very early in this season, around July and August, and that was driven a lot by the worsening outlook for the Russian wheat crop. Then we see a substantial correction. And now we see pricing pushing higher again if talk about Matif and Chi- cago. Actually, the Black Sea wheat was around $300 per tonne for many weeks already, and it's gradually pushing higher. Probably I would say that our basic scenario was that there was definitely some upside left in the market. We could see prices at least 320-$330 per tonne later this season. It's not necessarily going to happen next week, or in a few days, but late in the season, I think there was a good chance that we could see prices around $320- 330 for Black Sea wheat with a protein content of 12.5 protein. Potentially, we could see prices rallying to as high as $350 per tonne. I'm not sure about higher prices. But $320-330 is quite a reasonable target. THE BIGGEST BEARISH FACTOR IN THE GLOBAL GRAIN MARKET What's driving the market? Contrary to the previous season, the wheat market has its own story to tell because the previous season was mainly driven by the corn market. But this time we definitely see some bullish stories in the Northern Hemi- sphere. Canada has a very poor crop…Russia, quite poorer crop…Strong demand from China... We also see strong demand from many buyers. Algeria just bought about half a million wheat. Pakistan bought half a million and they bought another half million earlier. Importers