Why wheat is the new oil in Russia

Russians must now be strong believers in the old adage that “God never closes one door but he opens another”.

Over the last three years, Russia’s main export – Brent Crude – plunged 80%, from $150 to $30 a barrel. Trade sanctions, counter-sanctions, the collapse of the Russian rouble, and a looming national food crisis conspired to shut all doors on Russia. It all added up to the “perfect storm” for Vladimir Putin and 144 million long-suffering Russians.

But then Russia’s sleeping giants, the farmers, came riding to the rescue. A resurgent agricultural sector is just what Russia needed and it arrived.

For decades, exports of oil and gas fuelled the entire Russian economy. Even as late as 10 years ago, these exports also paid for Russia’s massive annual imports of wheat and other grains.

But today, Russia’s total dependence on these trade and economic anomalies has changed utterly. And this change is forever. From now on, Russia’s real and permanent wealth will be drilled in Russian fields by Russian tillage farmers.

Furthermore, Russian dairy, pig and poultry farmers are now also adding higher and higher value to Russian grains. As a result, they are now very strong competitors for the country’s grain production with Russian grain exporters.

Wheat is the new oil in Russia. For that reason, Russia is replacing Ukraine as the granary and the bread basket of at least half the world.

Climate change is also working to the advantage of Russia’s farmers. This has been the warmest winter in Russia in over 70 years. Over the last three months, there has been a 7°C rise in temperatures throughout Russia’s agricultural regions. Snows and rains in abundance came and went at just the right times too.

As a result, grain crops sown last autumn have come through the normally extremely harsh Russian winter much better than earlier expected.

Spring also came early for Russian farmers this year. In the main grain-growing regions of central and southern Russia, crop sowing is at least two weeks early.

Combined with the exceptionally advanced condition of winter crops, this puts current forecasts for this year’s Russian grain harvest above earlier expectations.

Specifically, USDA and ROSSTAT currently forecast that Russia will harvest 103m tonnes of grain between this June and September. Wheat will account for about 61m tonnes of the total Russian grain harvest in 2016. All current indications are that this year’s Russian grain harvest will come in at roughly the same as last year’s record crop.

Forecast

The USDA forecasts that Russia will export a total of 31m tonnes of grain this year. This includes 23m tonnes of wheat (up 1% on last year), 3.7m tonnes of barley (31% down), and 3.8m tonnes of maize (up 18% on last year).

To cater for the increased grain production, Russia is now investing heavily in grain elevators, silos, and transport logistics. The biggest part of this investment is being made on Russian cereal farms and at the Black Sea ports. These are most conveniently located next to Russia’s most intensive and massively large Black Earth grain farms.

As Matt Dempsey demonstrated some weeks ago, you can transport grain from these Black Sea ports to any UK port for as little as €8/t. That’s the exact same as it costs to take a tonne of grain 40 miles from Maynooth to Athy.

*Brendan Dunleavy has over 20 years of practical livestock farming and agribusiness project management experience in Russia.