Russia Clinches More Grain Control Just As Wheat Prices Spike

(Bloomberg) -- Russia is stepping up its bid to control even more of its crucial grain industry — potentially giving it greater power over exports — just as worries mount over global supply.

Major Western merchants including Cargill Inc. and Viterra pulled back from Russia last year after government pressure to make way for local firms. Now, even the country’s top private trader is finding it tough to operate amid a spat with the state. That puts the market in the hands of fewer companies, some that have or had links to the Kremlin.

The consolidation picked up after President Vladimir Putin’s invasion of Ukraine and leaves just four firms responsible for three-quarters of grain exports from Russia’s Black Sea terminals. That’s giving Moscow more influence over wheat supplies that have been key to taming global food inflation. It’s also making it harder for overseas traders to gain insight into flows there — at a time when poor weather is hurting Russia’s wheat crop and spooking the market. 

“Russia’s desires to control the commodity world are real, and their influence on grains is growing,” said Dan Basse, president of Chicago-based consultant AgResource.

Russia’s natural-gas industry has always been dominated by the government, while the state and Putin’s closest allies have gained control of a major part of oil output since he came to power. Now Russia is tightening its grip on grains.

Cargill, Viterra and Louis Dreyfus Co. stopped sourcing grain in Russia for export last year. They were previously among the top 10 exporters.

But a dispute with TD Rif highlights how even private Russian exporters are coming under pressure from the government. The company, which recently changed its name to Rodnie Polya LLC, had helped Russia cement itself as an agriculture powerhouse but is now seeing its business threatened.

Longtime owner Petr Khodykin in March told Lenta.ru that the firm’s cargoes had been unfairly blocked by the agricultural regulator for not meeting safety requirements, and that he was being pressured to sell the company. 

Several people who used to buy from the company’s export partners said that it hadn’t been active in the market since March. The volume the firm loaded for export in April dropped about 40% from a year earlier, shipping data from Logistic OS show. It can take anywhere from two weeks to a few months after a deal is signed for grain to be loaded onto ships.

Spokespeople for Rodnie Polya and Russia’s agriculture ministry didn’t respond to requests for comment.

Government Targets

Since starting the war in Ukraine, Moscow has increasingly targeted assets owned by local tycoons and some units of overseas companies — from a pasta producer to the Russian subsidiary of French yogurt maker Danone SA — for either nationalization or the potential sale to a firm favored by the Kremlin. It has also seized control of assets of an agricultural holding company as it targets “unfriendly” countries.

“The trend toward more hardline policies and conservative ideology is inevitably accompanied by a strengthening of state intervention in the economy,” said Andrei Kolesnikov, a senior fellow at the Carnegie Endowment for International Peace in Moscow. “The state is becoming politically untouchable and the main player in the economy.”

Read More: Putin Critic Warns Kremlin Will Seize More Assets to Punish Foes

While Western traders still buy cargoes from Russian ports, getting information on things like crop volumes and conditions, stockpiles and exports is harder since they curbed business there. That could become a bigger worry as harvest setbacks leave Russia with less wheat to export.

Issues from dryness to frost have prompted analysts to make big cuts to Russian production estimates, helping wheat futures hit the highest since July and rekindling worries about rising food prices. The International Grains Council expects Russia’s wheat output to fall about 6% this year.

Assessing things like frost impact is one challenge for the US Department of Agriculture, which issues closely followed global crop forecasts and no longer has staff on the ground in Russia. That means it’s more reliant on satellite images, which may not pick up damage.

Not having people there “obviously adds a layer of uncertainty to what we do,” said Mark Jekanowski, chairman of USDA’s World Agricultural Outlook Board. 

Russia’s government occasionally publishes harvest forecasts, while independent local consultants like IKAR carry out crop tours and regularly release production estimates that are closely watched by the market.

Read More: Bad Weather and War Are Straining the World’s Wheat Supply

While benchmark wheat prices have rallied in the past couple of months, they’re still about 50% below a record set in 2022 when the war disrupted Black Sea flows. Plus, better prospects for US crops could limit supply fears.

A key question is how Russia’s grain consolidation will impact the world market. It’s already trying to implement an unofficial minimum price for its crops and stronger control of the grain sector will make it easier for the government to influence supplies. 

There are no signs of Russia notably disrupting its own supplies — especially not in the way it did with gas when it cut supplies to Europe in the wake of the war, creating havoc on energy markets. And much of Russia’s grain exports go to countries that it has good political ties with.

The top four Russian traders now control 75% of exports from Russia’s Black Sea terminals, up from 45% six years ago, according to Dmitry Rylko, director of Moscow-based consultant IKAR. 

“We have seen pretty dramatic market consolidation in the hands of very limited number of players,” he said to the GrainCom conference in Geneva this month.

--With assistance from Abdel Latif Wahba, Gina Turner and Michael Hirtzer.

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