Global grain markets in the last 40 years have been driven by the turn around of the Russian cereal sector.

In the mid-1980s, Russia and the USSR were significant wheat importers, with average seasonal imports around 18mt before the USSR’s collapse. At their peak in 1984-85, imports surpassed 28mt, with Russia accounting for about half. Fast forward to today, and Russia is projected to export 53.5mt of wheat. This dramatic shift has reshaped the global wheat market.

A pivotal change was the collapse of the USSR and the rise of independent nations. Despite Russia’s strong global commodity market presence, its agricultural sector was initially hindered by outdated Soviet-era practices. Farming methods, equipment, and attitudes lagged behind western standards, resulting in low productivity and profitability.

By the early 2000s, it became evident that Russian agricultural policies were evolving, creating a more favourable environment for farmers. Farming became more privatised, practices improved, equipment was modernised, and more land was brought under cultivation. The bottom line is that Russia has been transformed from producing 30mt of wheat annually and being a major importer to producing around 90mt and becoming the world’s leading wheat exporter.

Since the late 1990s, their wheat exports have surged from zero to about 25% of global trade. Including other key Black Sea regions like Ukraine and Kazakhstan, this area now accounts for approximately 37.5% of the global wheat market, underscoring its significance. In contrast, Australia’s share of global exports has remained steady at 10-15%. The most significant shift has been in the US, which has seen its market share plummet from 25-30% to less than 10% of annual trade flows.

Russia drives market

Initially, Russian wheat faced challenges in gaining acceptance. As supply increased and quality improved, the discount at which consumers purchased Russian wheat narrowed. Today, it dominates many markets at or near full market price.

Traditionally, global wheat markets relied on US futures as the primary sentiment indicator, but it is no longer the main driver of global wheat values. Russia, and to a lesser extent Europe, now lead the way.

These changes have unfolded over the past 25 years, but the wider market has been slow to fully embrace Russia as the new force in global wheat markets. This hesitation partly stems from the US market’s strong transparency and accountability, which are less evident in the Russian market. This could change over time, but the conflict between Russia and Ukraine has complicated matters.

The recent exclusion of multinational trading companies from the Russian market has reinforced the view that transparency in the Russian market will likely remain complex.

There have been notable instances when the Russian market significantly impacted global wheat values. One of the most notable was in 2010-11 when the Russian government banned wheat exports due to drought conditions. Despite holding a smaller market share at the time (around 13% or 18mt), the sudden loss of Russian supply caused wheat markets to nearly double in five weeks.

Russian dominance

Today, Russia dominates, making other market participants more vulnerable to increased volatility. Russia and the wider wheat market are now accustomed to producing around 90mt of wheat and exporting around 50mt, or close to 25% of market share. Russian wheat has become a cheap and reliable source for global consumers, with their farmers maintaining their position as lower-cost producers even as production costs have risen.

However, any major issue with Russian wheat supply could easily disrupt markets. Information from Russia is unpredictable, and wheat stocks in other key export regions are near multi-year lows. While the current situation may not immediately drive wheat values up, weather issues and conditions can change rapidly.