Cargill and Viterra are exiting Russian grain export market

International food giants Cargill and Viterra have announced plans to stop grain trading in Russia, making the global market nervous over the future of Russian export.

In the past years, Viterra and Cargill both were ranked in the top 6 exporters of Russian wheat. Cargill informed the Russian Agricultural Ministry that the move would come into effect from the beginning of the next agricultural year, while Glencore-backed Viterra reportedly intends to leave the country by the end of the current season.

Archer-Daniels-Midland Co. is also weighing options to quit its main Russian operations, according to people familiar with the matter. Louis Dreyfus is considering reducing its presence in the country, the Kommersant newspaper reported.

Grain not directly subject to sanctions

Russian grain is not directly subjected to Western sanctions, but during the past year, the supplies were hampered by restrictions against the Russian logistics and banking sectors. International grain traders have also faced pressure to leave from Moscow and the local industry. The Russian press reported that the departure of the foreign traders might be perceived as a sign that the country’s grain export could be heading into a period of even bigger uncertainty.

Bracing for impact

Cargill and Viterra’s departure from the market will not affect Russian grain export. All transhipment capacities will be preserved and will continue to operate as usual, the Russian Agricultural Ministry said in a statement on its website.

On the other hand, the global grain market seems not to be convinced. Russian agricultural consultancy ProZerno reported that the global wheat market experienced an upward price rally after the leading Western agricultural firms unveiled their plans to sever their ties with Russia.

″We can assume in the export segment of the [Russian grain market] a storm had begun when the information came out that [Western traders] cease their export programmes from the beginning of the new season,″ the agency said, noting a swift rise in the price of future contracts on wheat following the announcements.

ProZerno claimed that ″such a shift in ranks of large exporters can’t go unnoticed,″ adding, however, that it won’t be long before buyers for the assets of the Western firms emerge.

Governors of key grain-producing regions last year called for foreign companies’ participation to be limited. Around that time, major Russian fertilizer supplier UralChem informed President Vladimir Putin that it was willing to buy the local assets of grain traders Cargill and Viterra.

State-backed OZK, also known as United Grain Co., has already signed several wheat contracts with Turkish partners and said last year it wanted to ″completely get rid of involvement of international traders and work directly with importing countries.″

Russia’s grain is still in high demand

Elena Tyurina, director of the analytical department of the Russian Grain Union, echoed the Agricultural Ministry’s opinion that the withdrawal of the Western firms would not impact export sales. Tyurina told the Russian newspaper Agroinvestor that there is a demand for Russian grain, and large Russian exporters can easily export the volumes that were shipped by foreign players.

She added that Russian wheat export in March turned out to be higher than the original forecast of 4.5 million tons – totalling 5.1 million tonnes. ″This dynamic was secured by strong demand from countries that have moved into the category of our regular importers this season. These include Algeria, Sudan, Pakistan, Kenya and other countries,″ Tyurina said.