First Russian cargoes ship with freight subsidy: ministry

The first Russian grain shipments to be subsidised as part of a controversial government freight reimbursement scheme have shipped, according to a statement from the ministry of agriculture Wednesday.

Grain cargoes valued at RUB105.6 million ($1.85 million) had moved as of Tuesday, providing some relief to farmers in remote parts of Russia while also piling further pressure on exporters around the world.

According to the ministry, freight was subsidised on 52,000 mt of wheat from Novosibirsk, 35,000 mt of wheat from Omsk, 3,000 mt of wheat from Orenburg, and 9,000 mt of corn from Tambov.

The price of wheat in the Siberian and Ural regions of Russia is significantly lower than that of the rest of the country, putting pressure on farmers to meet costs at a time when farmers in other parts of the country are selling hand over fist to get their record crop onto the export market.

So-called third-class wheat – equivalent to milling wheat with a 12.5% protein content – was priced at RUB7,250/mt in the Urals and Siberia at the end of December, according to the most recent price update from the ministry of agriculture.

This is around 14.5% lower than prices found in western Russia and almost 27% below the price in the southwestern agricultural heartland.

Subsidies have proved contentious with producers around the world since being signed into law in December, with this year’s record-breaking crop already weighing on global wheat markets.

Sellers in the EU and the US have struggled to compete with the massive volumes coming out of Russia.

For the EU wheat sales are down 20.2% year-on-year at 10.59 million mt, while in the US sales are 7% lower at 14.7 million mt.

In previous years Russia has bought up excess supply from the market in remote parts of the country via weekly auctions, however, a lack of storage space and a change in political appetite saw the government’s preference switch to freight subsidies.