Russia agreed to end a tax on wheat exports a month and a half earlier than planned after the country’s inflation slowed, easing concern over soaring bread costs.
A decree signed by Prime Minister Dmitry Medvedev stopped the tax on Friday. Russia, the fourth-biggest wheat exporter last year, aims to prevent an oversupply of grain on the domestic market and support farmers, according to a press release posted on the Cabinet website. Exports may increase by as much as 1 million metric tons, according to the statement.
Less inflation and the rising ruble have helped stabilize Russia’s economy, giving the government room to ease restrictions on grain shipments. The tax was designed to rein in food prices after the ruble collapsed last year and the economy buckled under plunging oil prices and international sanctions over the conflict in Ukraine.
“If Russia opens their export channel that will put pressure on wheat prices,” Daryna Kovalska, a London-based analyst at Macquarie Group Ltd., said by telephone on Friday. “They have big stocks accumulated domestically and that will definitely flood the market.”
Speculation that more wheat will enter the market has hurt prices, sending contracts on the Chicago Board of Trade to an almost five-year low earlier this month.
Futures for July delivery dropped 0.5 percent to $5.115 a bushel as of 7:45 a.m. Chicago time. Prices rallied 6.8 percent Thursday, the biggest gain since 2012, amid concern that excess rain in the U.S. Plains would damage crops.
“This is going to remind market participants that Russia still has some wheat to export,” Benjamin Bodart, a director at market consultant CRM Agri-Commodities in Newmarket, England, said by phone. “It’s likely that they’re going to be aggressive once again at the beginning of the next campaign.”
In Russia, every wheat shipment had incurred a tax of 15 percent, plus 7.50 euros ($8.51) a ton, causing monthly exports to fall by more than half. It was intended to run from February through July 1.
The country’s inflation ended an eight-month climb in April, decelerating for the first time since July. The ruble has strengthened 21 percent against the dollar this year, more than twice as much as any other currency.
Russia may still introduce measures to contain wheat prices should they increase again in the domestic market, Agriculture Minister Alexander Tkachev said Friday at a meeting in Moscow. The ministry said May 5 that it proposed to the cabinet a new tax formula based on market conditions for wheat shipped after the next marketing year starts July 1.
“There isn’t certainty about whether Russia is going to export through the whole year, or if they will apply an export tax at any moment,” Macquarie’s Kovalska said. “This is definitely a black box in the market.”