Mar 29, 2023
Russia Says Crop Titan Cargill Will Stop Exporting Its Grain
(Bloomberg) -- Russia said top agricultural commodities trader Cargill Inc. will stop exporting its grain, adding to uncertainty over the future of Black Sea crop shipments.
As the biggest wheat exporter, Russian grain is vital to global crop trade and food supplies. A bumper harvest there last year helped wheat futures drop more than 40% from a record reached just after Moscow’s invasion of Ukraine. Although Cargill is a big exporter of Russian wheat and a huge Western crop merchant, the government said the firm’s decision shouldn’t affect overall shipments from the country.
Russian crops aren’t under sanction, but trade can be complicated by restrictions on Russian banks and state companies. International grain traders have also faced growing pressure to leave from some Russian officials and the local industry. That’s adding to confusion over the continued pace of Black Sea flows, with the duration of the recent Ukraine crop-export deal still unclear. Wheat prices hit the highest in almost a month on Wednesday.
Russia’s agriculture ministry said it received a notification from Cargill about its plan. RBC earlier reported that the move will take effect in the coming agricultural year, citing a letter from the US company to Deputy Agriculture Minister Oksana Lut. A Cargill representative couldn’t immediately comment on the matter.
The ministry indicated that it doesn’t expect the move to stop any Russian supplies reaching global markets and that Cargill’s assets related to shipping grain will keep functioning regardless of who manages them.
Russia “is ready to work with all foreign companies whose activities contribute to the development of both the domestic food market of Russia and its export potential,” a ministry spokesperson said, adding that any gaps in the market are being promptly filled by Russian companies.
Some foreign traders have already pared back business in Russia. Bunge Ltd. said shortly after the outbreak of the war that it was suspending new export business with Russia. Archer-Daniels-Midland Co. also said it would scale back operations, although its footprint there was limited.
For commodity traders, the price volatility wrought by the war has helped them rake in huge profits — while raising tough questions about whether to keep dealing in Russian goods. Several big crop traders have continued shipping large volumes of Russian grain.
Read more: War Brings an Uncomfortable Windfall for Commodity Traders
“The grain business has become overly politicized and risky,” said Eduard Zernin, head of the Russian Union of Grain Exporters, which counts Cargill among its members. “I think after weighing all the pros and cons, the company decided to minimize the risks and get rid of a potentially toxic business.”
In other commodities, key crude traders recently said they’re wary of trying to muscle back into Russian exports. Glencore Plc has pledged no new business with Russia, while rival Trafigura Group is said to have been in talks to buy aluminum from Russia’s United Co. Rusal International PJSC.
Cargill promised the ministry that Russian shipments this agricultural season will fully meet the previously approved quota, RBC reported. RBC also said Cargill’s Russian subsidiary will begin reviewing its grain export assets in the country.
Still, any worries over the impact on Russian exports could support prices. Wheat climbed as much as 2.5% to $7.17 a bushel in Chicago on Wednesday, the highest since early March.
The decision from Cargill — which is owned by one of the richest families in the US — comes even after former Chief Executive Officer David MacLennan said in December that the company would stick by its decision to keep operating in Russia.
Russia’s main TV channel in December showed a film about the grain sector in which governors of key grain-producing regions called for foreign companies’ participation in the market 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, according to a Kommersant report.
Foreign merchants in recent years have also seen more competition from Russian firms as Moscow seeks to expand its influence in the food sector.
--With assistance from Agnieszka de Sousa.
(Updates with price move from third paragraph.)
©2023 Bloomberg L.P.