The war has shut down fertilizer plants in the Middle East and severely disrupted shipping routes via the Strait of Hormuz; conduit for about a third of global trade in fertilizers.

Russia accounts for about one-fifth of global fertilizer trade, but limited capacity, domestic export caps and recent Ukrainian attacks on major plants all constrain its ability to ramp up output, the sources said.

Domestic supply obligations

New export-oriented plants are not expected to come on stream before 2027, according to one source who spoke on condition of anonymity.

“Higher prices look great on paper, but Russian producers are boxed in by domestic supply obligations, especially ahead of the planting season,” said another industry source, who also spoke on condition of anonymity.

“And any windfall profits are likely to draw government attention as it looks for ways to boost budget revenues.”

A third source, also speaking on condition of anonymity, said companies are currently focused on meeting domestic demand.

“It may be possible to cover, over a short horizon, the demand left unmet without the Middle East, but in the long term it’s too large a volume to replace,” the source added.

A Ukrainian drone attack on Dorogobuzh, one of Russia’s largest fertilizer plants, owned by major producer Acron, on Feb. 25, has temporarily knocked out about five per cent of the country’s overall production capacity and killed seven people.

Dorogobuzh accounts for 11 per cent of Russia’s ammonium nitrate output and nine per cent of its NPK fertilizer production, a mixture of nitrogen, phosphorus and potassium.

One quarter of global trade by 2030

Russia, also the world’s top wheat exporter, introduced fertilizer export restrictions in 2021 to ensure sufficient supply on the domestic market.

Andrey Guryev, head of the industry lobby, estimated the gap between lower domestic and higher export prices at about 15 per cent during a meeting with Russian President Vladimir Putin in 2025.

He also told Putin that Russia is aiming to capture one-quarter of global fertilizer trade by 2030.

Russian fertilizer producers have been spared most Ukraine-related Western sanctions in order to ensure global food security, but face payment and logistical difficulties related to sanctions.

Brazil, India and China are the biggest buyers of Russian fertilizers, and it also exports to the U.S.

Shares in two of Russia’s publicly traded producers, Acron and PhosAgro, have risen modestly, by three per cent and four per cent, respectively, on the Moscow Exchange since the U.S. and Israeli attacks on Iran began on Feb. 28.

“A shortage of phosphate fertilizers, amid China’s export restrictions, the shutdown of sulphur production in Qatar, and tensions in the Strait of Hormuz, is a powerful driver for price increases in the market,” T-Bank analysts said in a research note.

“Against this backdrop, PhosAgro, as one of the key global suppliers, could strengthen significantly.”

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Such decisions will have direct implications for global wheat prices and inflation in major buyers like Egypt, as Russia is the world’s top exporter of the grain.

The trend represents a challenge for President Vladimir Putin’s plan to expand exports and cement Russia’s position as an agriculture superpower, giving it more international clout amid confrontation with the West over its actions in Ukraine.

The country’s wheat harvest will decline to 83 million tons this year due to frosts and drought, down from 92.8 million tons in 2023 and a record 104.2 million tons in 2022. New forecasts point to a clouded outlook for next year as well.

Although Russia has been exporting wheat at a near record pace in the recent months, exports are expected to slow due to a bad harvest and export curbs aimed at containing domestic price growth, including an expected cut in export quota by two-thirds from January 2025.

At a farm in Siberia’s Omsk region, which was hit by heavy rain during the peak of the harvesting season, farmer Maxim Levshunov takes advantage of a rare sunny day to collect what remains in the fields.

He chuckles as he picks up ears of wheat that sprouted early due to the moisture. Now, most of his crops are only suitable for animal feed, meaning the farm will receive a fraction of the price it had hoped for.

“We’ll probably start moving away from wheat, cutting back as much as possible. So, we’ll be thinking about what more profitable crops we can replace it with right now,” Levshunov told Reuters.

As this year’s harvesting campaign comes to an end, Russian farmers are assessing their losses from the exceptionally bad weather and considering their next steps amid falling profit margins for wheat, Russia’s main agricultural export.

Winter wheat became the first victim as areas sown with it are set to shrink by 10 per cent this year, the lowest since 2019, according to data from Rusagrotrans, Russia’s flagship grain rail carrier.

“There are losses on each ton. The selling price does not cover the cost,” said Arkady Zlochevsky, head of the Russian Grain Union industry lobby, predicting that Russia’s 26 per cent share of the global wheat trade will shrink.

More profitable crops

Agriculture Minister Oksana Lut joked that farmers might pray to Saint Ilya, the patron saint of weather in Russia, to improve conditions for winter crops. The joke did not go down well with farmers, who are considering more pragmatic options.

Some say they have already decided to plant less wheat next year. Others are waiting to see how global wheat prices perform in the next few weeks before making a final decision.

“The profitability of grain crops is approaching zero. The company has reduced the volume of winter wheat sowing by 30 per cent. There are two drivers now — soybeans and sunflower,” said Dmitry Garnov, CEO of Rostagro Group, which owns land in the Penza and Saratov regions around the Volga River.

Rising costs of equipment and fuel, high export duties, a rising benchmark interest rate that hit 21 per cent in October as the country’s central bank fights inflation, and the removal of some agricultural subsidies have also eaten into profit margins.

“It is evident that in 2022-2024, the price has been practically the same, while the cost of grain production has increased by at least 28 per cent,” said Sergei Lisovsky, a member of the lower house of Russia’s parliament from the Kurgan region.

Lisovsky argued that the high export duty for grains, introduced in 2021, as well as rising transportation costs for regions with no direct access to seaports, were also factors behind low margins.

“Therefore, as of today, farmers are not planting grain not because of the autumn drought, but because they are waiting to see what the price will be, and have not yet made a decision,” Lisovsky added, referring to spring wheat sowing.

Niche crops

In Russia’s most fertile Krasnodar region, the profitability of wheat is still holding around 10 per cent, but some large local farms are also pondering a change of strategy as droughts become more severe each year.

“It is gradually getting warmer in the south, and we need to think about changing the structure of the sowing areas for the future,” said Yevgeny Gromyko, executive from Tkachev Agrocomplex, one of Russia’s largest landowners, and a former deputy agriculture minister.

The niche crops have the potential to become new export success stories with Russia’s allies among the BRICS countries, aiding the government in achieving Putin’s goal of increasing agricultural exports by half by 2030.

Russia overtook Canada this year as the top peas exporter to China while regulators in India, the leading importer of lentils, used to make daal, a staple for millions of people, gave a green light to Russian imports.

Russia takes great pride in being the world’s top wheat exporter, with the older generation recalling the food shortages of the Soviet era and the humiliating grain imports from Cold War foes like the United States and Canada.

However, for struggling farmers, it is declining profits, not global status, that matter most.

“Many farms that specialized exclusively in wheat crops have operated at a loss this year and will face very serious financial difficulties, potentially leading to bankruptcy,” Levshunov said.

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Russia has been pushing to establish the exchange as part of a broader plan to create new financial instruments, detach its trade from the U.S. dollar and help Moscow combat Western sanctions.

President Vladimir Putin said at the summit that BRICS countries, which are among the world’s largest producers of grains, legumes, and oilseeds, could establish such an exchange, potentially expanding it to trade other major commodities.

The plan to create the exchange has been approved by leaders of the BRICS countries, whose members include Brazil, Russia, India, China and South Africa.

The BRICS countries welcomed Russia’s grain exchange plan in their communique at the summit and backed proposals to subsequently develop and expand it to other agricultural sectors.

Eduard Zernin, head of the Grain Exporters Union, whose members export 80 per cent of Russian grain, said that based on the experience of creating the BRICS’ New Development Bank, launching the joint exchange would require years of preparatory work.

Zernin stated that the proposed new exchange should have international status to protect it from potential Western sanctions.

“The main stage of the process has been completed, the initiative to create an exchange has been approved at the level of BRICS country leaders,” Zernin said.

Russia, the world’s biggest wheat exporter, has been striving for years to develop its own commodity pricing mechanisms to counter the dominance of Western exchanges, especially following this year’s decline in global grain prices Wv1.

The Russian government, concerned about high export volumes at low prices in the past few months, has informally agreed with leading exporters not to sell Russian grain to sovereign buyers through intermediaries, according to the Grain Exporters Union.

The government has also recommended that exporters not sell wheat at a price below $250 (C$346) per metric ton, which is well above current levels, Reuters sources have said.

Iran and Egypt, which are now BRICS members, are major buyers of Russian wheat.

New exchange needed?

Some industry analysts questioned the immediate need for a new grain trading platform given the smooth functioning of existing international grain exchanges.

“Due to the advantages that established exchanges have in terms of customers, infrastructure, track record, and liquidity, it will take some time for the new exchange to catch up,” said Yaroslav Lissovolik, head of the BRICS+ Analytics think tank.

Alexander Belozertsev, head of Alexandra Inc consultancy, said that, unlike Russia, other BRICS members, such as India, China, Brazil, and South Africa, already have well-established commodity trading platforms of their own.

“Strategically and technologically, all these exchanges have significantly advanced in trading agricultural derivatives compared to their Russian competitors. Do they really need the implementation of Russia’s initiative under the BRICS umbrella?” he said.

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Russia’s President Vladimir Putin, who has sought support from BRICS leaders amid his standoff with the West over the war in Ukraine, said that BRICS’ average economic growth in 2024/25 would be 3.8 per cent, compared to global growth of 3.2-3.3 per cent.

“The trend for the BRICS’ leading role in the global economy will only strengthen,” Putin said, citing population growth, urbanization, capital accumulation, and productivity growth as key factors.

Russia, the world’s biggest wheat exporter, proposed the creation of a BRICS grain exchange which could later be expanded to trade other major commodities such as oil, gas and metals.

“BRICS countries are among the world’s largest producers of grains, legumes, and oilseeds. In this regard, we proposed opening a BRICS grain exchange,” Putin told the leaders.

He added that the exchange “will contribute to the formation of fair and predictable price indicators for products and raw materials, considering its special role in ensuring food security”.

“The implementation of this initiative will help protect national markets from negative external interference, speculation, and attempts to create an artificial food shortage,” Putin said.

Other leaders backed the creation of a common cross-border payments system, which would help BRICS countries trade with each other, bypassing the dollar-dominated global financial system.

Brazilian President Luiz Inacio Lula da Silva, who took part in the BRICS summit via video conference after a head injury over the weekend, said that it is time for the BRICS nations to create alternative payment methods.

He added that the group’s New Development Bank (NDB) was designed as an alternative to what he called failing Bretton Woods institutions such as the International Monetary Fund (IMF).

India’s Prime Minister Narendra Modi said that he welcomed the steps for financial integration of BRICS countries while China’s President Xi Jinping urged BRICS countries to deepen financial and economic cooperation.

In his speech, Putin also called for the creation of a BRICS investment platform, which will facilitate mutual investment between BRICS countries and could also be used for investment in other countries in the Global South.

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Frustrated by low global wheat prices, Russia, the world’s largest wheat exporter, has attempted to limit exports at low prices through international intermediaries. On Oct. 11, Moscow recommended that its leading exporters avoid selling wheat below $250 at international tenders.

“In order to ensure efficient, uninterrupted, and transparent cross-border trading of commodities, the Russian BRICS Chairmanship proposes to establish a grain trading platform within the framework of the BRICS Grain Exchange,” said a document drafted by Russia’s central bank and finance ministry ahead of the summit.

President Vladimir Putin wants to build up BRICS – which now includes Egypt, Ethiopia, Iran and the United Arab Emirates as well as Brazil, Russia, India, China and South Africa – as a counterweight to the West in global politics and trade.

Russia’s proposal also recommends the creation of a BRICS pricing agency, tasked with providing pricing methodologies and market analytics to offer an alternative to the current international pricing through established Western exchanges.

The proposal envisages the extension of BRICS grain trading mechanisms to oil, natural gas, and gold in the future.

“This measure will ensure independent pricing and strengthen the sovereignty of the BRICS economies,” the document said.

Oil-rich developing nations, including BRICS members Russia and Iran, have achieved substantial control over global oil prices through the OPEC+ agreement. However, some experts are sceptical about BRICS’ ability to influence other commodity prices.

“Since there are other exchanges that are established and liquid, it may be difficult to have an OPEC+ style price control through the operation of such an exchange,” said Yaroslav Lissovolik of BRICS+ Analytics consultancy.

BRICS original members China and India are the world’s largest wheat producers, while new member Egypt is the world’s biggest buyer. Other BRICS countries, such as Brazil and Iran, are also major grain importers.

Top importers of Russian wheat include BRICS members Egypt and Iran, Saudi Arabia – invited to join and represented by the foreign minister at the summit – as well as Algeria, which considered membership but then dropped the bid.

Russia is actively exploring other markets, such as Latin America, including BRICS member Brazil, as part of its strategy to boost agricultural exports by 50 per cent by 2030 and become a global agriculture superpower.

The Oct. 22-24 BRICS summit will be held in the Russian city of Kazan.

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Russia, the world’s top wheat exporter, has officially forecast this year’s grain harvest at 132 million metric tons, an 11 per cent drop from 148 million tonnes in 2023 and a 16 per cent drop from a record 158 million tonnes in 2022.

However, after bad weather, ranging from early spring frosts to drought and rain, hit many grain-producing regions, the forecast is set for a downward revision. The IKAR consultancy sees this year’s grain harvest at 124.5 million tonnes.

Concerns over Russia’s smaller-than-expected grain harvest supported international prices in recent months, with wheat reaching four-months high last week.

“We are currently calculating the figures, taking into account the bad weather in Siberia,” Lut was quoted by RIA Novosti as saying.

“And on the other hand, unfortunately, considering the inability to harvest crops in regions where a counter-terrorist operation regime has been introduced,” Lut added in a first public acknowledgment of the war’s impact on the harvest.

Russia introduced the regime in Kursk, as well as neighbouring Bryansk and Belgorod regions, following a major Ukrainian incursion into the Kursk region, Russia’s seventh-largest grain-producing region, on Aug. 6.

Both Belgorod and Bryansk regions, major grain-producing areas, have become targets of regular attacks by Ukraine’s military. Ukrainian forces still control a large swathe of the Kursk region.

Kursk Governor Alexei Smirnov said in September that after the attack, the harvesting of grains could not be completed on an area of 160,000 hectares. He estimated the damage from the attack at almost $1 billion.

Lut said the final estimate for this year’s harvest will be announced on Oct. 10. Sovecon consultancy earlier estimated that as of Oct.1, Russian farmers had harvested 111 million tonnes of grain.

Lut also said that winter crops sowing in many regions was difficult because of the continued drought. Sovecon consultancy said that no rains were expected in winter grain sowing areas until mid-October.

“The sowing is going very hard. We plan to sow 20 million hectares, as we did last year. But we are practically sowing in sand,” Interfax news agency quoted Lut as saying.

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Russia did not export any pork to China until February, when Beijing authorized three Russian producers to sell pork into the $3.5 billion Chinese import market, which is dominated by EU producers with a 51 per cent share.

The trade adds to the growing economic ties between Russia and China in the face of increasing sanctions against both countries by the West.

The EU recently set provisional duties of up to 37.6 per cent on electric cars imported from China to counter what it says are unfair subsidies. In response, China named Danish, Dutch, and Spanish pork firms as targets in an anti-dumping probe.

“For us, these trade tensions represent a chance to showcase our competitiveness in the Chinese market,” Yuri Kovalyov, the head of Russia’s National Union of Pig Breeders, told Reuters, adding that producers were not seeking to exploit the tensions on purpose.

Kovalyov said Russia’s goal was to supply ten per cent of China’s pork imports within three to four years.

It will face stiff competition from other major pork exporters, such as Brazil, plus rising Chinese output. Demand for pork is also falling in China, though it still consumes about half of the world’s pork, or 53-54 million tons a year.

Premium prices

Russian pork production is expected to reach 5.2 million metric tons in 2024 from 4.9 million in 2023 and a post-Soviet low of 1.5 million in 1999, Kovalyov said. The Soviet Union’s record was 3.5 million tons in 1989.

Current production makes Russia the fourth largest producer, behind China, the EU, and the United States, and puts it on par with Brazil.

China’s imports of pork and offal fell 27.3 per cent year-on-year to 1.11 million tons in the first half of 2024, its customs data show.

Kovalyov sees about 50,000-60,000 tons of Russian pork heading to China this year, around three per cent of China’s total imports, as forecast by the U.S. Department of Agriculture.

Much of China’s imports from the EU are offal, such as ears and feet, rather than muscle meat. Russian domestic demand for offal is low, as it is in the EU.

Kovalyov said Russian pork exports were currently 60 per cent meat and 40 per cent offal – similar to the mix in China’s imports.

The Russian private producers authorized to sell pork to China – Miratorg, Velikoluksky Pig Breeding Complex, and Rusagro – are among Russia’s top five pork producers.

“We cautiously estimate that we will export 10,000 tons to China this year,” Rusagro deputy CEO Alexander Tarasov said. “The prices are at a premium of 30-40 per cent to domestic prices.”

Help from sanctions

The Russian pork industry collapsed after the fall of the Soviet Union in 1991. The industry started growing again in 2005, helped by state support and protectionist measures. Kovalyov estimates that up to $25 billion (C$34.1 billion) has been invested in the sector since 2005.

Meatpackers suffered a major setback in 2008 due to an outbreak of African swine fever, which inflicted heavy losses on producers and effectively closed the Chinese market for Russia for 15 years.

However, pork production recovered quickly and received a major boost from a ban on EU pork imports to Russia in 2014.

Agriculture minister Oksana Lut forecasts Russian pork exports to all countries will rise to 310,000 tons in 2024, including live pigs.

Russian producers have already taken a 50 per cent share of pork imports in Vietnam and are exporting to about 20 other markets.

“As newcomers, we have one of the most modern pork production sectors in the world,” said Kovalyov.

Miratorg said it had made the first deliveries from its logistics hub in Russia’s Belgorod region to the port of Nansha in southern China by both rail and sea.

The company said its overall pork exports jumped 70 per cent last year and it plans to increase pork production by five per cent to match demand growth.

“Russia definitely has the natural resources, feed base, and freshwater reserves to increase meat production multiple times over,” said Marina Demidova, Miratorg’s head of exports.

Expansion plans could be hindered by delays in payments between Russia and China as Chinese banks, under pressure from Western regulators to enforce sanctions against Russia, have become more cautious in processing payments.

Banking sources told Reuters that food exports could be one area where the two countries may experiment with barter trade schemes. Kovalyov said he was not aware of any barter deals.

—Additional reporting for Reuters by Mei Mei Chu

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Russia’s government will determine on Thursday how much grain can be exported during this crop year before it considers imposing a protective duty to keep grain in the country, Deputy Prime Minister Viktor Zubkov told Reuters.

"The day after tomorrow I will hold a meeting. We will decide and I will give some signals," Zubkov said in response to a question about the level of export which could trigger the duty.

Traders and analysts said last week they expected Russia’s government, which has said Russia should export no more than 23-25 million tonnes of grain during this crop year, would consider imposing export duties from April, when exports are likely to hit that level.

Russia has been a bullish factor on world wheat markets in the last week, first because of speculation that the duty would be imposed to limit exports, then because of hard frosts which caused concern about Black Sea exporters’ crops.

Chicago wheat rose to a four-week peak on Tuesday, boosted by talk of Russian export restrictions. Industry watchers said on Tuesday, however, that Russia has more grain available for export than expected after a harvest of nearly 94 million tonnes which beat earlier forecasts, suggesting the government could allow more exports than it had indicated earlier.

SovEcon analysts, who had forecast an exportable surplus of 24.5 million tonnes, said on Tuesday, however, that it was larger than expected.

"Export is proceeding at a higher pace and export restrictions could enter force more quickly than expected in the autumn," SovEcon analysts wrote.

"At the same time, the exportable surplus of grain in 2011-12, by SovEcon’s estimate, could be increased by at least two million tonnes, which could extend the period of export activity without triggering any restrictions."

The head of a large industry lobby, the Grains Union, said Russia formally had an exportable surplus of as much as 33 million tonnes, but prices would be a limiting factor on exports.

"If no duty is introduced, I think we’ll call a halt at about 27-28 million tonnes," Zlochevsky told reporters on the sidelines of a conference held by the Institute for Agricultural Markets Research (IKAR).

"Lack of clarity"

Earlier in the day, Deputy Agriculture Minister Ilya Shestakov declined to comment on the government’s target. He said the final decision would depend on the export outlook for February, which would be clear by mid-month.

"We are constantly monitoring export volumes. The decision will be made in advance," Shestakov told Reuters. "There are quite a few precursors for introduction of a duty."

Shestakov said assumptions that the duty could be introduced from April were "groundless."

Zlochevsky said the government was discussing a levy from April onward, according to plans now under discussion by the Russian government.

The Grains Union had approached Prime Minister Vladimir Putin before the new year to ask that the government abandon consideration of the duty, he added.

Putin’s government raised the possibility of a duty as its preferred method of controlling exports before it lifted a ban on exports imposed to protect domestic supplies after a catastrophic drought in the summer of 2010.

"If no duty is introduced, I think we’ll call a halt at about 27-28 million tonnes," Zlochevsky told reporters at the conference, adding that domestic prices would become a limiting factor on exports.

Prices for Russian export wheat jumped as much as $6 per tonne (all figures US$) last week as traders confronted bare elevators in Russia’s southern export regions and hesitated to buy grain inland for export, fearing export duties.

"On one hand, this is forcing the hand of some exporters, who must buy grain to fulfil previously agreed contracts before possible export limitations come into effect. Grain deliveries from distant regions where it is in surplus… given the problems with rail freight, could be too late," SovEcon wrote.

"On the other hand, the lack of clarity on the possible date when export restrictions could be introduced is discouraging exporters from signing new contracts for April and later dates, which is facilitating a rise in world prices for that period."

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