Canada Markets

There's no shortage of coverage on the current crisis facing Russia. The CBC says it's "history repeating itself, again..", referring to the crisis faced in that country in both 1992 and 1998. A Bloomberg video explains the entire crisis in two minutes, suggesting the near 50% reduction in oil prices as well as sanctions against Russia is resulting in that country's current challenges.

A tweet from the Official For Dummies Twitter Page, the folks behind the series of popular "For Dummies" books suggests "What Putin forgot.. How Currencies Fail for Dummies," while explaining:

-- If the risk in a country increases, then investors will want to put their money in less risky places and the currency will decrease in value, and

-- If a country produces popular goods for export, then customers in other countries will need money to buy the products, and the country will increase in value.

Russia is losing on both accounts. Money is being invested in less risky places and currencies, while reduced exports as a result of the sanctions along with the impact of lower energy prices, which makes up over half of the federal budget and two-thirds of the country's exports, according to Economist Magazine, is lowering the demand for their currency.

Russia has recently announced export restrictions on wheat, with Dow Jones reporting that export certificates will be offered to only four countries -- Egypt, Turkey, India and Armenia. This becomes a double-edged sword for the country, as exports would help support their currency and create a source of foreign exchange, while at the same time tightening grain supplies, driving internal prices higher and creating potential unrest within their population.

The USDA's latest supply and demand report has projected Russia's exports to total 22 million metric tonnes, which is 13.9% of the total global grain trade estimate for 2014/15 of 158.04 mmt. As of Monday this week, the Russian agriculture ministry announced that total grain exports were 32.5% higher than year-ago volumes, which included just over 15 mmt of wheat between July 1 and Dec. 10.

The attached chart highlights the price of Chicago soft red winter as valued in both U.S. dollars (black bars) as well as Russian rubles (blue bars). The lower study indicates the rapid weakening of the Russian ruble against the U.S. dollar, which has led to a rapid price increase in wheat prices when measured in rubles.

The Russian farmer faces a dilemma. Increasing wheat prices should act as an incentive to export more, although this opportunity may be curtailed with the government's recent actions. Even if exports were allowed to proceed, producers then face the uncertainty of holding a rapidly deteriorating Russian currency. Reports Wednesday suggest that rich citizens are standing in line to buy things like luxury cars, while the rest of the population is storming retail chains such as Ikea in order to turn their currency into anything viewed as a "safe haven." Holding grain may be viewed as the best of all options.

Cliff Jamieson can be reached at cliff.jamieson@dtn.com

Follow Cliff Jamieson on Twitter @CliffJamieson

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