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Russia’s Resurgent Wheat Farmers Squeeze U.S.

U.S. wheat farmers are losing out to an old rival: Russia. The 82 million tons of wheat Russian farmers are forecast to have reaped this season has cemented the country’s resurgence as an agricultural superpower and ratcheted up the pressure on U.S. farmers.

By

Jesse Newman and

Benjamin Parkin

U.S. wheat farmers are losing out to an old rival: Russia.

The 83 million tons of wheat Russian farmers are forecast to have reaped this season has cemented the country’s resurgence as an agricultural superpower and ratcheted up the pressure on U.S. farmers, who sowed fewer acres of wheat in 2017 than ever before. Wheat prices at the Chicago Board of Trade hit $4.19 a bushel this week, down almost 25% since Russia began a record wheat harvest in July.

Large investments and a weaker ruble have helped Russia surpass the U.S. as the world’s top wheat exporter. A decade ago, for instance, U.S. farmers supplied a large portion of North Africa’s grain. The U.S. Wheat Associates trade group said it would close its office in Egypt, the world’s largest wheat importer, in December.

“We literally can’t compete on the price of wheat in those markets compared to Russia,” said Steve Mercer, the trade group’s spokesman.

Poor weather this year added to the trouble facing American farmers. Russia enjoyed a cool, wet growing season, while the U.S. Great Plains were hit by drought and a late-season snowstorm. U.S. wheat output is expected to fall by a quarter from the previous season.

Other countries are also chipping away at U.S. dominance in wheat. Farmers are growing more grain in Europe and India. The U.S. Department of Agriculture expects American wheat to make up 15% of global exports this year, down from half in the mid-1970s.

A truck unloads wheat grain inside the storage facility during the summer wheat harvest on a farm operated by ASB Management Co., in Novoalexandrovsk, Russia, July 16, 2017.Photo: Andrey Rudakov/Bloomberg News

A main reason has been Russia’s resurgence. Russia was a giant of world grain markets in the early 19th century, shipping wheat from vast, fertile fields to mills across Europe. That dominance slipped as industrial agriculture spread across the U.S. in the early 20th century. The Soviet Union’s collectivized farming system broke down, and Russia in the 1970s began importing huge quantities of wheat and other foods.

But since the late 1990s, Russian agriculture has rebounded. Backed by government support and private investors, Russian farmers bought machinery and invested in supplies and land. A weaker ruble and bans on imported food have given farmers an added boost.

“The highly inefficient Soviet crop-growing industry has transformed into a market-driven one,” said Andrey Sizov Jr. , managing director of agricultural consultancy SovEcon.

Russian wheat yields have increased 70% in the past five years. The USDA expects output from Russian farms stretching outward from the Black Sea to nearly double that of American farms this season.

“Yields are growing every year and Russia still has a lot to do,” said Maxim Basov, chief executive of Rusagro Group LLC. The agricultural conglomerate, one of the country’s largest, harvested 40% more winter wheat this season than a year earlier.

Evening sunlight illuminates wheat kernels during the summer wheat harvest on a farm operated by ASB Management Co., in Novoalexandrovsk, Russia, July 16, 2017.Photo: Andrey Rudakov/Bloomberg News

Some analysts warn that Russia’s bounty could also backfire for some farmers if a glut in storage and transportation bottlenecks depress prices domestically. This season has been less profitable for many Russian farmers than 2016, they say.

But for now, many farmers are reaping the rewards of their record haul. Analysts report seeing newly purchased luxury vehicles on the road in many Russian farming communities.

“Everyone is making money,” said Swithun Still, director at Switzerland-based Solaris Commodities SA which trades Russian grain. “Producers are making money, traders are making money. It’s happy days.”

Write to Jesse Newman at jesse.newman@wsj.com and Benjamin Parkin at Benjamin.Parkin@wsj.com

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