IKAR in Mass and Industry Media

Industry doubts need for Russian govt grain buying

Reuters

MOSCOW, Sept 8 (Reuters) - Russian grain producers, analysts and exporters on Tuesday questioned the need for government grain purchases this year, saying such buying could eventually prompt a crash in prices rather than propping them up.

The government buys grain when domestic prices are low and sells its stockpiles when prices are rising.

Industry experts warned that this year -- when global and domestic prices are low -- government purchases could discourage exports, eventually leading to a glut of grain stockpiles within the country and thus forcing domestic prices lower than they would have gone of their own accord.

The state bought 9.627 million tonnes of grain at intervention tenders in August 2008-May 2009 after a bumper 2008 crop of 108.1 million tonnes. Only 8.064 million tonnes were delivered to government-appointed silos.

The government had planned to resume purchases as soon as this August but later postponed the plan. SovEcon agricultural analysts said tenders may start in October.

NO DECISION YET

A senior Agriculture Ministry official told a grains conference on Tuesday that the final decision when to start purchases has not yet been made.

"We do not understand yet whether producers are left with any profit after the falls in world and domestic prices. Currently the fall is not catastrophic," said Sergey Sukhov, deputy head of the ministry's food market regulation department. "We have the financial resources and a final decision will be announced depending on the situation."

In the 2009/10 season the government has set aside nearly 20 billion roubles ($636.5 million) for intervention purchases. Last year, Russia had initially set aside $1.3 billion for the purchases and then raised the sum to $3 billion.

"Russian grain has to conquer world markets. And interventions will not provide any help but direct competition," Vladimir Petrichenko, general director of ProZerno, an analytical unit of the trader WJ Group.

He said that unless Russia is able to export as much as it can, it will have a grain glut on the domestic market, which will result in a price collapse.

The government expects Russia to harvest some 85 million tonnes of grain this year, down from 108 million last year and it estimates an exportable surplus of some 18 million tonnes.

Analysts estimate this year's grain output to be higher -- between 92.5 million tonnes and 98 million tonnes, leaving 15-19 million tonnes for exports in the 2009/10 season.

The President of the Russian Grain Union, Arkady Zlochevsky, said that the grain interventions this year are unlikely to be efficient, as they will fill free storage capacities in the export-oriented regions.

"If we start interventions, we will block exports, which take the pressure off the market," he said. "Eventually, we will push the prices down instead of supporting them."

Dmitry Rylko, the director of the Institute for Agricultural Market Studies (IKAR) agreed that interventions were unlikely to have a positive effect on the market. "It is already clear that if the purchase interventions are carried out, their influence on the market will be minimal," he said, adding that the purchased stocks would increase the pressure on the market already exercised by existing stocks.

14.09.09

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