IKAR in Mass and Industry Media

Russia Grain Curbs Ending as Drought Wilts European Crops

Bloomberg

May 28 (Bloomberg) -- Russia, once the world's second-biggest wheat exporter, plans to let a grain-export ban expire July 1 after almost a year, bolstering global supply as drought and flooding threatens crops from Europe to the U.S.

Farmers have sown 10 percent more acres and stockpiles exceed 6 million metric tons, First Deputy Prime Minister Viktor Zubkov said today, according to a government statement. Russian grain traders accelerated purchases in the last several weeks, moving supply to silos near ports in anticipation of the end of the ban which began in August, agricultural researcher SovEcon said May 20.

Wheat traded in Chicago, a global benchmark, as much as doubled in the past year as drought and flooding from Canada to Russia to Europe ruined crops. Russia's export ban, combined with quotas on shipments imposed by Ukraine, tightened supply and contributed to global food prices tracked by the United Nations surging to a record in the first quarter. While extra shipments will help ease supply concerns, extreme weather may curb output elsewhere and keep prices high.

"The complicated weather and crop situation around the world means we shouldn't expect a significant price drop," Dmitry Rylko, general director of the Institute for Agricultural Market Studies in Moscow, said by phone today. It may also take some time for exports to resume after the ban is lifted and "I don't expect record-high exports from Russia in July," he said.

Wheat Prices Jump

Wheat for July delivery rose 0.6 percent to $8.1975 a bushel on the Chicago Board of Trade on May 27, while corn for delivery in the same month jumped 1.7 percent to $7.585 a bushel. Rain is delaying planting in the U.S. Great Plains and Canadian prairies. About 45 percent of the U.S. winter wheat crop was in very poor or poor condition, the U.S. Department of Agriculture said May 23.

By contrast, Russia's Agriculture Ministry estimates the total grain harvest may be 85 million to 90 million tons, up from 60.9 million tons last year.

Russia will export 10 million tons of wheat in the 12 months ending in June next year, up from 4 million tons in the current year, according to the USDA. That's still less than the 18.6 million tons sold a year earlier. Corn shipments will jump to 1 million tons from 25,000 tons and barley cargoes to 800,000 tons from 300,000 tons, the USDA estimates.

Wheat Available

Russia has about 4 million tons of wheat available for export in the south of the country, though as much as half of it may not be of good enough quality to ship, said Alexander Korbut, vice president of Russia's Grain Union, the largest lobby group for cereal exporters. Russian ports can handle as much as 3.5 million tons a month, he said.

The resumption of exports may drive international wheat prices 5 percent to 7 percent lower, while boosting domestic prices 15 percent to 20 percent, Korbut said.

Ukraine President Viktor Yanukovych said in an interview May 24 he would lift export quotas because of forecasts for a 15 percent increase in the harvest. Ukraine, once the world's biggest barley exporter, set export quotas on corn, wheat and barley in October after drought ruined crops.

Increasing Russian and Ukrainian supply will help compensate for anticipated declines elsewhere. The U.S., the world's biggest wheat exporter, will ship 29 million tons in the next marketing year, down from 35.5 million tons this year, the USDA says.

Weather Risks

"The weather risks that are developing in other producing regions will be more than enough to offset any type of exports coming of Russia," Erin FitzPatrick, an analyst at Rabobank International in London, said before the Russian announcement. "Wheat prices will stay at elevated levels."

While international prices may decline on the resumption of Russian exports, domestic prices will likely jump, SovEcon Managing Director Andrey Sizov Jr. said today. That may spur the government to restrict sales again later in the year, he said.

The jump in world food prices means inflation is accelerating around the world, spurring at least two dozen central banks and the European Central Bank to raise interest rates this year, data compiled by Bloomberg show. Higher interest rates may curb global economic growth the Organization for Economic Cooperation and Development said May 25 would rise to 4.6 percent next year from 4.2 percent this year.

07.06.11

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