February 3, 2010

Heavy inventories to crush Russia's grain-price rebound

A revival in Russia's domestic grain prices looks set to decrease under the weight of the country's inventories, despite the second-best year for exports and growing demand from livestock farmers.

The country's programme of intervention buying, which has fostered some support to prices over the winter, is supporting a build-up of stocks which may damage the market come spring, according to the USDA.

Exports, which look set to revive after short-term hiccups caused by bad weather, will not prove strong enough, even at perhaps 21 million tonnes, to drain inventories far.

A drive to develop Russia's meat industry, which the government wants to see meet national demand for pork and poultry, might increase demand for feeds, but will not be able to use the entire grain surplus.

"Inventories will remain approximately 20 million tonnes by the end of the marketing year," said USDA Moscow attaché Yelena Vassilieva.

Meanwhile, market data shows that Russian feed wheat prices were jumping 37% over the last four months to an average of RUB3,250/tonne (US$107).

Nonetheless, market prices have remained below intervention levels, leaving the government to consider other market-support policies, such as short-term loans for farmers using grain as collateral, Vassilieva said.

However, the federal budget constraints limit these choices, she said, noting the farm ministry's 2010 priority to develop Russia's livestock industry.