February 14, 2012

 

Russian wheat loses competitiveness in export market

 

 

Russian wheat exporters, who failed in the latest Egypt's tender, are slowly priced out of the export market, analysts and producers said.

 

The Institute for Agricultural Market Research (IKAR) said Russian wheat was offered at US$293/tonne on a delivered basis in the latest tender held by Egypt's General Authority for Supply Commodities (GASC) and was beaten out by US wheat.

 

GASC said on Saturday (Feb 11) it bought 55,000 tonnes of US soft red winter wheat from Venus at US$262/tonne with freight costs of US$27/tonne, undercutting Russia, and the Egyptian buyer said US wheat would likely remain competitive.

 

GASC is by far Russia's largest wheat buyer.

 

Based on the offer levels, IKAR pegged Russian export wheat with 12.5% protein content at US$275/tonne on a free-on-board (FOB) basis but said Russian export prices were in "total disarray".

 

"At the same time, the bulk of physical shipments are currently ongoing for old contracts which Russian exporters won at only US$244-250/tonne," IKAR said.

 

"Taking in mind all circumstances, current 12.5% protein Black Sea FOB is estimated at US$275/tonne," IKAR said. It is much lower than parity domestic farmers' expectations, which makes future (Russian) exports questionable until the end of the season."

 

A possible export duty to regulate grain exports had been under discussion in some parts of the government, but a higher-than-expected final harvest figure of 93.9 million tonnes persuaded officials to forgo limits for the time being.

 

The government had been expected to allow maximum exports of 24-25 million tonnes for the 2011-12, but Russia's top agriculture official, said the forecast for Russia's exportable surplus had been raised to 27 million tonnes.

 

The Grain Producer's Union, an industry lobby chaired by the head of a Siberian producer, issued a statement praising the government's effective decision to raise the limit on duty free exporters, saying the domestic market would rebalance to prevent excessive exports.

 

"For the foreseeable future, there is no basis for administrative limits on exports," Union head Pavel Skurikhin, chairman of Novosibirsk-based SAHO, said in the statement.

 

"Market prices all by themselves will reach a level where it is more lucrative to sell grain within the country, and export volumes will decline of their own accord."

 

Skurikhin said Russia risked fresh damage to its reputation on international markets, whose confidence in Russian supplies was shaken in 2010 when the government banned exports during a catastrophic drought, leading to some cases of force majeure.

 

Another factor limiting exports this year has been an unusually hard freeze in Russia's south, which has limited loadings.

 

IKAR said Russia had exported 19.7 million tonnes of grain, including 16.3 million tonnes of wheat, suggesting a drastic slowdown in loadings in the past two weeks.

 

A back-up is building up in port elevators, forcing buyers to halt discussions on new deliveries, SovEcon said. Still, prices continued to increase, with prices in for wheat with 11.5% protein content pegged RUB100 (US$3.34) higher at RUB8,000-8,100 (US$267-271).

 

"An increasing number of operators are starting to ship Kazakh grain to port," SovEcon added.