February 20, 2009

Russia has discussed the possible supply deal of up to 1 million tonnes of grain to Brazil in the current season, partly to substitute supplies from Argentina.

Russian agriculture minister Alexei Gordeyev said the grain would not be supplied from state reserves should the deal be finalised.

The minister did not indicate where the grains would be sourced.

Gordeyev said they have agreed with the Brazilian agriculture minister to provide the grains, but have not pegged the 1 million tonnes to meat quotas or other conditions.

Brazil, a large wheat importer, usually gets more than 90 percent of its shipments tariff-free from Argentina and other Mercosur trade bloc members such as Paraguay and Uruguay.

However, Argentina's crop has dropped by about half of its previous 16-million-tonne harvest and is restricting exports, which will threaten Brazil's grain supply.

Brazil is likely to open a quota for tariff-wheat imports from outside Mercosur from March onward, according to Brazil's foreign trade secretary Welber Barral on February 11.

Russia harvested 108.1 million tonnes of grain in 2008, the largest crop since 1990, including a record wheat crop of 63.75 million tonnes.

Russia aims to export more than 20 million tonnes of grain in the current season to June 30, up more than 50 percent from the past one year.

Russian wheat prices may fall as the country have to sell part of its stocks to make silo space available for the new crop that will start arriving in July, a European grains trader said.

A Brazilian agricultural delegation in Moscow this week was expected to recommend clearing Russian wheat shipments to enter Brazil on sanitary grounds.