April 28, 2011

Russian domestic grain prices fall this week on state intervention fund

Russian domestic grain prices continue to fall this week as the government continues to sell grain from the State Intervention Fund amid no fresh news on the Russian grains export ban, the country's agricultural markets analysis body, SovEcon, said late Tuesday (Apr 26).

The Russian government had imposed a ban on the export of grains on August 15, to last until June 30, 2011 because of a severe drought. The drought has resulted in Russia's grain harvest this year falling to 60 million tonnes, according to the agriculture ministry's estimates, down from 97.1 million tonnes last year.

SovEcon said domestic prices for fourth-grade milling wheat retreated 1% to RUB5,200 (US$188) a tonne, and third-grade milling wheat declined 2% to RUB5,500/tonne. Average corn prices this week also fell 2% to RUB7,700 a tonne.

"Now, Russian domestic prices are lower than US and EU corn price levels. But in January, Russian prices were the same as international corn prices," said Andrey Sizov, Jr. Managing Director of SovEcon.

Sizov added that Russian grain price levels are falling because the government continues to sell grain from the State Intervention Fund and has not advised further on the grain export ban.

The State Intervention Fund refers to the quantities of grain purchased in previous years by the government to support price levels and to curb inflation when necessary.

"At the start of the year, we estimate the government had 9.6 million tonnes of grain in the state intervention fund. Now, we believe this has fallen to seven million tonnes as the government continues to sell from this fund," said Sizov.

Russia's domestic grain prices have also slumped in recent weeks due to a growing consensus that the market may have more supplies than previously thought. The Russian Grain Union estimates the country may have up to eight million tonnes more grain than originally thought as farmers have stockpiled supplies and several million tonnes sitting in elevators in the South that have not been sold.

Sizov said grain supplies in Russia are not as abundant as some observers believe and the country has still resorted to 10,000-20,000 tonnes of corn and 20,000-30,000 tonnes of barley imports.