May 4, 2011

Russia, India may look at grain exports

As wheat prices continue to escalate, the market speculates that expectations of surplus grain in Russia and India will lead the two producers to resume exports.

However, deteriorating prospects for US and European wheat crops mean even the return of exports from Russia and India to world markets this year would be unlikely to lower prices, analysts said.

Grain dealers in Russia are starting to move stocks to ports in the hope that the government will allow exports as early as July. The Kremlin banned exports last year after the worst drought in a century slashed Russia's grain harvest by about one-third to about 63 million tonnes, but hopes that farmers may reap as much as 90 million tonnes this year have prompted calls for an end to the embargo.

Analyst Dmitry Rylko from Institute for Agricultural Market Studies, said dealers are hoping to free up storage space for the upcoming harvest. However, Russian traders said companies are positioning grain in a bid to ship supplies quickly as soon as the ban is lifted.

"I would assume the Russians want money quickly, so if they can sell, they will sell as soon as they can," said analyst James Dunsterville.

In Asia, the USDA's attache predicted that a record wheat crop of 84.2 million tonnes may prompt New Delhi to allow as much as two million tonnes of exports, the first time in five years India would export grain.

Futures markets for wheat have soared to within sight of records this year after a succession of natural disasters, including the drought in Russia, spurred fears of a shortage of supplies. However, the speculation about exports from Russia and India look unlikely to calm nervous markets.

"We don't expect that the Black Sea region will be able to come into the market in the way it did after the 2008 price rally to supply the world with a significant amount of cheap exports," said London-based Rabobank analyst Erin FitzPatrick.

Food-security concerns are high on the political agenda in both countries, so a sudden surge in shipments looks unlikely.

Both Russia and India are struggling with near double-digit inflation despite holding excess government grain supplies in some areas. With polls already under way in India and an election set for next year in Moscow, observers say domestic politics is likely to come ahead of international markets.