May 10, 2011

 

Russia might extend full grain export prohibition

 

 

Although Russia's embargo on grain exports is ending on July 1, traders on international markets think Moscow will probably be cautious and wait till end-September for a complete removal of the ban.

 

However, if crops develop well, it may release some wheat in July to relieve hefty stocks in its south.

 

Any reopening of the gates would be bearish for grain prices although the drop could be softened by rising concerns about deteriorating harvests in other key producers including Europe and the US.

 

Russia, the world's former third-largest wheat exporter, halted grain exports from mid-August last year after the worst drought in over a century which devastated crops.

 

Speculation has mounted on whether Moscow will stick to its July date after government members hinted they may extend the ban.

 

Most European and US traders said they believed Moscow would wait until end-September or October. Moscow will remember that last year's crops were ravaged in July, after the ban's expiry date.

 

"Keeping in mind the lessons of the previous season, the government will try to buy some time and wait until some preliminary crop reports," an international trader said.

 

A parliamentary election in December and a presidential one in March 2012 would also play a role. The government may want to avoid measures that would boost food prices but at the same time, gain the votes of farmers who saw their revenues plunge.

 

Russian wheat prices are around a third below international ones and should jump when the export gates open.

 

Prime Minister Vladimir Putin said on Friday (May 6), "Crop results must convince us that we fully satisfy our internal necessities and build up necessary reserves for the country before restarting grain exports."

 

Meetings scheduled at the end of May could give leads on what may happen in the months to come.

 

Any softening in Russia's ban would be bearish for EU and US prices. The market has been boosted by unusually dry weather in Western Europe and parts of the US, and rainfall slowing planting in the US Corn Belt.

 

Supply concerns were great enough to shield wheat prices from last week's commodities price drops.

 

But traders agreed that global grain prices would soar if Moscow decided to postpone a decision until year-end and lifting the ban could boost internal prices.

 

The ban in August last year pushed wheat futures prices up 10% in intraday trade in Europe and 16% the next day on US markets.