May 30, 2011

 

Russia's lifting of grain-export ban may not alleviate global shortage

 

 

Russia, once the world's second largest wheat exporter, will let a grain-export ban expire on July 1, a move that may fail to relieve a shortage caused by drought and flood damage to crops in Europe and the US.

 

Futures jumped 79% in the past year in CBOT, the global benchmark, as poor weather from Canada to Russia and Europe destroyed harvests. Russia's export ban in August and Ukrainian shipment quotas cut supplies, helping global food costs tracked by the United Nations jump to a record in February.

 

"Whether they actually have major exports from that time or not remains to be seen," said Michael Pitts, commodity sales director at National Australia Bank. The ban's removal doesn't necessarily mean there will be enough supply to offset losses in Europe and the US, he said.

 

Increasing food costs have contributed to faster inflation around the world, spurring at least two dozen central banks and the European Central Bank to raise interest rates this year, data compiled by Bloomberg show. Higher interest rates may curb global economic growth, the Organization for Economic Cooperation and Development said on May 25.

 

Farmers in Russia planted 10% more and stockpiles exceeded six million metric tonnes, First Deputy Prime Minister Viktor Zubkov said on May 28, according to a government statement. Grain traders accelerated purchases in the past several weeks, moving supply to silos near ports in anticipation the ban would end, agricultural researcher SovEcon said on May 20.

 

Exports from Russia are unlikely to be a record and may take time to resume, said Dmitry Rylko, general director of the Institute for Agricultural Market Studies in Moscow. Concerns about the weather and crops around the world mean "we shouldn't expect a significant price drop," he said.

 

Farmers worldwide will reap 667 metric tonnes of wheat in 2011-2012, trailing a demand of 669 million tonnes, the International Grains Council said on May 26. The agency pared its production estimate from 672 million tonnes in April, cutting stockpiles to 185 million tonnes, the lowest since 2008-2009.
 

The harvest prediction was reduced because of unfavorable weather in a number of countries, especially the EU and the US, it said. Traders were expecting Russia to lift the embargo, two days before the announcement.

 

Prices are unlikely to slump as the market has already anticipated Russia's return, said Vijay Iyengar, managing director of AgroCorp International Pte in Singapore, who correctly predicted in February that corn would be the best-performing agricultural commodity in the first half.

 

In the US, the world's largest wheat shipper, about 45% of the winter wheat crop was in very poor or poor condition as of May 22, compared with 44% a week earlier, and 9% a year earlier, the USDA said on May 23. About 54% of the US spring-wheat was planted, behind last year's pace of 89%, also the average in the past five years.

 

France's soft-wheat crop, the EU's largest, will drop 12%, and German output will slide 7.2%, local forecasters said on May 18.

 

About 124 million tonnes of the 670.5 million tonnes of wheat demand in 2011-2012 is intended for feed and the rest for food, the USDA said on May 11.

 

Buyers in Asia including Japan, South Korea, Taiwan, China, and the Philippines are unlikely to rush to the market to buy Russian wheat, considered to be lower quality than that from the US, Canada, and Australia. The Philippines is the second-largest buyer in Southeast Asia.

 

In Canada, planting was also delayed by excessive rains. About 53% of the crop was planted, trailing the normal pace of 75%, the Canadian Wheat Board said on May 24.

 

By contrast, Russia's Agriculture Ministry estimates the total grain harvest may be 85-90 million tonnes, up from 60.9 million tonnes last year.

 

Russia will export 10 million tonnes of wheat in the 12 months ending June next year, up from four million tonnes in the current year, according to the USDA. That's less than the 18.6 million tonnes sold a year earlier. Corn shipments will increase to one million tonnes, up from 25,000 tonnes and barley cargoes to 800,000 tonnes, up from 300,000 tonnes, the USDA estimates.

 

Ukraine President Viktor Yanukovych said on May 24 that he would lift export quotas because of forecasts for a 15 % increase in the harvest. Ukraine, once the world's biggest barley exporter, set shipment quotas on corn, wheat, and barley in October after a drought had ruined crops.

 

Wheat for July delivery advanced 0.6% to US$8.1975 a bushel on CBOT on May 27, while corn jumped 1.7% to US$7.585 a bushel. The CBOT markets are closed on May 30 for a public holiday.