May 31, 2011

 

Russian wheat approaches global prices on ban end

 

 

The impending end to Russian prohibition on grain shipments, formally declared on Saturday (May 28), caused domestic wheat prices to be higher last week as exporters prepared to begin shipments, according to analysts.

 

"In the North Caucasus, exporters remain active buyers of wheat at domestic and port elevators, which is supporting a gradual increase in prices in the region by RUB50-100 (US$1.78-3.56) over the week," SovEcon think tank said.

 

SovEcon quoted third-grade milling wheat ex-works at RUB5,725 (US$204) per tonne on an offered basis in European Russia, showing that the gap remains fairly wide between Russian wheat and global benchmarks.

 

Paris November wheat <BL2X1> was trading at US$251 per tonne, while CBOT July wheat <WN1> stood just over US$210 in tonnes.

 

Prime Minister Vladimir Putin announced on Saturday (May 28) that the ban would be lifted as of July 1. Russian producers are counting on cheap grain to return them to favour with traditional clients in the Middle East and North Africa.

 

Farm lobbies, analysts and traders had proposed a three-month moratorium on the ban to release a stock buildup and restore incentives to farmers to invest in next year's harvest without letting traders sack the country's reserves for export.

 

The government had been expected to enforce some kind of export barrier to avoid losing too much grain to foreign markets, which until last year relied on Russia for cheap wheat.

 

However, Putin merely told his deputy for agriculture, Viktor Zubkov, to keep an eye on the condition of the country's farmers and made no mention of limitations.

 

In Russia's south, the country's key exporting region, stocks have built up in elevators and had been pressuring local prices for lack of export outlets.

 

As talk of a lifting of the ban intensified earlier this month, wheat volumes changed hands and traders began moving them to port, boosting prices in the south. Price moves were less dramatic last week, analysts said.

 

In that region, prices for third grade milling wheat rose to US$202 per tonne from US$198 the previous week, the Institute for Agricultural Market Studies (IKAR) said.

 

"In the past week South Russian prices have strengthened just on the rumours and hopes about July grain export opening. This week, we expect a further South Russian price rise, which will spread like waves across the rest of Russia," IKAR said.

 

Fourth grade wheat rose to US$194/tonne from US$187 in the same region, while feed wheat rose to US$186 from US$182. Corn prices have strengthened to US$285 from US$273/tonne.