May 31, 2011

 

EU wheat tumbles after Russia lifts grain export ban

 

 

Wheat tumbled nearly 5% in Paris as investors gave their first reaction to Russia's decision to lift its grain export ban, forecasting that this year's harvest will be "quite good".

 

Paris's best-traded November lot hit EUR239.25 (US$344) a tonne in early deals in response to Saturday's decision by Russia, renowned as a fierce competitor on prices, to lift export curbs imposed in August 2010 on July 1, as the country's worst drought on record devastated crops.

 

Russia could export up to 20 million tonnes of grain, if the harvest reaches its potential of 85-90 million tonnes, the Russian Grain Union, an industry lobby group, said on Monday (May 30).

 

As a further reason for caution, rain fell on some northern European areas, where a dearth of rainfall has helped spur a revival over the past two weeks.

 

Toepfer International said that showers this month had prevented yields in German grain crops falling below average levels, especially in the north of the country.

 

However, Toepfer, Germany's largest grain trading house, nonetheless forecasted a drop to 22.8-23.3 million tonnes, down from 24 million tonnes, in the country's wheat harvest, the EU's second biggest after France's.

 

The barley crop will fall to 9.0-9.5 million tonnes, down from 10.4 million tonnes, with rapeseed output set to fall to 4.4-4.8 million tonnes, down from 5.7 million tonnes - a decline of potentially more than 20% - reflecting irreversible damage from dry weather.

 

Paris's November wheat contract had recovered some ground to stand at EUR241.25 (US$347) a tonne in afternoon deals, down 3.9% on the day. Rapeseed, which was not covered by Russia's export ban, was EUR0.50 (US$0.72) lower at EUR493.50 (US$711) a tonne, on track for what would be its first fall in 12 trading days.

 

US markets are closed on Monday (May 30) for the Memorial Day holiday, with London trading also shut for a bank holiday.

 

Russia's decision to lift its export ban follows an improvement in prospects for spring sowings, after a late start to summer caused one of the slowest starts on record, with plantings now at 24 million hectares, some 10% higher than a year ago. Furthermore, rates of cold weather damage during the winter were relatively low.

 

"The condition of the winter crop is satisfactory and we believe that this year the grain harvest will be quite good," Russian deputy prime minister Viktor Zubkov said.

 

Russia expects to harvest 85-90 million tonnes of grain this year, up from 61 million tonnes last year, below the bumper crops of 97 million tonnes in 2009 and 108 million tonnes in 2008.

 

The lifting of the curbs also follows lobbying from grain traders alleged to have built up hefty stocks at ports in anticipation of a resumption in trade.

 

"It's clearly in the interest of Russian traders and farm bodies to talk of ever-greater stocks blocking up the silos as harvest approaches in order to get the ban lifted," a report from a leading European commodities house on Friday (May 27) said.

 

However, the politics of the situation are clouded by the prospect of parliamentary elections in 2012, and a presdential vote in 2012, leading some observers to predict that the government faces a difficult balancing act between keeping the agricultural lobby onside, and also keeping food price inflation in check.