July 19, 2012

Russia's 2012-13 grain exports likely to fall 50%

Russia's 2012-13 grain exports could decline by half to 13-14 million tonnes as compared to 2011-12 crop year of 28.1 million tonnes due to a very tight forecast supply/demand balance.

In June grain exports declined to 1.37 million tonnes from 1.48 million tonnes in May and 2.13 million tonnes in April. However, exports in June and May were somewhat higher than our preliminary estimates, particularly for barley, exports of which increased significantly in June.

Total 2011-12 exports reached an absolute record of 28.1 million tonnes, or 27.44 million tonnes without legumes. This unheard of export volume was achieved largely because of wheat, which amounted to 21.15 million tonnes, exceeding by three million tonnes the previous record reached in 2009-10.

Barley exports also hit a record after the sharp increase in shipments in June. The previous corn export record also fell. The only exception was the export of flour, which declined in comparison to the previous year, first of all because of a sharp reduction in deliveries to Azerbaijan.

Unlike 2011-12, Russia has begun the new season with sharply lower carryover stocks, especially in the south of Russia, the key export region. At the same time, the outlook for the harvest is worsening. SovEcon's new forecast is down to 78.5 million-81.5 million tonnes from 94.2 million tonnes in 2011.

In all the key producing regions, except the Central Federal District, production is expected below last year's. The largest shortfall is expected in the south, in the Southern and North Caucasus Federal Districts, where it could be nine to 10 million tonnes.

At forecast production levels, with a reduction in carryover stocks, and an insignificant increase in domestic consumption, Russian grain exports in the 2012-13 agricultural year could fall by half to 13-14 million tonnes, including 10 million tonnes of wheat. These volumes would be achieved through a significant increase in external prices, which will support export, regardless of rising domestic prices.

Despite a sharp forecast decrease in export, the forecast balance of grain and wheat in 2012-13 looks quite tight. In order to stabilise the situation on the domestic market the state could quite possibly need to resume market interventions.

The state's opportunities to regulate the domestic market through export limits look rather limited. After joining the World Trade Organisation, rapid imposition of export duties, especially 'floating' ones, is practically impossible, and a ban on exports is politically unacceptable.