August 4, 2011

 

Russia not intervening on falling domestic wheat prices

 

 

Despite domestic wheat prices falling below levels that would otherwise trigger intervention buying, Russia's government shows no sign of stepping in to do so.

 

Wheat prices fell some RUB400-500 (US$14.36-17.96) a tonne in a week, driving prices in areas such as the Black Earth region and Volga Valley below Agriculture Ministry thresholds for supporting the market, according to Andrey Sizov, managing director of consultancy SovEcon.

 

According to Sizov, the thresholds were set at RUB5,000 (US$179.55) a tonne for third-grade milling wheat and RUB4,650 (US$166.98) a tonne for fourth-grade in the European part of the country.

 

However, there is "no sign so far" of the government initiating intervention buying, which is "not something that can be set up in just one week".

 

"You have to organise elevators, sort out which agricultural producers are allowed to submit grain. It all takes time," Sizov told agribusiness information site Agrimoney.com.

 

Domestic grain prices are likely to weaken further due to the lack of support, with farmers' need to raise funds to pay for autumn sowings after their finances were drained by drought last year, as well as the seasonal harvest pressure.

 

"The harvest is not even past the half-way mark. We will see grain from more regions coming to the market. I expect domestic prices to continue to decline," Sizov said.

 

Meanwhile, Russia's grain exports have been fetching higher prices, offering better margins for merchants.

 

Egypt, which has bought 720,000 tonnes of Russian wheat in less than a month, paid nearly US$255 a tonne for its latest batch, purchased on Friday (Jul 29), up by US$5 a tonne in three days, and by more than US$8 a tonne since mid-July.

 

Merchants are also enjoying greater volumes, with shipments last month hitting a July record of two million tonnes, according to SovEcon.

 

Russia's state grain inspection data on Wednesday (Aug 3) showed the figure at 2.4 million tonnes, although this may have included grain not shipped until August, Sizov said.  

 

Arkady Zlochevsky, the head of the Russian Grain Union industry group, forecast that grain exports in August could reach 3.5 million tonnes, beating an all-time high of 3.2 million tonnes.

 

While exports often pick up later in the summer, as extra harvest volumes come on tap, Sizov declined to comment on the RGU forecast.