August 7, 2012

 

Russia's domestic grain prices up on deteriorating harvest forecast

 

 

As export grain prices slipped a few dollars from record highs, Russian domestic grain prices grew last week on a worsening harvest outlook, prompting the government to announce the sale of government stocks to ensure sufficient domestic supply.

 

The government has said it will deal with the poor harvest through the sale of intervention stocks and has so far rejected suggestions that it might curb exports.

 

Russia's average domestic EXW (ex-silo) price for third-grade milling wheat rose by RUB75 (US$2.37) to RUB8,375 (US$260) per tonne, while the fourth-grade price gained RUB25 (US$0.79) to RUB8,300 (US$263) per tonne, the SovEcon consultancy said in a note on Monday (Aug 6).

 

Russia's officials and analysts continued to cut their 2012 grain crop forecasts after hot and dry weather hurt yields in major producing regions. Earlier on Monday (Aug 6) SovEcon cut its forecast for the 2012 grain crop to 72 million-75 million tonnes from the previously expected 78.5-81.5 million. Its wheat forecast dropped to 40.5-43 million tonnes from 46.5 million.

 

The lower forecasts fuelled market talk that Russia could resort to some sort of export restriction, two years after it banned grain shipments in the wake of a severe drought.

 

Traders are watching for confirmation of that approach on August 8, when a government commission on food security, chaired by Deputy Prime Minister Arkady Dvorkovich, is expected to meet to discuss the grain market.

 

From April-June, Russia sold about two million tonnes of grain in state interventions and still has about five million tonnes in its stocks. Intervention sales are likely to start in Siberia, where crops were damaged by a sustained drought and milling centres could fall short of supplies, two sources familiar with the plan said.

 

According to a draft document prepared by the Agriculture Ministry last week, sales from intervention stocks should start when prices rise from RUB4,550 (US$140) to RUB7,550 (US$239) per tonne, depending on the region and the year of harvest. A lag between the time a local market reaches the high price levels and the start of sales of intervention stocks can be as long as several months, SovEcon said.

 

Meanwhile, Russia's wheat export prices decreased to US$307 per tonne from US$310 per tonne free-on-board (FOB) at the Black Sea port of Novorossiisk last week, Dmitry Rylko, head of the Institute for Agricultural Market Studies (IKAR), said in a note. SovEcon pegged it at $310-315 per tonne.

 

Prices for wheat with 12.5% protein content were quoted at US$275 per tonne at the shallow water Azov Sea terminals, according to IKAR. Russian grain exports are off to a fast start in the new agricultural year, even while its exportable surplus has shrunk drastically in a drought.

 

According to IKAR, Russia exported 2.1 million tonnes of grain in July, of which wheat accounted for 1.8 million tonnes. SovEcon said that the country was likely to export 2.5 million tonnes of grain in August.

 

The price of fourth-grade milling wheat in deep-water ports last week was at RUB9,600-9,700 (US$304-307) per tonne on a carriage-paid-to (CPT) basis, up from RUB9,200-9,400 (US$291-298) per tonne, according to SovEcon.

 

Russia's wheat prices in shallow-water ports were stable at RUB8,700-8,800 (US$275.5-279) per tonne last week, it added. In Chicago the front-month wheat contract fell 1.26% to US$8.80 a bushel by 0950 GMT on Monday (Aug 6).

 

Russia has already harvested 30 million tonnes of grain as of July 31, while yields fell by 30% to 2.25 tonnes per hectare from last year's 3.19 tonnes, according to SovEcon.

 

Persistently high temperatures are expected in parts of Russia's Volga federal district, while parts of Siberia are expected to see rain, the State Hydrometeorology Agency said on its website in a weather forecast for August 6-8.

 

IKAR said crude sunflower oil prices had strengthened to RUB40,000 (US$1,267) per tonne from RUB38,200 (US$1,210). Sugar prices in southern Russia decreased to RUB25,200 (US$798) per tonne from RUB26,000 (US$823), it added.