August 12, 2010

Russia's domestic grain prices expected to rise despite export ban

Russian commodity experts expect grain prices to rise significantly within the country, despite the government's announcement that grain exports would be halted from August 15.

The ban was initially due to last until the end of the year but Prime Minister Vladimir Putin on August 9 indicated it may be extended into 2011.

The move follows deadly fires raging across Russia, which have devastated as much as one-third of the country's projected grain harvest for the year.

Russia is the world's third-largest grain producer, with a 13% share of the global wheat trade. News of the widespread fires, which have targeted the capital city as well as the central grain-producing Black Earth region, has sent Russian wheat prices sky-rocketing. Since early July, prices have soared nearly 70%, before beginning to decline on Friday (Aug 6). Analysts said the massive price rise has resulted largely from market uncertainty and speculation.

Looking ahead, prices are going to be higher on-year," said Konstantin Fastovets, an analyst at Renaissance Capital, a leading Russian investment bank. He predicts an 8% overall rise. "It's not a drastic price rise, but it is a price rise nonetheless."

It is expected that European manufacturers who use Russian grain imports will face significant short-term difficulties sorting out alternative supplies.

Russia's Grain Union has proposed the government postpones the export ban's start date until September 1 and then discuss the measure on September 14, said union spokesman Anton Shaparin.

"They did this without warning, and too quickly," Shaparin said. He said Russia's main port at Novorossiysk was already loaded with 240,000 tonnes of wheat, with a further 300,000 tonnes en route.

"It's a logistical nightmare," he said. The government should consider allowing those shipments to export as planned, Shaparin added.

He also said the export ban end date - December 31, 2010 - is not set in stone. "Only in November will we know how much grain has been produced, and then the end date can be re-examined."