August 20, 2010

Russia may turn to Kazakhstan for grain

A source close to the country's agricultural ministry said that Russia has intentions to import Kazakh grain and is currently working on calculating the volume of imports, according to Russian daily Vedomosti.

Imported Kazakh grain is to cover the gap in domestic grain supply that opened after 25% of the harvest was lost to droughts triggered by continued heat waves. Russian Prime Minister Vladimir Putin has lowered grain harvest forecasts from 75 million to 60 million tonnes, a sharp drop compared to the record 97-million-tonne harvest in 2009.

The Russian government has so far indicated that it will be able to support domestic demand by using the 21.4 million tonnes left over from last year's harvest, topped up by nine million tonnes from state reserves. If Russia proceeds with importing grain, it will be the first time in many years since the collapse of the Soviet Union.

Russian grain producers and exporters have been successful in expanding their share in the world grain market, which in 2009 reached 15%.

The unprecedented drought and ensuing export ban have certainly dealt a blow to Russia's position in world markets although the government is confident that the markets will understand that it was a case of force majeure, and with a good harvest Russia will be able to recapture its place in coming years.

After speculation that Ukraine may impose an export cap on its grain exports, Kazakhstan remains the most likely provider of grain for Russia. A harvest of 13.5-14.5 million tonnes is expected despite droughts. Eight million tonnes will be available for export, according to the Ministry of Agriculture, which has also confirmed that four million tonnes are allocated for Central Asia and Afghanistan, two million tonnes for the Caucasus, and another two million for Russia.

However, Russia is likely to make its final decision once there is better information on its harvest. It cannot be excluded that smaller volumes of grain for emergency provisions might be acquired from Kazakhstan prior to October when the harvest figures will become available.