September 3, 2012

 

Russia not limiting grain export despite depleted exportable surplus

 

 

Despite an exhausted exportable surplus, Russia, coping with a drought which has slashed grain yields by a more than a quarter, will not limit grain exports.

 

Markets had been bracing for an indication of some controls on Russian grain exports after watching crop forecasts fall week after week as the drought wore on, raising concerns of a blanket ban as happened after similar weather in 2010.

 

December wheat on the Chicago Board of Trade WZ2 fell US$0.08 or 0.9% to US$8.95 a bushel by 1033 GMT, while November milling wheat in Paris BL2X2 stood EUR2.25 (US$2.83) or 0.8% lower at EUR264.50 (US$333) a tonne.

 

While prices abated somewhat, analysts believe export taxes or quotas are still a possibility as Russia seeks to avoid another huge dent to its reputation as a reliable major grain supplier like that of two years ago, when it was world number three wheat exporter.

 

"It's a classic. They are playing a waiting game, giving the trade time to do their business and then they will impose taxes, or something else," said analyst Pierre du Peyroux of Horizon Soft Commodities.

 

Traders took a similar stance on recent World Trade Organisation debutant Russia.

 

"It's just a headline grabbing stunt. In 2010 they kept being reassuring and then they changed their mind suddenly (and banned grain exports). They could do just the same this year," one trader said.

 

Deputy Prime Minister Arkady Dvorkovich told reporters no export curbs were planned.

 

"We consider any export restrictions harmful. We will use the instruments we have - market interventions and information exchange with market participants. As long as I am in charge of this sector, I will be against any export restrictions," he added.

 

Dvorkovich appeared to harden his stance against export limits. After previous meetings of the commission, he had said the government could look at a protective tariff to keep grain in the country, though not until the end of the calendar year.

 

Agriculture Minister Nikolai Fyodorov told reporters the ministry now forecast the grain harvest in a range of 70-75 million tonnes. Its previous forecast was 75 million tonnes.

 

Russia barred grain exports for almost a year in August 2010 after its worst drought in decades. Some market observers have speculated this year Russia's wheat harvest may fall below the crop of 2010, when it brought in 41.5 million tonnes of wheat out of a total grains harvest of 61 million tonnes.

 

"Domestic requirements will be covered 100%. There is an exportable surplus of 10-14 million tonnes," Fyodorov said.

 

Analysts and traders view that range as unrealistic, and say the real surplus could be as little as 9-10 million tonnes. It is being rapidly exhausted in the early months of the season. Dvorkovich said 4.6 million tonnes had already been exported in the new crop year, which started on July 1. But he said Russia would use market interventions to cool domestic prices if the surplus ran out. Traders have said it may happen as early as October-November.

 

Fyodorov said Russia had harvested 57 million tonnes of grain by Friday (Aug 31), of which 32.3 million tonnes was wheat. Russia had harvested 53.4 million tonnes with 62% of its harvest complete as of August 28, grain yields have fallen 27% from year-ago levels to 1.92 tonnes per hectare. Particularly hard hit are the Urals region and Siberia, key to domestic supply.

 

Russia consumes approximately 70 million tonnes of grain per year. In addition to domestic supply concerns, the government is wary of resurgent inflation, which has plagued the post Soviet economy.

 

Consumer prices rose 5.6% last month, suggesting the central bank may struggle to keep growth within the target range of 5-6% this year.