September 13, 2010

Global grain producers capitalise on Russia's export exit

US grain exporters are expected to raise their forecast for full-year exports to 36 million tonnes, after Russia banned grain supplies to other countries on August 15, 2010.

The third increase in two months suggests American grain producers are filling the vacuum left by Russia's decision to end exports in the wake of the summer drought. Although Russia is expected to return to the market next year, it is likely to find other suppliers, including the US, Canada, Argentina and Australia, have stepped into what had been seen as Russian markets.

The prolonged export ban not only affected international markets but also hit Russia's domestic market.

Russian wheat prices were based on export prices set on the trading floors of Chicago and London. Now Russia's consumers and producers cannot agree on prices, with grain sitting in storage.

The government has proposed setting up domestic exchanges, but Abdolreza Abbassian, senior grain economist in Food and Agriculture Organisation, said it will be impossible to set a price with the export ban in place.

"If you are going to have a very stringent export policy or import policy or let's say domestic minimum prices, what's the point of commodity exchange? There won't be any price discovery. If tomorrow you are going to put a huge tariff on import or export tax or export ban or have a minimum price that often could be beyond the world level," Abbassian said.

The world has become dependent on the CIS for wheat, supplying 30% of the world's needs. However, Keith Flury, analyst at F.O. licht, said this year Russia's share is being covered by the US and Australia, but at higher prices.