October 12, 2009

The Moscow Office of Agricultural Affairs (MOA) decreased Russia's total grain crop forecast by 1 million tonnes (MT) to 90 MT due to estimated losses resulting from the drought in the Volga Valley and the Southern Federal Districts, according to a US Department of Agriculture attache report posted Friday (October 9) on the Foreign Agricultural Services Web site.

Grain exports are forecast to increase by 200,000 tonnes to 19.0 MMT due to intensive exports in July - September 2009. Domestic grain prices continue falling, and the gap between the market and the announced intervention price is growing. In the meantime the government postponed intervention purchases as it wait for the market situation to improve. In spite of financial constraints by September 23, 2009, farmers planted grain on 11.5 million hectares (2.4 million hectares more than on the same date 2008).

The MOAA decreased Russia's total grain crop forecast by 1 million tonne to 90 MT. The decrease is due to the Russian Ministry of Agriculture's (MinAg) update of the drought's impact in the Volga Valley and the Southern Federal Districts. MinAg reported that direct losses and decrease in yields amount to 13 MT. Experts predict that the summer crops, including corn will have to suffer the largest losses. Wheat production is forecast at 56.5 MT, barley - 17.0 MT, corn - 4.7 MT, rye - 3.8 MT, oats - 4.8 MT, and other grain - 3.2 MT. Analysts forecast a higher share of milling quality wheat in European Russia than in 2008, but the current market price of this wheat (in Rubles) is 30 percent lower than a year ago. Exports are forecasted at 19.0 MT, including 16.8 MT of wheat, 2.0 MT of barley, 100,000 tonnes of corn, and less than 0.1 MT of other grains and legumes. Grain exports in July-August almost reached 3.6 MT. Most of these exports were from the carry-over stocks. Experts consider that September's exports will also be high, originating from the new crop in the Southern European Russia. Traders consider that the current domestic prices are still acceptable for wheat exports, although competition in the foreign markets is very tight. Farmers deliver grain for export by trucks, directly from the on-farm storages, thus saving on the storage expenses. The regional terminals still have big stocks of intervention grain, and many farmers in the Southern and the Central federal districts do not have alternatives to selling grain to exporters. Grain market prices continue decreasing, and the gap between the declared in March intervention prices and the market price has widened. The federal funds for grain procurement interventions are only 20 billion roubles (US$670 million), two times less than in 2008. Most of regional elevators in the South and the Central European Russia are still filled with 2008 intervention grain (cost of storing also increases grain price). Thus the Ministry of Agriculture postponed the beginning of interventions possibly in hopes that somehow grain exports may help to support domestic prices. Recently the Russian Minister of Agriculture Yelena Skrynnik remarked that the Ministry of Agriculture is studying the issue of the state support of grain exports, but no actions have been taken except for declarations that the Government intends to sign grain trade related memorandums with some foreign countries such as Indonesia. The United Grain Company, which was supposed to participate in grain exports, has not been funded yet, and the beginning of its still unclear activities is not expected until November. Winter sowing in the European Russia, according to the Ministry of Agriculture, has exceeded the last year level, and by September 23, 11.5 million hectares of grain were sown.

The MOAA's grain crop forecast is 90.0 million tonnes (MT). Wheat production forecast is lowered by 0.5 MT to 56.5 MT based on harvest progress information. The wheat harvest continues in Siberia, and yields are higher than last year, but delays in sowing spring grain increase the odds of weather related damage. Barley forecast is raised to 17.0 MT, based on the harvest progress information. Corn production forecast is decreased to 4.7 MT due to significant drought- resulting in a decrease in yields of corn-for-grain in European Russia. The Ministry of Agriculture has not yet updated its crop forecast, and it remains within 85-90 MT. However, the ministry has informed that the draught-caused losses of grain amounted to 13.0 MMT, larger than originally estimated, and the final MinAg's crop estimates, usually published in November, may be closer to 85 MMT than to 90 MMT. Grain Harvest Progress [i] According to the Ministry of Agriculture, by September 23, 2009, Russian farmers harvested 81.4 million tonnes (MT) of grains and legumes from 33.4 million hectares (73 percent of sown area), including 51.0 MT of wheat and 17.1 MT of barley. The average grain yield is 2.44 tonnes/ha, or 0.14 tonnes/ha less than last year. The provinces of the Southern Federal District harvested 26.4 MT from 8.7 million hectares (85 percent of sown area). The average yield is 3.04 tonnes/ha, 0.62 tonnes less than in 2008). Some provinces in this district continued harvesting rice. As of September 23 farmers harvested 276,000 tonnes of rice (rough) from 50,400 hectares (28 percent of the planned harvest area, and yields have been 5.48 tonnes/ha, or 0.9 tonnes/ha more than last year. The provinces of the Central Federal District harvested 21.2 MMT from 7.2 million hectares (90 percent of sown area). Yields are .44 tonnes/ha less than in 2008. In the Volga Valley Federal District farmers harvested 20.9 MT from 10.6 million hectares, with the average yield at 1.98 MT/ha (0.15 MT less than in 2008). The provinces of the Siberian Federal District harvested 8.4 MT from 4.3 million hectares (40 percent of sown area). The harvest is slower than last year, but the average yield is 1.97 tonnes/ha, 0.49 tonnes more than in 2008. In the Ural Federal District farmers harvested 61 percent of sown area (2.4 million hectares), and received 3.5 MT. Yields are slightly lower than last year. In the North-Western and the Far-Eastern Federal District farmers harvested 76 and 80 percent of sown area. In the North-Western Federal district the yields are slightly worse than last year and in the Far-East better than last year, but in both territories crop is not big. By September 23 the North Western farmers harvested slightly more than 0.6 MT, and in the Far-East - less than 0.6 MT. Information on harvested corn is limited. As of September 23, 2009 some provinces of the Southern, Central and the Volga-Valley federal districts began harvesting corn. By this date they harvested 267,000 tonnes of corn from 57,000 ha. The yields have been reported 0.16 MT/ha higher than last year, but there is no information on the corn area planned to be harvested for grain. According to the Russian Ministry of Agriculture, by September 23, 2009, winter grain was sown on 11.5 million hectares (2.4 million hectares more than on the same date 2008). . Experts consider that given the current grain prices and the farmers' financial constraints, farmers in many provinces would not have any justification to increase winter grain area. However, the Russian reality is that many farmers' decisions are driven by necessity to survive and by absence of alternative occupations. Thus farmers may again increase winter grain sown area, but it is likely that many of them will not have access to improved seeds, chemicals and fertilizer, or new equipment. Bankers report that in 2009 farmers' purchases of new machines dropped by 75 percent.

Russia reports higher grain quality than last year. Thus, in Rostov-oblast where some workers' receive in-kind salary (grain, feeds, etc for feeding their own back-yard poultry and livestock) they do not have enough fodder wheat to pay workers. However the food quality wheat is abundant.

All harvest data are in bunker weight, which is 5-8 percent lower than the final crop weight.

In July-August 2009 Russia exported 2.75 MT of wheat. The top ten markets for Russian wheat were Egypt (821,000 tonnes), Turkey (335,000 tonnes), Syria (196,000 tonnes), Jordan (125,000 tonnes), Israel (119,000 tonnes), Indonesia (91,000 tonnes), Armenia (87,000 tonnes), Iran (86,000 tonnes), Georgia (84,000 tonnes), and Bangladesh (81,000 tonnes). Wheat flour exports were 55,000 tonnes in grain equivalent, and flour was exported to Afghanistan (20,000 tonnes in grain equivalent) and to the CIS countries. Compared with last year, beginning wheat flour exports have had a slow start. Barley exports reached 742,000 tonnes in the two months' period, but experts forecast the slowdown in the next months. According to experts, wheat exports in September will be also high. Most of wheat in July -September was exported from the previous year stocks, while in September traders started exporting grain from 2009 crop. Barley exports in July - August exceeded 742,000 tonnes, including 494,000 tonnes were exported in Saudi Arabia, 80,500 tonnes - to Jordan, and almost 40,000 MT - to Iran. Exports of corn in July were 25,000 tonnes, but in August it dropped to 4,500 tonnes.

Given the decreasing prices, and uncertain situation with the state grain procurement interventions, grain farmers with adequate on-farm storage sell only enough grain to cover urgent debts and expenses. Those, who do not have on-farm storage, are slowly selling grain to traders at low price. The shortage of empty regional elevators in the European Russia (many of them are still filled with the immovable intervention grain) also force farmers to sell grain to traders. However, many traders complain that the current grain market is weak, and farmers prefer to accumulate stocks waiting for better prices or for the beginning of grain interventions. Prices have been decreasing since beginning of marketing year. Milling wheat prices decrease faster than fodder wheat prices, although both are low.

No information on the beginning of the grain interventions has been issued so far. In several presentations Agricultural Minister Yelena Skrynnik described the intervention price as a ceiling price. She confirmed that the Ministry of Agriculture is ready to begin the grain intervention; however, the date of these interventions has not been announced yet. On September 27, Minister Skrynnik remarked that the Ministry of Agriculture is examining the issue of grain exports support in order to stabilize domestic grain prices. However, there is no budget or mechanism of doing this.