November 23, 2010

Russia may sell half intervention fund grain to stabilise prices

The Russian government may sell over 50% of the grain held in its intervention fund to keep grain prices steady, local news reported Monday (Nov 22).

"In this season, the government plans to sell the basic volume of grain reserves from the intervention fund, considering the current situation on the grain market," said Ilya Shestakov, head of the agrifood market regulation and infrastructure development department at the Agriculture Ministry.

Shestakov did not specify the amount of grain to be sold but said the government planned to sell more than 50% of the reserves. A decision on the sales volume will depend on the market situation, he added.

According to the agriculture ministry, grain consumption in Russia from July 1, 2010, to June 30, 2011, will amount to 77 million tonnes, while the 2010 grain harvest will total 60.3 million tonnes in net weight (compared to previous year's 97 million tonnes), including 26.3 million tonnes in carryover grain reserves and 9.64 million tonnes of grain in the intervention fund. The planned grain sales volume in this season will therefore be at least 6.5% of grain consumption.

Mass sales of grain from the intervention fund will help the government curb rising prices, said Dmitry Rylko, head of the Institute for Agricultural Market Studies.

Everything will depend on the mechanism by which grain is sold, said Andrei Sizov, CEO of SovEcon. The authorities said earlier the grain would be distributed among the drought-hit regions on request without any auctions.

The effect will depend on the rate of grain sales. If sales are made over a long period of time, prices will remain almost unchanged, while mass and rapid sales could depress the market, Sizov said. According to Rylko, the government is not likely to sell the grain until February.

Mass sales are not desirable during the spring sowing campaign as cultivated areas are expected to shrink, Sizov said.