December 28, 2007

 

Russia gains from high grain prices in 2007

 

 

Skyrocketing global grain prices due to poor harvest forecasts in a number of the world's top grain producing countries have influenced prices on Russian grains-- an indication that the country needs to expand the harvest area and boost volumes.

 

According to experts, high grain prices are not going to ease as experts are seeing a further increase next year since there are no factors at the moment that could lead to a reduction in its cost.

 

Nikolai Demyanov, director of the marketing department at International Grain Company, told Russian news wire Interfax that French wheat is previously sold for US$194 per tonne in December 2006, it is going for almost twice as much at US$368 per tonne. US wheat has also risen to US$376 per tonne from US$217.

 

Meanwhile, grain prices in Russia have jumped to US$270 to US$280 from US$180 per tonne in December 2006.

 

According to Alexander Korbut, vice president of the Russian Grain Union, the country has cemented its image as one of the world's leading wheat exporters as it is seen to export 10.5 million tonnes of wheat in 2007 (including flour on a grain basis). Russia has also exported 1 million tonnes of barley, he said.

 

Korbut said Russia has never posted such high average monthly export rates. The peak came in October, when Russia exported 2.8 million tonnes of wheat and 320,000 tonnes of barley.

 

The sharp rise in exports, however, exposed a number of problems in Russia, particularly the lack of train cars to carry the grain, Demyanov said. If not for the export restrictions, which led to a rush to export as much as grain as possible in a very short time, grain would have been shipped abroad much more smoothly, he said.

 

Russia harvested an estimated 81.4 million tonnes of grain this year despite forecasts of drought in several southern regions, said Korbut.

 

The grain harvest in Siberia was 3 million tonnes higher in 2007 than in 2006, he added.

 

A steady, albeit slow, rise in grain production has been seen in recent years, but growth in crop yield has been stable, he said, indicative of the country's technology improvement in the farming industry.

 

Korbut stressed that the growth in grain prices on the domestic market that resulted from the rise on the global markets has given farmers even more incentive to expand production, he said.

 

The higher prices have ensured rather high profit margins in grain production this year of up to 80 to 100 percent Korbut said. As a result, farmers have been given an opportunity to renovate farming machinery, use more fertilizer, improve crops and buy more high-quality seeds.

 

Unless Russia introduces a total ban on grain exports, prices on the domestic market will continue to be tied to global prices, Demyanov said. Prices are not expected to grow in 2007 at the same rates they did in 2006, but there will not be a significant drop either despite more favourable forecasts for grain harvests in the main grain producing countries.

 

The situation on the Russian market will not only depend on external factors but on measures the government institutes, he said. The government's intervention on the grain market should be predictable and announced two to three months before any actions are taken, he said.

 

The Agriculture Ministry said earlier that a ban on exports would be enacted if exports exceed 12.5 million tonnes. Estimates show that grain exports could reach this figure by the end of January or early February.

 

The possibility remains that, instead of a total ban, an export duty could be introduced of 40 percent but no less than 100 euros per tonne.

 

The export duty currently stands at 10 percent but no less than 22 euros per tonne for wheat and 30 percent but no less than 70 euros per tonne for barley.

 

Experts say the first signs have appeared showing that farmers are already taking advantage of the opportunities given to them by the higher grain prices.

 

Korbut said winter crops have already been planted on 2 million hectares more for the 2008 harvest than the entire amount planted for this year's harvest of winter crops.

 

Demyanov said he also expects an additional 3 million to 5 million tonnes next year if the weather is without any critical events.

 

More ambitious goals are currently being set, Korbut said. Russia's tentative development scenario envisions a gross grain harvest of 120 million to 140 million tonnes by 2020.

 

Korbut said these figures are "achievable" as Russia harvested 116.7 million tonnes of grain in 1990 with a record- high of 127.4 million tonnes.

 

Many farms are receiving a higher yield per hectare right now than a few years ago, while the country's leading farms have increased yield to 5-8 tonnes per hectare. In addition, Russia could significantly boost its grain harvest with the use of some 20 million-25 million hectares of land that is currently not used for farming.