February 21, 2012

 

Russian wheat prices on the rise

 

 

Russia's domestic wheat prices climbed further amid strong export demand, although export prices were weakened by weather-induced disruption at Black Sea ports, analysts said.

 

"An additional new support factor for the market is the Iranian story," SovEcon analysts said, citing a Reuters report that Iran had purchased 1.1 million tonnes of wheat and was seeking Russian supplies.

 

"If that is the case, a reversal of the uptrend could be delayed."

 

Steady gains in Russian wheat prices have been threatening to export prices.

 

As things stand now, Russia will sit out early April deliveries to Egypt, whose General Authority for Supply Commodities, Russia's biggest buyer, took its business to US exporters instead.

 

Delivered to port, fourth class milling wheat with 11.5% protein content rose by about US$10 in the main export outlet of Novorossiisk and was pegged at RUB8,300-8,400 (US$278-$281)/tonne, SovEcon said.

 

"On one hand, taken together with possible market interventions, this (poor export economics) creates precursors for a reversal of the uptrend on the market," SovEcon said. "On the other hand, the closer we get to the end of the season, the stronger the support from low carryover stocks."

 

After a rush to export in the early months of the season, exporting regions were left with lower grain stocks than they had a year ago after the drought of 2010, which destroyed a third of the crop and prompted the government to ban exports.

 

Exports have averaged more than 2.75 million tonnes per month in the seven months since the export ban was lifted, but they slowed dramatically in the first two weeks of February, the Institute for Agricultural Market Studies (IKAR) said.

 

As of February 12, total grain exports for the crop year so far stood at 19.85 million tonnes the end of January, implying just 250,000 tonnes were shipped in the first 12 days of the month.

 

Of the total 19.85 million tonnes, Russia exported 16.4 million tonnes of wheat between July 1 and February 12, IKAR said.

 

Azov Sea ports, which handle up to 1.2 million tonnes of grain in peak months, remained frozen, while adverse weather in the Black Sea made loadings chaotic, which in turn damped down prices for export grain.

 

IKAR pegged prices for wheat with 12.5% protein content at US$281 free on board (FOB) basis Novorossiisk, down about US$4.

 

"Shallow water ports have been totally frozen, without any activities. Only talks on forward deliveries not earlier than middle of March have been taking place," analysts from the Institute for Agricultural Market Studies (IKAR) said.

 

"Russian Black Sea grain terminals have been functioning rather sporadically all the previous week.