Russia fights for world dominance in wheat
Russia challenges US' dominance in the global wheat market by winning over market shares, as USDA predicts Russia to become top wheat exporter by 2019.
Egypt, the world's biggest importer of wheat, has bought 180,000 tonnes from Russia for US$178.50 per tonne, about US$13 less than the US price. The deal is one of many signs that Russia is challenging America's dominance in the global wheat market. In the past 11 months Russia has won 58% of Egypt's regular purchases of wheat, compared with 40% the year before. The US share of Egypt sales fell to 8% from 13% over the same period, said Egypt's General Authority for Supply Commodities.
By 2008, global grain prices were reaching record levels, and Swedish, British, Chinese, and Korean investors were piling into Russian farmland. Today Russia exports 14% of the world's wheat, up from 0.5% in 2000. The US share of wheat exports has slipped from 26% to 19%.
Moscow is now making dominance of the wheat market a goal, and it has a chance. The USDA predicted that Russia will become the top wheat exporter by 2019. President Dmitry Medvedev last year ordered the creation of a state company, United Grain, to modernise the storage and shipment of wheat in a US$3.3 billion overhaul. United Grain will also pursue export deals in Southeast Asia and Latin America, said CEO Sergei Levin. Those regions are traditional strongholds for Australian and US grain exporters.
US farmers are worried. "The Black Sea region is becoming a bigger competitor for us," said Dean Stoskopf, 54, a wheat grower near Hoisington, Kansas. Up to now, he said, US farmers have commanded premium prices for higher quality - US wheat generally has higher protein content than Russian grain and suffers from less insect infestations. That may change, Stoskopf fears, as the Russians improve their growing practices and storage facilities.
Some members of Congress want Washington to do more. "I would not rest on the attitude that we have a great product," said Senator Mike Johanns, who was Secretary of Agriculture from 2005 to 2007. "Price is a factor. We should be working on free-trade agreements or very quickly we'll find ourselves behind." Free-trade agreements in certain parts of Latin America and Asia would open up new markets for US wheat. Russia is part of a bigger problem, said Jason Britt, president of Central States Commodities in Kansas City, Missouri. Wheat futures on the Chicago Board of Trade have fallen 32% in the past year as stockpiles have grown.
Kirill Podolsky, 39, is CEO of Valars Group, Russia's No. 3 wheat exporter. "We are completely opportunistic. We ship anywhere there is demand," he said at his headquarters in Taganrog by the Sea of Azov, which connects to the Black Sea. Valars will supply a third of the shipment in the Egypt deal. Podolsky founded Valars in 2006 and has spent US$250 million on farmland and US$108 million on equipment.
Vasily Pechersky, 64, who runs Valars' 41,230-hectare Sarmat farm, north of Taganrog, says his winter wheat yield was 4.4 tonnes per hectare, on a par with US yields. He credits his US-made New Holland tractors and harvesters as well as higher use of fertilisers and new technologies. "One New Holland harvester stands in for two Russian-made ones," he said. Russian-made tractors sit to one side, covered in rust.
The Russians still have challenges to overcome. Investors such as Podolsky bought land at top prices right before the global financial crisis and are struggling to pay off debts. Valars may sell shares on the market to repay US$500 million of debt before investing anymore in farming. Wheat-growing brought "zero" profit last marketing year after a plunge in prices, said Podolsky. The Grain Union is asking Moscow for US$320 million in subsidies to improve the profitability of exports. Such state aid could help Russia's growers compete even more ferociously with the US on price.
