August 4, 2010

 

Drought-hit Russia lowers grain production forecast

 

 

Russia has cut its 2010 grains crop forecast to 70-75 million tonnes from a previous forecast of less than 85 million tonnes as the drought spread to more regions.

 

Deputy Agriculture Minister Alexander Belyayev said grain export restrictions were unnecessary, allaying some concerns of supply tightness.

 

"At present, export restrictions will not be introduced," Belyayev said. "The government takes such decisions, but as of today there is no need for that."

 

Russia introduced high grain export tariffs for several months in 2004 and 2008 to keep grain at home, and it sold grain from its stocks on the domestic market to keep prices down.

 

Setting tariffs is a lengthy procedure which has to be agreed upon by various government ministers and then endorsed by Russia's partners in the newly created customs union - Belarus and Kazakhstan.

 

No precedents for setting a common export tariff have arisen so far. In 2008, the discussions on setting the tariffs started in early autumn, but the actual tariffs were set from January.

 

Meanwhile, Glencore's Russian unit, the International Grain Company, said on Tuesday (Aug 3) that to prevent defaults by exporters on signed contracts, the government could impose an outright ban on grain exports for about a month from September.

 

It believes the Russian crop could fall to 65 million tonnes and if there is no ban, Russian wheat exports could fall to 5-8 million tonnes, while exporters could default on shipments of up to one million tonnes.

 

Traders in Singapore said on Tuesday that exporters have delayed up to 200,000 tonnes of Black Sea wheat shipments to Asia, rescheduling delivery from July to August and September..

 

Russia is the top Black sea wheat exporter and is forecast by the International Grains Council to be world number five wheat exporter this year, down from three last year. The US is expected to be number one in 2010/11 followed by the EU, Canada and Australia.

 

Traders contracted Black Sea feed wheat to Asian mills at around US$190-US$200 a tonne, including cost and freight, in May and June but the price has now jumped to US$260 a tonne.

 

SovEcon agricultural analysts said on Monday (Aug 2) that traders were experiencing difficulties in finding grain, which farmers are reluctant to sell at previously agreed prices.

 

"It appears that traders, who had actively signed supply contracts at the start of the season are now honouring them at a loss or with a minimal margin," said Andrei Sizov Jr., SovEcon's executive director.