August 7, 2012


World wheat prices down as fears for Russian export ease



After Russian authorities asserted the country would maintain an unspecified exportable grain surplus, global wheat prices dropped this week.


The remarks followed fresh wheat crop estimates, signalling the supply could hit 50 million tonnes this year. The figure represents an upgrade from an earlier forecast of 46-49 million tonnes.


The latest data supports the stance of Deputy Prime Minister Arkady Dvorkovich, head of industry and commodity producers, who expressed confidence that Russia has no grounds to ban grain exports this year due to poor weather conditions in some parts of the country.


On Friday (Aug 3) wheat futures trading was mixed, demonstrating that the market was still clouded by concerns of the potential harvest losses driven by drought in the US and Russia. Reuters Africa reported that benchmark November milling wheat was down 0.1% at EUR256.25 (US$317.5) a tonne.


Despite optimistic comments from officials, fear that Russia may impose export restrictions on grain continues to hang over the market. Investors worry that the government may put a ban on shipments at the first premonition of worsening weather conditions in the country's southern regions.


Simultaneously a glaring shortage of stock has become evident in the Volga region, as the harvest outlook for Urals and Siberia continues to remain relatively bleak.


SovEcon agricultural consultancy released a report on Friday (Aug 3) pointing out that the focus should shift from the southern part of Russia, where the harvesting season is nearing ending to the Urals and Siberia. Both of the regions show weak results, lagging behind figures from 2010 and 2011.


Additionally, even if Russia sticks to its current export plan the projected figures are still much lower than the past year's. The Institute for Agriculture Market Studies (IKAR) reported that the country aims to ship between 13.5-13.8 million tonnes of wheat for the 2012-13 season. The estimate highlights a substantial drop from 2011-12 period, when Russia exported 21 million tonnes.


On Tuesday (July 31), Agriculture Minister Nikolai Fyodorov confirmed that Russia would harvest 10-15% less grain this year, than in 2011 due to unfavourable weather conditions. The official stated that Russia's grain production would reach only 80-85 million tonnes in 2012, compared with 94.2 million a year earlier.


Some experts including Alexey Evstratenkov, equity research analyst at Moscow-based ATON, were expecting crop forecast cuts. Over the phone Evstratenkov said, "The Agriculture Ministry has talked about the possible reduction of the harvest this year long before the announcement on Tuesday (July 31). So a 10-15% downgrade of the harvest this year should not come as a surprise to the market."


The expert also brushed off the possibility of shipment restrictions this year, unless the situation worsened dramatically. "With the current prediction for the harvest there shouldn't be a ban, as according to the Ministry of Agriculture and RosStat, Russia internally consumes around 60-65 million tonnes of grain. Currently the prediction for the harvest is around 75-80 million tonnes, leaving the country with 10-15 million tonnes of exportable grain surplus."

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