September 15, 2010

Russia's Cherkizovo plans massive grain purchase

Russia's meat producer Cherkizovo may purchase up to 400,000 tonnes of grain to secure feed supplies following the country's drought-devastated harvest.

Sergey Mikhailov, the chief executive of Cherkizovo, said that the group intended to bolster its forward feed supplies by securing grain supplies for 2011 in the course of this year.

This plan, which is could stretch over a year, would see the group acquire 300,000-400,000 tonnes of grain, a person familiar with the company said.

The company, which owns two feedmills, has sufficient capacity to store 500,000 tonnes of grain, a weight approaching the annual output of Slovenia, and bigger than that of Albania.

However, the plan depends on the response of the government to soaring grain prices.

Russia has been attempting to ramp up domestic meat production to reduce its large reliance on imports.

Nonetheless, the government has yet to fulfil a pledge to open up its nine million tonnes of state grain reserves, a move which may reflect a desire to try to support prices sufficient to discourage stockpiling by growers.

Mikhailov said he expected the government's market control measures, which include a ban on exports and lower rail tariffs to encourage transport from distant regions, to lead to a stabilisation of domestic prices.

Even if prices do rise further, he forecast that consumers, rather than meat groups, would swallow the increase.

"We may expect further meat price inflation in the event of dramatic grain price increase," he said. The comments came as Russia's Prime Minister, Vladimir Putin, restated that the country had enough grain to feed itself, but would maintain its export ban until next year.