September 28, 2010

Russian beef production increases due to drought

Russia's beef production is set to rise for the first time in 20 years, as farmers ramp up cattle slaughter to avoid soaring feed bills caused by the slump in domestic grain production.

The decline in Russia's cattle herd, which had been slowing amid a government push on livestock farms, will accelerate "dramatically" this year, as slaughter numbers increase for the first time since 1990, US officials in Moscow said.

The higher rate of animal liquidations, which will be reflected in the jump in beef supplies, reflects the jump in grain prices following Russia's worst drought on record, which has sent grains production down by more than one-third.

Domestic wheat prices are 70% higher than at the end of June, according to analysis group SovEcon, which on Friday warned last week that prices "may rise even more steeply" unless the government starts sales of its rich intervention stocks.

Grain stocks along the Volga river, the area worst affected by the drought, were up to one-half lower this month than in September last year, official data showed.

Cattle farmers were already struggling before the drought, which has directly affected operations home to 47% of the national herd. Even in the spring, beef prices which then averaged RUB60 (US$1.96) a kilogramme, only covered operating costs, according to the Russian Union of Milk Producers.

"These costs have since increased in line with feed costs," a report from the US Department of Agriculture's Moscow bureau said, highlighting the increase in slaughter rates "due to feed costs and shortages."

While Yelena Skrynnik, Russia's Minister of Agriculture, has forecast a slide in Russia's beef production, the bureau said it "feels these reductions are reserved for 2012, when feed supplies recover, and after the herd has been dramatically reduced in number."

This outlook bodes well for beef imports in the long-term, as Russia's "short-lived production growth returns to the long-term downward trend," the report added, pegging imports at 1.1 million tonnes next year, a figure beaten only once in records stretching back to 1988.