November 18, 2003

 

 

Review of Russia Grains & Feed Market 2003
 

Production

 

Post has left its previous total grain crop estimate for MY 2003/04 at 67 million metric tons (mmt). MinAg reported that as of October 20, 2003 ninety-seven percent of total area was harvested and the crop in bunker weight amounted to almost 73 mmt. Warm and predominantly dry weather in the Volga Valley, the Urals, and Siberia at the end of September and into October reduced losses during fall harvesting and resulted in some overall improvement in the total crop. However, most experts and various regional sources continue to estimate the crop at no more than 70 mmt in bunker weight, or 65-66 mmt in clean weight.

 

Post decreases its estimate of the wheat crop to 34.3 mmt based on MinAg's report that as of October 16, 2003, 35,141 metric tons of wheat were threshed meaning it is not possible to thresh enough by the end of the harvest to reach 35 mmt. Post's corn crop production forecast is raised to 1.3 mmt.

 

Grain production estimates in regions

 

The final crop will be very difficult to accurately estimate even after the harvest is completed for two reasons. First, farmers are likely to underestimate their crop as an attempt to hold onto it and sell it later for a higher price. Second, regional and oblast officials in general tend to inflate yields and harvest results.

 

Grain prices and storage

 

Post heard complaints that farmers are not willing to sell their crop, that they do not have livestock anymore, and use cowsheds for winter storage. Storing grain in this way deteriorates the quality but allows farmers to keep it for a longer period hoping for better prices. One elevator manager told Post that farmers are selling class three wheat at 4,000-4,200 R per metric ton ($135-140), almost twice last year's price and that offers for this class of wheat are very small. This year it is also difficult to find class four wheat, the main crop of this oblast last year.  Class four wheat is also used in baking, although the gluten content is lower than baking standards require. However, these standards have been unofficially replaced by lower technical requirements that allow the use of flour from class four wheat with the addition of improvers. Rainy weather and delays in spring wheat harvesting have resulted in the deterioration of the quality of low-grade food wheat  (class 4) to conditions of fodder wheat (class 5). The gluten content is very low and in some cases germination has started. However even so, class five wheat is being sold at 3,000-3,200 R per metric ton ($100-107).

 

Post has also heard some rumors from farmers (Post couldn't confirm these rumors in any official capacity) that there is a federal storage subsidy program for those farmers who can prove that the grain they wish to store is from their own fields. These farmers are rumored to be able to store grain at certain elevators, which are certified for the "federal grain intervention program" free of charge for the first three months and for one half of a percent of the price of the grain for each additional month. The commercial rate of storing is 5.4 percent for the first month and from 0.8 to one percent for each month after that, making such a program advantageous for farmers. Post thinks the administrations at all levels are trying to encourage farmers to deliver grain to elevators (as ¡°collateral¡± for reporting a higher crop) instead of selling right away.

 

Winter grain sowing

 

According to reports from farmers, this year the area sown to winter grains will be lower than last year. Given that prices are higher, the incentive should be for farmers to increase area sown, not decrease it. This unusual tendency is explained by several factors, including: frustration over winter grain losses last year, the lower crop last year which limited farmers' seed reserves (most of area is sown with ordinary seeds that farmers save from year to year), and an uncertainty about the future of prices. However, the main reasons for the reduced winter grain sowing were time and resource constraints, i.e. most farmers put priority on the late harvesting of last year¡¯s crop to sowing winter grain.

 

Food Consumption

 

Post is not forecasting any significant changes in food grain consumption, 22.8 mmt versus 22.7 mmt last year. The Russian State Grain Inspection Service reports the share of milling wheat this year is higher than last year and that Russia will have enough grain for food consumption, including pasta products.  However, the price of bread will increase due to both higher grain prices in general and better quality of wheat and flour. 

 

Feed Grain Consumption

 

The supply of feed grains will be smaller than in MY 2002/03 and post estimates a slight decrease in feed grain consumption to 34 mmt. This is due to the overall smaller crop combined with a bigger percentage of food quality wheat which significantly decreased available volumes for feeding purposes. However, the demand for imported feed grains will not increase this same amount as consumption of meat and poultry is expected to stabilize.

 

In the course of almost ten years of decreasing disposable incomes and high meat prices, meat consumption nationwide decreased. Consumption of meat flavored food, food with additives, different snacks, etc. has been increasing and people have become accustomed to these products instead of meat. So, the increase in incomes in the last two years was not followed by the same increase in demand for meat. The additional income has been swallowed up either by increased communal payments, electricity, gas, apartment maintenance, etc. or by some other spending. 

 

Demand for meat by a small group of high-income people has been relatively stable for the last 3-4 years and changes in meat prices did not affect this demand much.  In the short-term, meat producers are more likely to increase prices rather than increasing output. Sources in the feed market report that the majority of feed millers do not make their own decisions on the purchase of feeds, because they are usually part of a larger company that has pig or poultry operations. The feed ingredients procurement policy is determined at the headquarters¡¯ level, i.e., at the level where the selling price for meat dominates over the procurement price of feeds.

 

Trade

 

According to the latest non-official information, in July-September 2003, Russia already exported 1.95 mmt of wheat and 1.05 mmt of barley.  So, total exports in the first three months of MY 2003/04 reached 3.18 mmt. Wheat was exported to Romania, the EU, Ukraine, Egypt, and Israel, while barley was shipped to Saudi Arabia, Israel, Libya, and Cyprus.  Exports in the same period last MY were 3.57 mmt, including 2.68 mmt of wheat and 0.85 mmt of barley and this was a year of historically high exports. In MY 2001/02, the first year of high exports, Russia exported only 444,300 metric tons of wheat and 590,000 metric tons of barley, and total exports amounted only to 1.1 mmt. Thus, the current MY is starting off strong despite the smaller crop. Incentives for grain traders to export grain remain significant and Post increases its total export estimate to 6.3 mmt, including 4.2 mmt wheat and 2.0 mmt of barley.

 

Corn

 

Official data on corn production is not yet available, however, based on preliminary crop estimates by major producing regions, the crop will be close to last year's level. So Post estimates production at 1.3 mmt. For example, in Krasnodar Kray, where almost forty percent of corn for grain is harvested, the crop is estimated at over 600,000 metric tons, equal to last year's level.

 

Demand for corn is higher than last year, however, and Post forecasts imports will triple. However, these projections are based on the positive resolution of GMO issues, because, given the lower European crop, with the exception of the Ukraine, the U.S. is the only source of bulk corn shipments. Imports of corn from the Ukraine will increase, but are not likely to exceed last year¡¯s level, while imports from Hungary will be also low and exporters will give preference to Europe over Russia.

 

However, even with the resolution of GMO issues, Post does not foresee corn imports returning to the levels of MY 2001, i.e. 500,000 - 600,000 as demand from meat producers will be a limiting factor. Meat producers will focus on returns from higher prices rather than on lowering the cost of production. Sources report that feed mills do not generally determine the feed grain procurement strategies because the bigger feed mills are usually part and parcel of the poultry and livestock holdings. These producers are interested in fast returns from sales of value added meat products and in some cases squeezing production can bring higher returns, given that the consumer market has been pumped with pre-election money.  Thus, stimuli to increase prices and economize on the cost of feeds is prevailing nowadays, and until spring, feed demand will not be as drastic as may be expected.

 

At this point almost all corn in Krasnodar Kray is pre-contracted by poultry producers. The preliminary purchase price of domestic corn is approximately 4,000 Rubles ($138) per ton and given the freight and other delivery expenses, this price at the moment is still almost 1,000 Rubles ($34) lower than imported corn.

 

 

Source: USDA