December 12, 2008


Russia to confront grain glut in 2009-10



Russia may face an oversupply of grains in 2009 as it prepares to harvest another bumper crop -- the biggest in fifteen years-- putting domestic prices under pressure and an overwhelming storage capacity.


Analysts believe that competition with grain exporting countries, including ex-Soviet neighbour Ukraine, will be tough next year and Russian producers may not be able to count on as much government support as they are receiving this year.


Andrei Sizov Sr., chief executive of SovEcon, said the area sown to winter grain was higher than last year and his most conservative estimate for Russia's 2009 grain crop was 92 million tonnes.


Sivov said Russia may harvest 100 million tonnes of grains for the second year in a row if the weather becomes favourable.


He said the implementation of government's plans to reach annual crop volumes of 100 million tonnes may become a "catastrophe".


Farmers in Russia, the world's fifth-largest grain grower and exporter last year, have invested in new technology and land to increase their harvests and take advantage of a booming world commodity prices that have since plummeted sharply.


SovEcon estimates the 2008 grain crop, official data for which is not yet available, at 106.8 million tonnes, the highest volume reaped since 1992.


Russia's farm sector, now facing losses as grain prices have fallen and supply exceeded storage and export capacity, is relying on state assistance, including export subsidies and intervention purchases, to ride out the global financial crisis.


Sizov said they are not convinced that the state is going to be "as generous next year as now" in financing massive grain purchases as its resources may shrink and may also have other priorities, especially at a time of financial crisis.


SovEcon estimates Russia's 2008 wheat crop at 62.6 million tonnes, the highest since 1978. The barley crop will rise 45 percent to 22.7 million tonnes and corn will set a record of 6.5 million tonnes, up 64 percent year-on-year, it forecasts.


The high volumes have already created a grain glut in some regions that suffer from a shortage of storage capacity. Falling world grain prices are also denting Russia's ability to export.


Russia, which plans to export 20-25 million tonnes in the 2008/09 crop year, has exported over 10 million tonnes, mainly wheat, since July. The state will subsidise exports of another 10 million tonnes in the second half of the season to June 30.


The state has also dedicated 36.1 billion roubles (US$1.3 billion) to buy another 10 million tonnes of grain for its intervention stocks. It has already bought about 3 million tonnes for 14 billion roubles (US$502.5 million), helping to stabilise prices.


But even with the government's purchase, Sizov said, Russia will still be left with record-high carry-over grain stocks of 21.9 million to 26.4 million tonnes at the end of 2008/09. These will occupy much of the country's storage capacity.


Russia has sown 17.2 million to 17.4 million hectares with winter grain, which normally accounts for about 40 percent of the crop, Sizov said. This is 0.9 million hectares more than a year ago.


The sowings are in a better-than-average condition, he said.


Taking into account the winter grain sowings acreage and the state of plantings, Sisov predicts that the country is unlikely to expect a serious decline in next year's crop.


Sizov said he did not expect a significant reduction in the area to be sown for spring grain, which has varied little over the last seven years.

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