Russia may be enjoying its biggest grain harvest, but farmers are worried about the effects of this large supply.

 

Russia has harvested 112.5 million tonnes in November, up 37.5 percent from last year's 81.8 million tonnes.

 

However, grain prices have plunged since mid-March, hurting farmers' earlier prospects for profit and leaving many to hope for solvency. 

 

The Russian government has been purchasing and storing millions of tonnes of surplus grain in order to stabilise falling domestic grain prices and keep farmers afloat.

 

Government subsidies for the grain surplus have stabilised prices, but the reserves may not enter the domestic market next year, said Alexander Korbut, vice president of the Russian Grain Union.

 

The grain may be exported, or be stored for a few years and put on the market if grain prices get too high, Korbut said.

 

Over RUB12 billion have been spent this season on 2.6 million tonnes of grain, said the Agriculture Ministry. The government has already pledged a total of RUB1.1 billion in subsidies and is considering lowering railway transport fees and providing export and transport subsidies for producers.

 

Last week, Russian class-3 wheat traded at RUB4,344 per tonne, down 50 percent from its mid-May price. Wheat futures for December 2008 and December 2009 delivery have also declined 60 percent and 50 percent, respectively, since their March 12 high. 

 

The 2008 global grain yield has increased more than 70 million tonnes from last year to nearly 700 million tonnes, which is why prices are forced down, said Ivan Nikolayev, an agriculture analyst at Renaissance Capital.

 

The EU will export 19 million tonnes of wheat in the 2008-09 crop year, up from 12 million tonnes the previous year, according to USDA statistics.

 

Low grain prices and export woes, coupled with the current global financial crisis, are making it hard for many Russian farmers to pay off last season's loans and take out new loans to finance the upcoming season, said Nikolayev.

 

Producers expanded acreage and take out loans to buy new equipment when grain prices were climbing in 2006 and 2007, but farmers now have to reduce cropland and they do not have money to buy fertilisers, said Nikolayev, adding that grain prices are too low to sell.

 

There will be many mergers and acquisitions in the farming industry, and small farms will be selling land to larger farms to cover their debt, said Nikolayev.

 

First Deputy Prime Minister Viktor Zubkov said in an effort to mitigate the effects of the financial crisis on Russia's agricultural industry, the government has worked with leading banks and decided that total loans to the agricultural sector in 2009 will come to RUB886 billion.

 

Despite so, a large number of mid-sized Russian farmers are expected to go bankrupt next year.

 

US$1 = RUB27.8453 (Dec 15)