Russia Lowers Grain Forecast Again, May Sell From Reserves After Drought

Bloomberg reports that Russia cut again its grain-harvest forecast for this year and plans to sell from stockpiles if domestic prices rise in 2011.

The harvest will be 60 million metric tons this year or “possibly slightly more,” Deputy Agriculture Minister Sergei Korolyov told a conference in Moscow today. His estimate lowered the upper end of the ministry’s forecast, which had been 65 million tons.

Russia imposed a ban on grain exports, which Prime Minister Vladimir Putin said Sept. 2 will last at least until next year’s harvest, after the country’s worst drought in at least 50 years. The heat wave caused the government to slash the grain-crop forecast from the original estimate of 97.1 million tons, the same as last year’s output.

“If after the New Year, prices go up, the government will stamp this out through its intervention fund,” Korolyov said, referring to the 9.5 million tons of stockpiles accumulated in previous years to support farmers. “The government won’t allow prices to rise.”

The export ban, originally enforced from Aug. 15 to Dec. 31 to ensure domestic supplies, may be extended until November 2011, as the country normally completes its harvest in that month, according to Putin’s announcement.

Russian farmers are stockpiling grain, expecting higher prices, Sergei Levin, head of United Grain Co., the state-run trader, told the same conference.

‘Good Harvest’

Farmers may lose money if they hold on to their grain and the government starts selling from stockpiles, he said.

Russia’s next grain crop can’t be good when exports are banned and farmers have no incentive to plant, said Vladimir Petrichenko , an analyst at trader WJ Group.

“They have to allow exports, then there will be good sowing, then there will be a good harvest,” he said.

Russia was the world’s third-biggest wheat exporter in 2009-10 after the U.S. and Canada, according to the U.S. Department of Agriculture.

Russia may need to import as much as 6 million tons of grain in the current marketing year to meet domestic demand, according to Moscow-based researcher SovEcon.

The Agriculture Ministry said Sept. 2 the nation must produce between 85 million and 90 million tons of grain next year to ensure sufficient domestic supply.

Russia Winter Wheat Planting Projections

According to a Wall Street Journal report, Russia is set to plant the same amount of winter grain this year as in 2009. Government officials report that farmers plan to sow up to 18 million hectares of winter grain this year, the same amount as last year.

Russia’s worst drought in decades has wiped out almost a third of its grain crop. Last week, the Agriculture Ministry said that, even under a worst-case scenario, it would sow 12 million hectares (30 million acres).

U.S. gives Japan assurances about adequate wheat supplies

The Japan Economic Newswire reported that Japan will have adequate supplies of wheat despite public concern about poor harvests because the United States will continue to be a reliable supplier, the United States said Tuesday.

"Traditional exporters, particularly the United States, maintain wheat stocks that are more than sufficient to compensate for any global wheat shortfall this year," the United States said in a statement issued by the Embassy in Tokyo.

Pointing out that Japan is the largest buyer of U.S. wheat, the United States stressed the importance of the two countries' relations in the field of agriculture for their overall bilateral partnership.

In August, Russia, the world's leading wheat producer, imposed a temporary ban on exports of wheat and other grains due to a serious drought that has hurt the country's agricultural production, giving rise to speculation about a rise in international wheat prices.

Fears grow over global food supply

The Financial Times reports that two days of unrest in Maputo, Mozambique, left seven people dead and 280 injured after the government decided to raise bread prices by 30%

Wheat prices rose further on Friday in the wake of Russia’s decision to extend its grain export ban by 12 months, raising fears about a return to the food shortages and riots of 2007-08.

In Mozambique, where a 30 per cent rise in bread prices triggered riots on Wednesday and Thursday, the government said seven people had been killed and 288 wounded.

Vladimir Putin’s announcement on Thursday extended an export ban first introduced last month until late December 2011, sending wheat and other cereals prices to a near two-year high. It came as the UN’s Food and Agriculture Organisation called an emergency meeting to discuss the wheat shortage.

In Maputo, trade and industry minister Antonio Fernandes told a national radio station on Friday that the riots had caused 122m meticais ($3.3m) of damage. Police opened fire on demonstrators after thousands turned out to protest against the price hikes, burning tyres and looting food warehouses.

Although agricultural officials and traders insist that wheat and other crop supplies are more abundant than in 2007-08, officials fear the food riots could spread.

Wheat prices remained high on Friday morning. Futures in Chicago were up 1.5 per cent at $6.91 a bushel, while European wheat futures remained at historically high levels above €230 a tonne, just shy of last month’s two-year high of €236. Wheat prices have surged nearly 70 per cent since January, and analysts forecast further rises after Russia’s decision and concerns about weather damage to Australia’s crop.

The crop problems in Russia, which suffered its worst drought on record this summer, and elsewhere, have heaped pressure on US farmers to supply the world’s wheat. The US Department of Agriculture has increased its estimates for US wheat exports to $8bn for the current crop year.

The 2007-08 food shortages, the most severe in 30 years, set off riots in countries from Bangladesh to Mexico, and helped to trigger the collapse of governments in Haiti and Madagascar.

The FAO said that “the concern about a possible repeat of the 2007-08 food crisis” had resulted in “an enormous number” of inquiries from member countries. “The purpose of holding this meeting is for exporting and importing countries to engage.”

Russia is traditionally the world’s fourth-largest wheat exporter, and the export ban has already forced importers in the Middle East and North Africa, the biggest buyers, to seek supplies in Europe and the US.

Mr Putin said Moscow could “only consider lifting the export ban after next year’s crop has been harvested and we have clarity on the grain balances”. He added that the decision to extend the ban was intended to “end unnecessary anxiety and to ensure a stable and predict-able business environment for market participants”.

“This is quite serious,” said Abdolreza Abbassian, of the FAO in Rome. “Two years in a row without Russian exports creates quite a disturbance.” Dan Manternach, chief wheat economist at Doane Agricultural Services in St Louis, added: “This is a wake-up call for importing nations about the reliability of Russia.”

Jakkie Cilliers, director of South Africa’s Institute of Security Studies, said there was concern over a repeat of the protests of 2008: “That certainly strengthened a return of the military in politics in Africa.”

No Global Shortage of Food Grains

Expectations that prices in the next few months will hit the record levels of 2007/08levels are not substantiated by the reality of the global supply situation. Black Sea (Russia, Ukraine, Kazakhstan) wheat exports are expect to plummet 60 percent (21MMT) on drought-reduced crops. However, traditional exporters, particularly the United States, are holding large supplies that are more than sufficient to compensate for the black sea shortfall. In fact, U.S. ending stocks at 26 million tons are three times larger than just a few years ago.
More information about grain prices can be found at http://www.fas.usda.gov/psdonline/

Prices of all Classes of Wheat Increase

Domestic prices: Prices of all classes of wheat surged in July as expanding export prospects were being spurred by the severe drought in Russia and Kazakhstan and reduced crop prospects in the EU and Ukraine. Hard Red Winter (HRW) jumped 41 percent to $268/ton, and Hard Red Spring (HRS) is also up 24 percent to $312/ton, as global import demand for U.S. hard wheat is expected to expand. Soft White Wheat (SWW) surged 51 percent to $271/ton primarily due to lower available Australian supplies at the end of the season.

U.S. Farm Exports Could See New Records

The U.S. Department of Agriculture, with a nod toward the drought that has knocked Russian wheat farmers from the export market, said Tuesday it expects U.S. agricultural exports to increase 5.1% to $113 billion in the federal fiscal year ending in September 2011.

One of the biggest factors behind the expected rise is the likelihood that reduced competition from Black Sea farmers will allow U.S. farmers to export $8.1 billion worth of wheat in fiscal 2011, up 35% from the USDA's revised fiscal 2010 forecast of $6 billion.

In May, the USDA forecast fiscal 2010 wheat exports of $5.3 billion.

The USDA also predicted that U.S. corn exports will climb 16.5% in fiscal 2011 to $10.6 billion from its fiscal 2010 forecast of $9.1 billion. The agency also said it expects U.S. cotton exports to climb 25% in fiscal 2011 to $6 billion from $4.8 billion in fiscal 2010.

U.S. agricultural exports are climbing despite the rocky economy in the U.S. and much of developed world in part because U.S. farmers do a lot of their business with emerging Asian nations, which are generating the strongest growth.

The USDA said Tuesday it expects the U.S. to export $47 billion worth of agricultural goods to Asia in fiscal 2011, up 5.1% from its upwardly revised forecast of $44.7 billion in fiscal 2010.