Sept. 27 (Bloomberg) -- Alexander Nezhenets spends $60 to produce every ton of wheat grown in the black soil of his southern Russian farm, almost half the cost of production in Kansas, the biggest wheat-growing state in the U.S.

``We will be one of the most competitive in the world in terms of price and volume,'' Nezhenets, 50, said in a phone interview from his 57,000-acre farm near Krasnodar, on the northeast coast of the Black Sea. ``Private companies are working the land now and that's introduced competition that we didn't have during the days of collective farming.''

The former Soviet Union, once the largest buyer of U.S. wheat, now accounts for 18 percent of global exports and competes against America. Technology from companies such as Monsanto Co. and Deere & Co. is improving crop yields, while spending on ports and warehouses by companies such as Cargill Inc. and Bunge Ltd. has cut supply costs.

That's adding cheaper grain to world markets, challenging farmers in North America, Australia and Western Europe, and may curb prices that have risen in four of the past five years.

The government commodity forecaster in Australia, the world's second-largest wheat exporter last year, expects prices to fall this year.

Wheat prices on the Chicago Board of Trade, the world's biggest agricultural futures exchange, have fallen 11 percent from a nine-month high on March 15. Wheat for delivery in December closed at $3.2925 a bushel on Sept. 26.

Russia and its neighbors Ukraine and Kazakhstan, which also export grain from ports on the Black Sea, may ship a combined 20 million tons of wheat in 2005-06, the U.S. Department of Agriculture said on Sept. 12. That's 33 percent more than a year earlier and more than Australia and Canada's wheat exports. U.S. wheat sales abroad are forecast to fall 8.2 percent to 26.5 million tons in 2005-06.

`Bearish'

Output in the ``Black Sea region will continue to grow,'' said Sarah Scales, 39, general manager of the wheat-export arm of AWB Ltd. The Melbourne-based wheat exporter expects the region to supply a quarter of global trade in wheat within four years. Unless the additional supply is matched by stronger demand, ``that's ultimately bearish for commodity prices,'' she said in a Sept. 5 interview.

``Russia offers a lot better and cheaper deal than the U.S. or Australia,'' said Raees A. Tar Mohammad, chairman of the Karachi-based Pakistan Commodity Traders Association, which represents private commodity buyers. ``We were able to save $6- to-$7 million on the 150,000 tons of wheat bought from Russia in the last month, and we didn't compromise on quality.''

$18 Billion Trade

Former Soviet countries may ship 20.2 million tons of wheat in 2005-06, more than double the 2003-04 level, according to the USDA forecasts. The department predicted the U.S. share of the $18 billion-a-year global trade in wheat to slide to 24 percent from 29 percent in the same period.

Land costing $12 an acre helps farmer Nezhenets grow wheat for less than his overseas rivals. In Kansas, land rent costs average $42 per acre, the USDA said last month.

Wheat crops on Nezhenets's farm, about 80 miles from the Black Sea, average 2.8 tons an acre (7 tons per hectare). That compares with the five-year global average of 1.1 tons.

Since the USSR's dissolution in 1991, wheat production in the 12 former Soviet nations has risen 22 percent to 86.4 million tons, according to the USDA. It expects output to reach 92.6 million tons in 2005-06, 85 percent of which will come from Russia, Ukraine and Kazakhstan.

`Sail Further'

``Black Sea wheat should be very competitive not only in its traditional Mediterranean and Middle Eastern destinations, but will sail further into Asian countries'' such as Pakistan and South Korea, where it will erode U.S. and Australian sales, said Diego Barbero, managing director of the European grain division of Hong Kong-based Noble Group Ltd.

Egypt imported about 7.5 million tons of wheat in the year ended June 30. Last week it paid $112 a ton, excluding delivery costs, for 30,000 tons of Russian wheat from Silverstone Commerce Ltd. That compares with the $127.94 a ton it paid Louis Dreyfus Corp. for French wheat.

Egypt will continue buying Russian wheat, said Nomani Nomani, general manager at Egypt's General Authority for Supply Commodities. ``Russian wheat is complying with our specifications, Russia is close to us, so it will depend on how competitive they can be on price,'' Nomani said in an Aug. 30 interview in Cairo.

TV Campaign

Australia's AWB began a nationwide television advertising campaign in June highlighting ``the growing competitive threat'' of the Black Sea region, and to encourage its farmers to respond by producing higher-quality varieties.

A report by Boston Consulting Group Inc., commissioned by AWB last year, predicted extra competition would cut wheat prices by more than $15 a ton within five years, unless Australian wheat commanded premium prices in Asia, where the country's proximity to the region gives it an advantage. The value of the country's wheat exports averaged A$258 ($195) a ton in 2004, according to government estimates.

Southern Russia and the Ukraine possess more than 40 percent of the world's so-called chernozem black soil, among the most productive for growing grain.

Still, risks are high, with drought occurring in two in five years in some areas, and about 13 percent of winter crops perishing each year from frost, persistent snow or water logging, according to the USDA. A shortage of tractors and equipment means farmers take longer to plant and harvest crops. Less than half the farms in Russia that needed a tractor had one as of Feb. 15, according to the USDA.

``They have proven productive capacity, but it's all been weather-dependent,'' said Shawn McCambridge, senior grain analyst for Prudential Securities Inc. in Chicago. ``Once the technology imbalances are reduced, you will see a situation where wheat production will be as reliable as any other nation and not as dependent on weather.''

Deere, Claas

Deere & Co., the world's largest maker of agricultural equipment, and Germany's Claas KGaA are both investing in Russia, where new laws allowing farmers to buy land and use it as collateral for bank loans are helping them buy equipment.

``So far, we haven't really seen the full potential from Russia, Ukraine and Kazakhstan because farmers there haven't received the benefit of access to global markets'' through higher grain prices, said Stephane Delodder, a commodity analyst with Rabobank Groep in Utrecht, Netherlands.

``Now that finance is becoming less an issue and more solid players are active on the market, competition is a lot more fierce and that's improving farmgate prices, benefiting the farmers,'' Delodder said.

Cargill, the largest U.S. agricultural company, has invested more than $300 million in Russia's agricultural and food-processing industries since 1991, and ships Russian and Ukrainian grain from 21 different ports on the Black Sea.

Wayzata, Minnesota-based Cargill said this month it bought two grain elevators in the Krasnodar region and a grain terminal in Rostov on the River Don.

Last Updated: September 26, 2005 18:47 EDT