Russia Should Ban Grain Exports Amid Drought, Glencore Unit Says
Russia Should Start Grain-Export ban Now
Black Earth Farming via Bloomberg
Wheat is harvested using a combine harvester on a farm at Lipetsk, Russia.
Wheat is harvested using a combine harvester on a farm at Lipetsk, Russia. Source: Black Earth Farming via Bloomberg
Aug. 3 (Bloomberg) -- Thomas Saulnier, a fund manager at Gaia Capital Advisors, talks about the outlook for soft commodity prices amid the hottest July in Russia in 130 years. He speaks from Geneva with Linzie Janis on Bloomberg Television's "Start Up." (Source: Bloomberg)
Russian officials are discussing curbing grain exports as the worst drought in at least half a century threatens domestic shortages, according to an industry body that advises the country’s Agriculture Ministry.
“Restrictions are being discussed,” Grain Union President Arkady Zlochevksy, representing the nation’s biggest producers and traders, said in a telephone interview today. “So far no legal documents are being prepared.”
Russia cut its 2010 harvest forecast yesterday by as much as 18 percent and the Union said exports may slump by almost half. The drought, which has already spurred the biggest jump in wheat prices since 1973, shows no sign of easing and threatens winter grain sowing that typically makes up about 65 percent of the country’s crop, according to the national weather center.
Ministry spokesman Oleg Aksyonov declined to comment on any discussions. Russia doesn’t plan to curb exports yet, said RIA Novosti yesterday, citing Alexander Belyaev, a deputy minister.
Russia should suspend exports until it can assess whether there will be enough supply to meet domestic demand after crop losses, said Nikolai Demyanov, deputy chief executive officer of Glencore International AG’s unit International Grain Co.
“The government should set a temporary ban on grain exports immediately,” Demyanov said by e-mail late yesterday. “It should set a ban rather than an export duty because a duty doesn’t qualify as force majeure for exporters,” he said, referring to a legal clause that allows a company to cancel contracts because of circumstances beyond its control.
‘The Best Option’
A ban could be implemented by presidential decree with immediate effect, while a duty would take at least a month.
A two-month ban on grain exports in September and October would be “the best option,” allowing exporters to renege on contracts, Zlochevsky said. Setting an export duty, as Russia did in the 2003-04 and 2007-08 marketing years, wouldn’t halt shipments and may lead to “mass defaults” by traders, he said. Russian exports usually peak in September and October.
On the other hand, exports may drop naturally as domestic prices outpace rates abroad, making shipments unprofitable and eliminating the need for government curbs, Zlochevsky said.
“Exports are already unprofitable,” he said. Fourth-grade milling wheat, the main export variety, is selling for 6,500 rubles ($218) a metric ton at elevators in southern Russia, and exporters have to pay another $50 in shipping and handling costs to deliver the commodity to ports, he said. Cargoes for Egypt are being loaded at about $240 free-on-board, he said, in which the price includes the delivery cost paid by the seller.
Grain Exports
Two Russian grain cargoes totaling 70,000 tons and bound for the Middle East and Africa were canceled last week because of supply holdups, Zlochevsky said. Russian farmers are delaying sales to traders as they expect prices to rise further, he said.
“Traders realize that, in a situation where domestic prices are growing unpredictably, exports could be suspended because of uncertainty in the market and wide-scale defaults,” the SovEcon research center said on its website today. While the proposal from International Grain is “quite sensible,” Russia is obliged under a customs accord to coordinate any ban with neighbors Kazakhstan and Belarus, the Moscow-based group said.
Russian wheat prices rose 19 percent last week, it said. That’s faster than at the peak of the global food crisis in 2008, when food riots erupted from Haiti to Egypt, according to the Grain Union. Chicago wheat reached a 22-month high Aug. 2, after a 38 percent jump in July that was the biggest since 1973.
‘Too Optimistic’
The Russian Agriculture Ministry cut its 2010 grain harvest forecast to 70 million to 75 million tons. The previous estimate was for about 85 million tons, compared with last year’s output of 97.1 million tons.
The new estimate is still “too optimistic,” Demyanov said. The crop may fall to 65 million tons, below domestic demand of 75 million tons and leaving an exportable surplus of 5 million tons including stockpiles, he said. Russia exported 21.5 million tons of grain in the 12 months that ended June 30.
Russia has 21.5 million tons of grain stockpiles, including 9.5 million tons of government inventories, the Agriculture Ministry’s Belyaev said yesterday. Russian grain exports may miss the ministry’s target of 20 million tons because of the drought, Agriculture Minister Yelena Skrynnik said July 13.
“Planting winter grains in central Russia and along the Volga doesn’t make any sense today, because there is no moisture in the soil,” Demyanov said. “Southern Russia, the main exporter, is due to start winter grain planting in late August, and should there be little rain, conditions for winter sowing will be bad across Russia.”
As well as drought, which the Grain Union has described as being the worst since record-keeping started 130 years ago, Russia is also contending with wildfires. Firefighters are battling 520 blazes over 188,525 hectares (728 square miles), according to the Emergency Situations Ministry.
To contact the reporters on this story: Maria Kolesnikova in Moscow at mkolesnikova@bloomberg.net,
Rate These Stories
Rate this Page