Aug. 5 (Bloomberg) -- Russia, the world’s third-biggest grower of wheat, banned grain exports from Aug. 15 to Dec. 31 as the country’s worst drought in half a century cuts yields.
Prime Minister Vladimir Putin said today that the ban is “appropriate” to contain domestic prices that gained 19 percent last week, after drought and record heat in central Russia and along the Volga River forced the government to declare a state of emergency in 28 crop-producing regions. He proposed that Kazakhstan and Belarus, Russia’s partners in a customs union, join the ban.
“As of today, Russia has no grain market,” said Kirill Podolsky, chief executive officer of Valars Group, the country’s third-biggest grain trader. “This will be a catastrophe for farmers and exporters alike.”
Wheat extended a rally to the highest price in 23 months on Putin’s order to halt exports of wheat, maslin, barley, rye, corn and flour. Corn and rice also surged.
Russian companies may cancel shipments of about 600,000 metric tons of wheat to Egypt because of the ban, Podolsky said. Valars will stop exports immediately, including a pending 60,000-ton shipment to Egypt, on concerns that customs officers will hold up shipments until the ban comes into effect, he said.
“We’ll dump Egypt for a year, then we’ll spend the next few years trying to win them back,” Podolsky said. Egyptian buyers may give preferential terms for other origins, he said.
Putin’s spokesman, Dmitry Peskov, said the ban applies to all shipments that don’t clear customs by Aug. 15, including signed contracts.
Podolsky said this is the first time Russia has introduced a blanket grain-export ban. The government restricted exports in the 2003-2004 and 2007-2008 marketing years by imposing a tariff.
“A duty would have had far less impact,” he said. “It would have bought us time, and everyone would have known what was going on. Now we have ships lined up for grain and no idea what to do.”
The Agriculture Ministry cut its grain crop forecast to as low as 70 million metric tons compared with 97.1 million tons last year. Agriculture accounts for about 4 percent of gross domestic product, according to Moscow-based VTB Capital.
Russia has “sufficient reserves” of grain, Putin told a government meeting, “but we must prevent domestic prices from rising, preserve cattle herds and build up reserves for next year.” The government will consider what to do next after December, when this year’s harvest is tallied, he said.
Russian Grain Union President Arkady Zlochevsky earlier said a quick move to halt exports would hurt the market because traders need advance warning in order to meet contracts.
In addition to the export ban, Putin promised financial support to agricultural producers who have suffered from the drought. The government will provide 25 billion rubles ($837 million) in three-year loans for farmers and 10 billion rubles in aid that won’t have to be repaid.
The government will also distribute grain from state reserves to the regions without auctions and according to criteria set by the Agriculture Ministry, Putin said.
“The goal is not to make money, but to help agricultural producers who need this help today,” he said.
Heat and drought continue to plague Russia’s heartland. Wildfires have killed 50 people to date.
Fires concentrated in central Russia and the Volga River region have scorched 712,412 hectares (2,751 square miles), an area about three times the size of Luxembourg, the Emergency Situations Ministry said in an e-mailed statement today. Crews are battling 589 fires on 195,834 hectares, the ministry said.
Dry and hot weather with “high” and “extreme” fire danger will persist in most areas of European Russia at least through Aug. 7, the state Hydrometeorological Center said on its website today. Fire danger will also be high in the Ural Mountains and the Tomsk region in Siberia, it said. Temperatures broke all-time records in five Russian cities yesterday.