Russia has had a moderate harvest. There won’t be famine but we can forget about expanding the livestock business and the ambitions of big exporter’s

“Will buy grain in large quantities. Moldova.” “Any amount of wheat – 3^rd and 4^th grades. Ukraine.” “Will buy any wheat. Bulgaria.” Many ads of this kind have been placed at regional Russian grain sites. Europe has suffered heavily from natural disasters and is now in short supply of grain. The gross yield in the EU has dropped by 20%. While Western Europeans are making adjustments to their purchase plans, Romania, Ukraine, Moldova, Bulgaria and Hungary have rushed to buy grain in Russia. Traditional buyers of Russian grain – Greece, Italy, Algeria, Israel and Egypt – have confirmed their willingness to import it.
The global market situation is as favorable for grain exporters as it was last year. Unfortunately, Russia will not be able to take advantage of it.

Today, prices on the Russian market are so high that even export-oriented companies have to adjust their plans and hold back supplies. Despite the fact that Russian grain is practically 90% harvested, no one can say exactly how much the country will end up with. Estimates of total yield vary greatly. The Ministry of Agriculture continues to insist on 70 million tons, but many analysts are criticizing Minister of Agriculture Alexei Gordeyev, who stated this figure, for trying to improve on the truth before the elections. Most of them argue that total yield will amount to 62-65 million tons. Elena Tyurina, Director of the Agrarian Marketing Institute, forecasts 69 million tons. The forecast made by Grain Association President Arkadi Zlochevsky – 75 million tons – seems extremely striking. “How on earth can you talk about 62 million when we have already gathered in over 70 million in hopper weight, and 10% of the country has not been harvested yet? These areas are not the best, but the grain comes very dry and is bound to gain moisture and weight during its storage,” Mr. Zlochevsky stated indignantly. According to Zlochevsky’s estimates, with what remains to be harvested minus what will be lost in processing, the result will be at least 75 million tons. Both Zlochevsky and Tyurina stress farms’ tendency to underreport their actual crop yield. However, traders are more guided by the situation in regions rather than some expert’s opinion. They argue that there is practically no grain left on farms in the country’s main breadbasket – the Krasnodar and Stavropol Territories. According to Vitali Strakhov, Director at Niva Company in the Novoalexandrovsky District of the Stavropol Territory, the grain elevators are almost empty. This year’s yield is considerably less due to the weather. For example, crop capacity in Strakhov’s farm dropped from 500 pounds per hectare to 350.
These southern regions are closest to the ports grain is exported from. Large companies, which made contracts for export supplies in advance, had to meet their commitments. According to data from Vladimir Petrichenko, an analyst with Unidell Group, during July and August, Russia already exported over 1.8 million tons of grain. This figure is just slightly less than for the same period last year. The rise in prices on the domestic market was triggered by a reduction in crop capacity, pessimistic forecasts for total yield, a relatively small carry-over stock (around 11 million tons), and active export at the beginning of the grain season. Now prices for 3^rd -grade wheat at grain elevators in the central regions of Russia have gone up to 4,700-4,800 rubles per ton, and the prices for 4^th-grade wheat are not far behind. In the Altai region, 3^rd-grade wheat is selling at 4,200 rubles, or 5,300 rubles with delivery to Moscow. A ton of feed in the central regions costs 3,500 rubles (by comparison, last year a ton of 3^rd-grade wheat cost 2,000 rubles and a ton of feed 800 rubles as a nationwide average).
After the price hike, the export went down drastically, but a chain reaction had already started in the market. Grain producers in many regions began to hold back grain in the hopes of further price increases. They want to recoup the losses incurred last year, when the prices collapsed after the country harvested 86.5 million tons. “The weather is good in Siberia and Urals now; the local farms have harvested good-quality grain and are not in a hurry to sell it,” says Vladimir Petrichenko. “Whereas traders are running as fast as their legs can carry them in search of grain and as a result, the illusion of a deficit is being created in the consuming regions.” This panic caused local authorities to revert to the practice of open or covert bans on grain export. “Although there is a lot of grain in Tatarstan and Bashkiria, its export is not allowed,” says Zlochevsky.
The price fever has been exacerbated by federal authorities’ indecisive behavior. As in past years, it’s unclear whether the government intends, for example, to regulate the market via commodity intervention. While high prices are good for grain producers, they are a headache for the grain-dependant flour, bread, and meat markets.

Expert Magazine wrote in late May (see Issue 20) about the campaign launched by bakers due to high grain prices, which were lower than current ones. It’s easy to imagine how active representatives of this industry will get on the eve of elections. Cattle breeders have become the most concerned of all grain-dependent producers, however. According to Rudolf Bulavin, a leading analyst with OGO Group, the share of bread wheat in the total volume of wheat harvest is 73% versus last year’s 64%. It means that the highest rise in prices will concern fodder-grade wheat. “As a result, the number of cattle will continue to decline. In addition, while in last year body weights became noticeably greater thanks to good feeding, this year cows will lose weight,” Tyurina believes. “The number of pigs, which grew by almost 10% last year, will barely increase this year, since they are kept mainly in personal subsidiary plots. Poultry will most likely also remain at the previous level.” Thus, the government’s heroic attempts to increase meat production via import-restricting quotas may come to naught, and Russia will have to forget for a while about increasing livestock.
Russia will also have to forget about the avid dreams of big grain exporters. After having rushed into the top 3 grain exporters last year (according to MTS-zerno, Russia exported over 18 million tons), we’ll drop from the top this year. “Although international demand is quite high, export is unlikely to exceed 4-5 million tons,” believes Anton Malinkin, General Director of Rusagro-zerno (Eng. Rusagro-Grain). But it will be hard to return to the world market. Zlochevsky recalls that last year’s export was unprecedented as the difference between the high prices on the world market and extremely low prices on the domestic market enabled traders to increase port capacity due to direct transshipment of grain, which usually means big losses. The large margin allowed the traders to offset transshipment losses and make decent profits. When domestic and external prices are closer, direct transshipment is pointless and export naturally declines.
In many experts’ opinion, Russia could consolidate its grip on the world grain market if our total yield were in the range of 90-100 million tons rather than falling between 50 and 90 million, as it has in the last decade. To this end, the government has to encourage grain producers to expand areas under cultivation and to increase crop capacity. Farms will do this only when the government provides them with guarantees against low prices during large harvest years. The tools are well-known: state interventions, soft loans, and machinery and fertilizer financing. However, they don’t work properly in Russia. As a result, grain producers insure against bad market conditions on their own by keeping total yield stable and holding on to their grain until the bitter end.

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