Russia boosts further grain traders’ rosy outlook

Russia lifted its forecast for grain shipments, heralding an even brighter outlook for merchants reaping hefty margins from the differing fortunes of export and domestic prices.

Yelena Skrynnik, Russia’s agriculture minister, lifted by 1m tonnes to 18m tonnes her forecast for the country’s grains shipments in 2011-12, following improved hopes for the harvest.

The forecast comes a week after Viktor Zubkov, Russia’s deputy prime minister with responsibility for agriculture, said the country would produce 90m tonnes of grains, an improvement on the 85m tonnes officials had forecast, and the 61m tonnes achieved during last year’s drought-devastated harvest.

"We will regain our position in the global grain market," Ms Skrynnik said.

Export prices rise

The new forecast is considerably ahead of the 13.1m tonnes that the US Department of Agriculture published in a benchmark crop report last week, if in line with estimates from private analysts such as Moscow’s SovEcon.

And it holds out the potential for even heftier profits for merchants, including Western groups such as Bunge, Cargill and Glencore, enjoying an increasing premium on prices of Russian wheat exports over the costs of the grain.

Russian export prices are showing a small increase, with Egypt, the world’s top wheat importer, buying at an average of $246.48 a tonne last week, excluding freight, up some $2.30 a tonne in a week.

Prices are being pulled up by the higher price of wheat from the US and Europe, which remains some $30-40 a tonne more expensive.

…while domestic prices drop

However, Russia’s domestic grain prices are falling, weighed down by harvest pressure at a time when cash-strapped growers have particular need for funds.

"A number of farmers are in a quite difficult financial situation after, in some cases, three bad years," Andrey Sizov, managing director of SovEcon, said.

"So they have to sell quite aggressively to get money to fund the harvesting campaign, and with the winter sowing campaign not far away."

The price of food wheat in the Urals, among Russia’s more expensive regions, has fallen by 12% to 5,900 roubles ($211) a tonne in a month, on SovEcon data. In the North Caucasus, the decline has been 15%, to 5,750 roubles ($205) a tonne.

‘Bigger margins’

The widening gap means that "in reality, this means exporters’ margins are getting bigger", Mr Sizov said.

And, with Russian wheat historically trading at a discount of only some $5-10 a tonne to European wheat, there was the potential for margins to increase further.

"I think the [Russian] export price will go up," he said.

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