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Russia eschewed grain export curbs in a package of measures to stabilise domestic grain markets after drought damage which has left the country facing its worst wheat harvest in nine years.

Russia’s agriculture ministry, at a much-anticipated food security meeting to discuss shrunken crop supplies, narrowed its grains harvest forecast to 70m tonnes, at the bottom of a previous range 70m-75m tonnes.

However, officials failed introducing the limits on grain exports which many traders had expected given the harvest shortfall and a rapid pace of shipments which, according to Deputy Prime Minister Arkady Dvorkovich have reached 4.6m tonnes since the 2012-13 crop year started last month.

« As long as I am in charge of this sector, I will be against any export restrictions, » Mr Dvorkovich said.

Nikolai Fyodorov, the agriculture minister, estimating Russia’s exportable surplus of grains at 10m-14m tonnes said that « domestic requirements will be covered 100% » despite the lack of curbs.

Waning hopes

The refusal to introduce restrictions caught many investors off guard, given the country’s waning harvest hopes.

SovEcon, the influential analysis group, on Thursday cut by 1m tonnes to 38m tonnes its forecast for the wheat crop, below the 2010 level which prompted a full export ban, although Russia this month acceded to the World Trade Organization, limiting its scope for unilateral action on trade.

On Friday, rival consultancy Ikar cut its forecast for Russia’s total grains harvest to 69m-70m tonnes, including 39m-40m tonnes of wheat

And farm operator Trigon Agri revealed that it had abandoned significant acreage because of the drought, with yields on what it had harvested at its Stavropol farms falling below 0.5 tonnes per hectare, from 3.34 tonnes per hectare last year.

Indeed, consultancy Agritel noted that, before the food security meeting, « Russian traders mostly expect a restriction of grain exports from October ».

Market reaction

In Chicago, wheat prices eased after the result of the meeting was announced, with the December contract, which had risen to $9.06 a bushel before the decision, retreated to close at $8.89 ½ a bushel, a drop of 1.5% on the day.

Paris wheat for November ended 1.1% down at E263.75 a tonne.

« The decision has set the markets back a bit, » Mike O’Dea at FCStone said.

At RJ O’Brien, Richard Feltes said: « Some quarters were surprised at the forceful statement by the agriculture minister and deputy prime minister underscoring their intentions to continue exporting grain. »

‘Sold out by November’

However, even without export restrictions, traders voiced doubts over Russia’s capacity to continue for long its pace of grain exports, which Ikar pegged at 3m-3.3m tonnes, and SovEcon at 3m tonnes, taking total shipments for the first three months of 2012-13 nearly to 8m tonnes.

« It will be interesting to see if Egypt tenders over the weekend to get in the front of the line for more cheap wheat, » Mike O’Dea said.

Egypt, the top wheat importer, has already bought 300,000 tonnes of Russian wheat this month.

Mr Feltes said the data suggested that Russia would be « sold out by November », shifting import demand to other suppliers.

Traders were mulling the « possibility that Kansas [hard red winter wheat] contracts may invert if Black Sea wheat discounts to US continue to narrow, and ultimately push more wheat export business to the US ».

source : agrimoney.com