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Russian Wheat Exports Disappoint As Low Prices Slow Farmer Sales

Published on Sep 27 2016 2:10 PM in Supply Chain tagged: Wheat / Russia / Farming / grain

Russian Wheat Exports Disappoint As Low Prices Slow Farmer Sales

Russian wheat exports have not lived up to expectations so far this season, as falling prices made some growers reluctant to sell grain to traders amid a halt in purchases by Egypt, the world’s largest buyer.

Outbound shipments in the three months since the campaign started in July will probably amount to nine million metric tonnes, down 8% from two seasons earlier, Moscow-based SovEcon said in an emailed report. That is a relatively low number, as Russia, the biggest wheat exporter, is this year harvesting its largest crop.

Export prices for Russian wheat declined to the lowest level in at least six years in July, on expectations of a bumper crop. After starting to rebound, prices dropped again, when Egypt introduced a ban on a common ergot fungus at the end of August. The North African country then made a U-turn on the policy last week, after traders boycotted tenders.

“The situation is extremely unpleasant,” said Alexander Korbut, vice-president of the Russian Grain Union, a lobby group. “[As prices decline] it’s a natural reaction of farmers to hold on to the grain of good quality,” he said.

SovEcon didn’t use Federal Customs Service data for last year to work out the pace of outbound shipments, saying that it couldn’t rely on the numbers because officials sometimes delayed registering cargoes to deal with the wheat-export levy that Russia introduced at the start of last season. The consultancy sees the country’s crop climbing 15% this season, to 71 million tonnes.

Market Return

Egypt is now back in the market, buying 240,000 tonnes of Russian wheat in a recent tender, after returning to the policy of tolerating 0.05% of ergot, an internationally accepted standard. The nation had asked for no trace of the fungus in shipments since the end of August, leading to three failed attempts to buy the grain amid a boycott by traders. Ergot is considered toxic, but only in high amounts.

If purchases continue, Russian wheat prices will rise to the level seen before the ergot ban and prompt more offers from farmers, Vladimir Petrichenko, director general of OOO ProZerno, said on 22 September. Monthly shipments may climb to as much as 4.5 million tonnes in October, he said in an interview at a Russian Crop Production conference in Moscow.

On 26 August, before Egypt adopted a zero-tolerance ergot policy, the Moscow-based Institute for Agriculture Market Studies pegged wheat at $172 a tonne. The price (for wheat with 12.5% protein content for loading at Black Sea ports on free-on-board terms) then declined throughout September before rebounding last week.

“The story of prices has been filled with abrupt changes and sudden movements recently,” Petrichenko said. “When they increase again, there will be more export activity.”

News by Bloomberg, edited by ESM. To subscribe to ESM: The European Supermarket Magazine, click here.

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