Russian exporters forced to drop grain prices
2011-07-05 10:36:16
Traders are struggling to make any sales of Russian grain in spite of the country lifting its controversial export ban.
The ban, which was lifted on Friday after lasting almost a year and causing turmoil in global agricultural markets, has made buyers wary of the political risks of importing Russian grain, traders said.
“There is practically no demand for Russian grain,” said Arkady Zlochevsky, the president of the Russian Grain Union.
The cool reception to the prospect of fresh wheat exports from Russia, which before last year’s ban was the world’s third-largest supplier to the world market, has helped to drive down global wheat prices.
It has demonstrated that large consumers such as Egypt are not desperate to buy, reinforcing the sense that the global market is well supplied.
Moreover, it has forced Russian exporters to drop their prices, which has provided an undertow to world prices.
“The price will have to be reduced if we want to sell,” Mr Zlochevsky said.
Prices for milling wheat at Russian ports have fallen by 25 per cent to $240 a tonne, according to the Institute for Agricultural Market Studies (IKAR), a Moscow-based agriculture consultancy, and are expected to drop further.
That has helped drive a 28 per cent drop in benchmark European milling wheat, traded in Paris, which fell to a low of €183 a tonne on Friday. On Monday, it was trading at €193 a tonne.
A sharp fall in corn prices last week, driven by a reappraisal of the outlook for the US crop, has also pulled wheat prices down.
The drop in grain prices is likely to ease pressures on politicians in emerging economies who have been battling with high levels of agricultural inflation.
Russia announced plans to lift the ban in late May but several influential officials in Moscow immediately warned that fresh export restrictions might be applied if domestic grain prices rose unacceptably high, reinforcing doubts about Russia’s reliability as a supplier.
Analysts expect Russia to export a modest 1.5m-2m tonnes of grain in July with the outlook for further exports later in the year dependent on the political situation.
Egypt, traditionally Russia’s biggest grain buyer, refused Russian wheat at international tenders for delivery in July, citing concern about security of supply.
A delegation from the General Authority for Supply Commodities, Egypt’s state grain buyer, is expected to visit Moscow later this month for talks about possible purchases of Russian wheat in August.
Russia plans to offer wheat at a tender in Jordan next month, which will test sentiment in the market.
Richard Ferguson, agriculture analyst at Renaissance Capital, said Egypt’s reluctance to lift Russian grain was “a normal business response” to the uncertainty caused by the export ban.
Andrey Sizov Jnr, the managing director of SovEcon, a Moscow-based agriculture consultancy, said interest in Russian grain exports would pick up once prices found a floor.
In the long term, Russia is likely to remain the lowest cost supplier to major wheat markets in north Africa and the Middle East, analysts believe.