Russia's worst drought in 130 years will force its grain exports down by nearly one-half, SovEcon has forecast, flagging the potential for the Kremlin to impose restrictions on shipments - and sparking fears that the country could even turn a significant importer.
The forecast from the influential analysis group helped send prices higher once more on international markets, with wheat for September jumping 4% in Chicago to $6.18 ¾ a bushel at one stage, a 13-month high for a spot contract.
Paris wheat for November jumped 5% to hit E190.00 a tonne for the first time since August 2008, while London wheat for November hit a fresh two-year high of £139.50 a tonne.
A move by Egypt, the world's biggest wheat importer and a big customers of Russia, to facilitate shipments from France by easing loading restrictions also added to the bullish mood.
Separately, Poland, the European Union's third biggest wheat producer, estimated its grain crop at 25.1m-26.1m tonnes, a drop of up 10% on last year's harvest, blaming "bad weather conditions".
"There was too much rain in May and the first part of June, while in the second part of June and in July it was sunny, hot and dry," the country's statistics office said.
Record temperatures
SovEcon estimated Russia's grain exports falling to 12m tonnes in 2010-11, from 22m tonnes the year before.
The forecast comes a day after the Moscow-based group, which has been at the forefront in monitoring Russia's harvest woes, cut its estimate for the grain harvest for the fourth time in less than a month, warning that production may fall below 70m tonnes.
That put a potential 30% drop in output on the cards, following a heatwave which has driven temperatures to record highs in some areas, and forced 23 regions to declare a state of emergency.
SovEcon on Wednesday said that Russia's wheat exports would fall to 11m tonnes from the record 18.2m tonnes reached in 2009-10.
Exports of barley, whose production has been depressed by smaller sowings as well as drought, may slump by more than 80% to 500,000 tonnes.
Export curbs?
Russia entered 2010-11 with rich stocks, of 20m tonnes, left over from bumper harvests in the two previous years, providing some buffer against this year's poor result.
However, nearly half of the inventories are held in government stores, and are likely to be directed solely at domestic users. The livestock farmers that Russia is attempting to champion, to cut its huge imports of meat, are reported as slaughtering animals for fear of a lack of feed during the winter months.
The potential squeeze on feed grain "may force the government to impose [export] restrictions if active exports continue in the summer and autumn", SovEcon said.
Indeed, some observers believe the country may be forced to turn to sourcing grain abroad, a return to the days of the 1990s when Russia was one of the world's biggest wheat buyers.
"Some analysts are starting to predict that Russia will have to import feed grains to feed its livestock during the coming year," Benson Quinn Commodities, the US broker, said.
Egyptian move
SovEcon added that shipments to more distant buyers, such as Bangladesh, Indonesia and Latin America, are likely to shrink the most.
Exports would remain strongest to countries, such as Egypt and the Middle East, where relative geographical proximity enhances Russia's competitiveness because of lower shipping costs.
Nonetheless, Cairo on Wednesday ditched a demand that all buyers use one port for loading wheat in France, whose shortage of facilities for carrying 60,000-tonne panamax vessels has put it at a disadvantage in recent Egyptian tenders.
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