Hopes fade for Russia, Ukraine grain harvests

Officials underlined fears for dryness-tested grain harvests in both the Black Sea's main producing states, and added Ukrainian corn to the list of crops on the watch list, fuelling a jump in prices.

Wheat prices soared 6% in Chicago, while hitting their highest in a year for the best-traded November contracts in London and Paris, which chalked up their highest-ever trading volumes too, of 1,270 lots and 48,200 lots respectively.

Russia's grain ministry, in a long-awaited move, slashed to 85m tonnes its forecast for the domestic grains harvest, down from a previous estimate of a crop in line with the last year's 94m tonnes.

The estimate for the wheat crop was cut to 46m-49m tonnes, down from a previous forecast of 57m tonnes, and last year's 56.2m tonnes.

The US Department of Agriculture, whose data set global benchmarks, has forecast the crop at 53.0m tonnes.

'Pretty hot'

The downgrade followed reports of a disappointing start to harvesting, and more of the dryness in Russia and parts of neighbouring Ukraine which has stressed crops.

Grains harvests in both countries are being brought forward to prevent yield loss to early-shed kernels as in the drought year of 2010 although Russia's crop, at least, is still expected to come in ahead of that two years' ago.

Over the weekend, "the Ukraine and south west Russia was pretty hot with readings over the southern half of Ukraine and all the Southern district [of Russia] at 32-35 degrees Celsius (90-95 degrees Fahrenheit", said.

Corn threat

In Ukraine, grain experts at the official Hydrometeorological Centre on Monday lowered the bar for forecasts for the domestic harvest to 43m-44m tonnes, down from 56.7m tonnes a year ago.

Crop prices at Monday's close

Chicago wheat, (September contract): $7.41 a bushel, +7.7%

Chicago corn (December):$5.94 a bushel, +7.2%

Kansas wheat (September): $7.49 a bushel, +6.9%

Chicago soybeans, (November): $14.25 a bushel, +3.6%

Paris wheat, (November): E225.00 a tonne, +3.9%

London wheat, (November): £168.00 a tonne, (+4.0%)

UkrAgroConsult, the crop consultant, two weeks ago trimmed its estimate by 800,000 tonnes to 45.5m tonnes, while the USDA foresees the crop, in terms of the total harvest of coarse grains and wheat, at 45.8m tonnes.

The Hydrometeorological Centre warned that its crop forecast could yet prove optimistic if dryness emerges to as a threat for corn, which is spring sown, and in which the country currently appears on track for a record 26m-27m-tonne harvest.

"At the present moment, the situation with corn is satisfactory. But it could grow much worse without significant rain in the next one or two weeks," the centre's agriculture head, Tetyana Adamenko, said.

Export supplies

The downgrades were viewed by Barclays Capital analyst Sudakshina Unnikrishnan as "interesting, as the [global] wheat market has been viewed as oversupplied", although estimates for inventories have been falling in recent months.

Grain prices soared on both the US and European markets, boosted too by fears for dry weather on prospects for the US corn harvest.

Black Sea wheat supplies are particularly closely watched because of their importance for world values, with the region seen as a price leader on exports.

However, Russian agriculture minister Nikolai Fyodorov downplayed fears that the country would, as in 2010-11, and were threatened in 2011-12 too, introduce grain export restrictions.

"We see no reason to scare anyone with talk of an export ban or others levers or tools", he said, according to the Interfax news agency.

Mr Fyodorov estimated Russia's grain export potential at "not lower than" 20m tonnes.

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