Russia cuts grain export hopes, amid import talk

Russia's grain exports will slump further this season than had been thought, amid continued talk of imports heading for the country despite a decision not to ditch a levy on buy-ins.

Russia's farm ministry is to cut to 14m tonnes, from 15.5m tonnes, its forecast for grain exports in 2012-13, deputy minister Ilya Shestakov.

Trade at that level would represent half the 28m tonnes shipped in 2011-12, on US Department of Agriculture estimates, and imply only minimal exports for the rest of the season, with the tally already at some 13m tonnes.

The strong early pace of shipments in 2012-13 has nearly exhausted exportable supplies undermined by a poor harvest last year, when dryness slashed wheat production to a nine-year low.

Indeed, stocks will end 2012-13 at 9m tonnes, down from 19m tonnes a year before, Mr Shestakov told reporters.

Wheat stocks at agricultural enterprises, excluding small farms, as of January 1 stood at 13.3m tonnes, down 39% year on year, consultancy SovEcon said on Monday, citing analysis of official data.

'Significant impact'

Russia's grain exports are of close interest to the global trade thanks to the country's reputation as a source of competitively-priced supplies.

However, the drop in inventories has fuelled a rise in prices which have, for milling wheat, soared 54% to 11,000 roubles ($369) per tonne over 2012-13 so far, according to a report out overnight from the USDA's Moscow bureau.

"Prices of feed quality wheat, class 5, were increasing even faster, from 6,575 roubles per tonne to 10,745 roubles ($356) per tonne, highlighting the severe short of feed-quality grain," the briefing said.

At that level, "domestic prices have already exceeded international market prices", cutting export prospects besides having a "significant impact on the profitability of many Russian livestock and poultry producers".

State auctions

Russia is attempting to ease the squeeze on domestic supplies by auctioning off intervention supplies, with 1.45m tonnes sold since the programme opened in October.

Mr Shestakov said that Russia would sell a further 3m tonnes of intervention grain by the end of the year, cutting the inventories to 300,000 tonnes.

"If the harvest is good next year, we will consider replenishing these stocks," he said.

Intervention stocks of class 4, soft milling wheat are already almost exhausted, the USDA bureau said.

Purchases from the EU?

However, the quest for grain is also said to be boosting interest in imports, from the European Union as well as Kazakhstan.

Grain traders at a major European commodities house noted talk "of cargoes from Baltic ports being sold for shipment to St Petersburg".

Broker FCStone said that the rise in Russian wheat prices towards record highs was "maintaining market chatter of Russian purchases of EU wheat".

Mr Shestakov on Tuesday restated a position that the government was not ready to remove a 5% duty on grain imports which would facilitate buy-ins.

The USDA bureau said: "The lifting of the imports tariff would ease imports of grain from the EU to the north-western part of European Russia, with a large number of poultry producers and Russia's major metropolitan areas.

"However, lifting of import duty would require a special resolution of the government, and the changes are reported to be unlikely at least until end of February 2013."

Treaty consideration

The major European commodities house, which has substantial operations in Russia, said that it was "not at all clear" that the country could lift its 5% export duty "without transgressing the trade agreement if has with neighbouring countries such as Belarus and Kazakhstan.

"Whether or not the import duty is removed, it is quite possible that Russia will have to import up to 2m tonnes before the end of the season."

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