Russia's ban on food imports from the likes of the European
Union and the US may lift domestic prices, but could raise food inventories in
exporting countries, the United Nations said.
Abdolreza Abbassian, senior economist at the UN Food and
Agriculture Organization, said that the "first casualties" of the Russia's curbs
"would be the domestic market", with the country, a major importer of the likes
of meat, fruit and dairy, likely to pay more to meet its needs from other
However, the ban "will have some implications for farmers in
the producing countries" too, Mr Abbassian said, flagging the potential, with
Russian buyers absent, for a rise in inventories – a factor which might be
expected to depress local prices.
The comments come as investors are attempting to gauge the impact
on agricultural commodity markets of Russia's move on Wednesday to curb imports
from some countries that have taken sanctions against Moscow over the Ukraine
The exact extent of the curbs is also unclear, although Aleksei
Alekseenko, an aide to the regulator in charge of food inspections, said late
on Wednesday that "everything [in the agricultural sector] that is produced and
imported to Russia from the United States will be banned.
"Fruit and vegetables from the European Union will also be
under a full ban."
Mr Abbassian told Reuters that "this is an exceptional situation
where one cannot generalise on global food security" and that their impact on prices
would be limited.
In the Chicago futures market, wheat – of which Russia and
Ukraine are both major importers, and price of which prices have become a proxy
for regional tensions – fell 0.7% to $5.64 ˝ a bushel for September delivery, as
of 05:30 local time (11:30 UK time).
Nonetheless, prices are up some 5% so far in August, having
gained some ground ahead thanks to a rise in Russian troop movements at the border
with Ukraine, even before the announcement of import curbs.
In the US, Brian Henry at broker Benson Quinn Commodities
flagged market talk "of embargoing Russian wheat" as a response to Moscow's ban,
although "I have strong doubts that a programme of this nature would find much
With Russia a rich source of competitively priced wheat, a widespread
ban its exports, even if workable, would have implications for food
availability in importing countries.
Still, Mr Henry added that "this issue could escalate
quickly, and this year's flow of grain will undoubtedly be different than last
year considering quality problems and geopolitical issues".
Quality problems have emerged in the US, Ukraine and, in
particular, the European Union thanks to harvest-time rains, which encourage kernel
sprouting and reducing milling appeal – although Russia is one country where such
issues do not seem widespread.
Nikolai Fyodorov, the Russian agriculture minister, said on Thursday that he expected the ban on food imports to have no effect on the country's grains exports, expected to hit 25m tonnes in 2014-15, he said, compared with 25.4m tonnes last season.
From a technical perspective, the rise in Chicago wheat
prices has also been fuelled by a covering by hedge funds of short positions,
with speculators having their second highest net short holding in futures and
options combined as of Tuesday last week, the latest data available.
"The market has developed a large enough short position
created this sort of action," Sterling Smith at Citigroup said, referring to a
3% bounce in prices on Wednesday.
From a chart perspective, Chicago futures in the last
session did complete the retracement of 23.6% of their latest run down, a key
point for followers of Fibonacci analysis.
"The 38.2% retracement level is at $6.07 a bushel," Mr Smith
"While do think this level is too far, political tensions of
the type we are seeing can lead to irrational behaviour much like what we saw
earlier this year."
Mr Abbassian was speaking after the UN FAO unveiled monthly
world food price data showing a fall in values of 2.2% over July to a six-month
Cereals prices dropped 5.5% to a four-year low, "a reaction
to excellent production prospects in many major producing countries and to the
anticipation of abundant exportable supplies in the 2014-15 marketing season", the
Concepción Calpe, FAO senior economist, said that "the
lingering decline of food prices since March reflects much better expectations
over supplies in the current and forthcoming seasons, especially for cereals
and oils, a situation that is expected to facilitate rebuilding of world stocks".
Dairy prices dropped 4.4%, thanks to confidence in supplies
at a time when "purchases of butter by Islamic countries declined during
Ramadan, as did those by the Russian Federation," the FAO said.
"For whole milk powder, limited purchases by China, the
largest importer, contributed to a price drop."
Australian beef price
Meat prices bucked the trend, edging 0.4% higher to their
highest on records going back to January 1990.
"The increase was principally due to a strong rise of bovine
meat prices in Australia, where herd rebuilding has reduced export supplies,
and continued strong import demand in Asia, China in particular."
Ms Calpe said: "Livestock product markets have their own
dynamics - in the case of meat, beef in particular, many exporting countries
are in a herd rebuilding phase, which is limiting availability for exports and