A revival in Russia's domestic grain prices looks set to founder under the weight of the country's inventories, despite the second-best year for exports and growing demand from livestock farmers.

The country's programme of intervention buying, which has fostered some support to prices over the winter, is supporting a build-up of stocks which may damage the market come spring, a US Department of Agriculture briefing has said.

Exports, which look set to revive after short-term hiccups caused by bad weather, will not prove strong enough, even at perhaps 21m tonnes, to drain inventories far.

A drive to develop Russia's meat industry, which the government wants to see meet national demand for pork and poultry, "might increase demand for feeds, but will not be able to use the entire grain surplus".

"Stocks will remain approximately 20m tonnes by the end of the marketing year," a report from USDA Moscow attaché Yelena Vassilieva said.

"These stocks will oppress domestic grain prices in spring 2010."

Inventories of wheat, which accounts for the bulk of Russia's grain production, will jump by 38% in 2009-10, her report showed.

Two forces 

The comments follow a similar forecast from SovEcon, which on Monday noted "two main drivers" of the market.

"On the other, demand from domestic processors is pushing up feed grain prices."

SovEcon foresaw the influence of global markets gaining the upper hand in the end.

The group's market data shows Russian feed wheat prices jumping 37% over the last four months to an average of 3,250 roubles a tonne, with feed barley recovering 11.8% to 2,500 roubles a tonne.

Nonetheless, market prices have remained below intervention levels, leaving the government to consider other market-support policies, such as short-term loans for farmers using grain as collateral, Ms Vassilieva said.

"However, the federal budget constraints limit these choices," she said, noting the farm ministry's priority this year to support the development of Russia's livestock industry.