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Opinion: Russia loses ability to stun grain market

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How times have changed. A couple of months ago, grain prices danced to the every utterance a Russian leader made on grain.

No longer. On Monday, Dmitry Medvedev, Russia's president, delivered what looked a bombshell, in signalling that the country's ban on grain exports may be lifted earlier than its December 31 deadline.

"As soon as we understand how much grain we have harvested, the embargo will be lifted," he told farmers in drought-struck Voronezh.

International markets barely twitched.

Investors were right, for two reasons, to turn elsewhere for inspiration. As they were to treat with some suspicion last week's forecast from Russian prime minister Vladimir Putin that the curbs would likely be extended well into next year.

Shift to southern hemisphere

The first reason is that Russia is no longer as important as it was in setting the pace of the market. Investors have a reasonable grip on its wheat harvest result, with estimates stabilising in the low 40s, in terms of million tonnes.

While ongoing sowings for the winter crop are of interest, there is so much distance between now and next year's harvest that it would take an extreme plantings figure to fire up the market.

The spotlight has moved to the more imminent, and drought-challenged, crops in Argentina and Western Australia.

And, indeed, to understanding new shipping patterns, and how much trade the various exporters will pick up from the former Soviet Union.

Medvedev vs Putin

The second reason is that the country's grain disaster appears to be becoming a pawn in domestic politics.

Mr Putin's warning of a long-term export ban looked like an effort to remove the incentive for Russian farmers to hold on to grain into next year in the hope of needy foreign buyers being allowed back in.

Hoarding by growers would likely fuel Russian food price inflation, and give voters a stick to beat Mr Putin with.

Mr Medvedev's comments, meanwhile, look an effort to win over the agricultural lobby.

It's not obvious how much clout the president has when it comes to the grain export restrictions, which look very much Mr Putin's bag. But when Russia faces presidential elections in 2012, at which many believe Mr Medvedev will be challenged by Mr Putin, whacking the ban is a cheap opportunity to get farmers onside.

They'll be back

If Russia's agricultural affairs look like getting confusing, investors have just to remember two things.

Russia has limited capacity to sell grain before the 2011 harvest - at least, not without replenishing stocks through imports.

But as soon as the country feels secure again in its supplies, it is unlikely to hang around long before reopening grain exports which serve its own as well as farmers' needs.

For now, international grain markets are right to stop listening so much to what Russia is saying. After all, it is not clear that comment from the country's leadership is addressed at them.


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