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Opinion: Russia should come clean on grain exports

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The Kremlin needs to come clean on its grain export strategy.

Worries among importers that Russia is to close the door on shipments, to preserve domestic supplies in the face of a dismal harvest, are a big factor in this month's 20% surge in international wheat prices.

That may suit Moscow's interests for now. But it risks unravelling the country's success in rebranding as an export powerhouse.

Doesn't add up

If Russia really thinks it can still ship 20m tonnes of grain, a longstanding target, it should say so, and explain how.

Few believe it's possible. Assume the crop comes in below 75mn tonnes, as SovEcon analysts predict, and Russia wouldn't even harvest enough to meet its own needs. Sure, the country has quite a bit in store. But exporting 20m tonnes on top of meeting domestic needs would pretty much mean sweeping out the silos.

That's hardly an appealing prospect. It would leave Russia, and any pretence as a major exporter, a hostage to the success of next year's harvest.

So if the government does have an ace up its sleeve, now is the time to show it.

Trust in trust

By keeping schtum, it is testing the market's credibility. Commerzbank analysts were hardly broke ranks with other investors on Thursday by highlighting the "mystery" of Russia's export maths.

And credibility is particularly important in food.

The soaring prices that Russia's stance is encouraging is getting the country out of one hole. It is sitting on more than 9m tonnes of stocks which have been costing a fortune in silo fees but, after being bought during the 2008 boom times, would have been even more painful to get rid of until now.

However, the Kremlin is getting into another. Russia has sealed a reputation as a competitive exporter, but not yet as a reliable one, as periodic flare ups with Egypt, the world's biggest wheat buyer, show.

And trust is ultimately more important. Buyers can't make bread out of broken promises.

Moral and financial sense

Neighbouring Ukraine has bitten the bullet. It has declared on Wednesday that it will not limit exports however small its crop, even though this may mean paying more for wheat needed to ensure domestic supplies.

Russia should do the same.

Sure, that could prove expensive. But at least, in announcing it is to sell down its stocks, it has something to put on the other side of the accounts - the disposal will save a shedload in elevator fees.

Besides, Russia is investing hundreds of millions of dollars in improving its grain export infrastructure. It would be a shame to spend all that money only to get the cold shoulder from importers.

By Agrimoney.com

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