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IKAR in Mass Media

UNCERTAINTY WITH GRAIN PROCUREMENT PRICES COULD FORCE RUSSIA OFF THE WORLD MARKET – EXPERTS

10 августа 2005 года

The uncertainty with the Russian government's grain procurement prices for the upcoming interventions will not only affect the domestic market but could also force Russia off the world grain market, experts said.

"The Russian grain market has two misfortunes – weather and rumors... Rumors about grain interventions. The overall uncertainty with the actual terms for the beginning [of the interventions] and the proposed procurement prices have led to a real fever on the market and it has unforeseeable consequences for its development, including the country losing its position on the world grain market," Agrarian Market Affairs Institute (IKAR) general director Dmitry Rylko said.

The market is currently "built on an export chain and if the government procurement prices are high, then it will be possible to talk about cutting off grain deliveries abroad," he said. According to IKAR, Russia exported about one million tonnes of grain in July. "This is a high figure for July and can be explained by the high demand for Russian barley and wheat," Rylko said.

"There are already signs that the market is coming to a halt, farms are cutting off grain sales in expectation of high intervention prices," he said. "The situation is also dangerous because in these conditions domestic users, poultry farms, millers and others won't be able to purchase grain either," Rylko said.

The government has 6 billion rubles for grain procurements, but will not be able to buy more than 2 million tonnes of grain and "if the price is high, then it will be even less," Rylko said. "The grain reserves will remain and this poses a threat of losses to all the market participants, proposed transactions, an increase in the overall uncertainty and, in the end, a loss of incentive for increasing grain production," he said. "IKAR has long been proposing [that Russia] transfer to a different, better model of intervention, but for now clarity is important for the next few weeks and months," he said.

"Of course, exports won't be stopped right away, there are contracts that must be fulfilled, but due to the high procurement prices, these contracts could turn into losses for exporters," Nikolai Demyanov, marketing director of the International Grain Company, told Interfax.

He said it would be very risky to sign new export contracts under the current uncertain conditions with prices.

Demyanov said the uncertainty is particularly dangerous for the procurement prices on class-4 wheat whose share amounts to 90% of Russian grain exports. "The 2,600 rubles price per tonne being discussed now is unacceptable. With such a price on the domestic market, nobody is going to be waiting for us on the foreign market," he said. Companies that buy grain for export at that price in Krasnodar would suffer an estimated loss of $10 per tonne, he said.

Due to the noncompetitive prices, Russia may lose the opportunity to export surpluses of grain that will most certainly remain after the procurement interventions, Demyanov said. "And they're not small - according to some estimates, Russia's export potential this year ranges from 10-12 million tonnes," he said. "As a result, excess grain will put pressure on the market at the end of the season and will lead to further drops in prices," he said.

The optimal level for procurement prices on class-3 wheat should be 2,700-2,800 rubles per tonne and for class-4 wheat - 2,200 rubles per tonne, Demyanov said.

"The setting of procurement prices should be done based on economic positions and not political positions, but we're doing it the other way around," WJ Interagro analyst Vladimir Petrichenko said.

He said that last week the price on class-3 wheat on Russia's European territory was 2,510 rubles per tonne, which is 35 rubles less than it was the week before. Prices on class-4 wheat were 2,290 rubles per tonne, which is 25 rubles less, and prices on food-grade rye were 2,300 rubles per tonne, which is 70 rubles less than the week before, Petrichenko said.

"Export operations are already being carried out with difficulties at the current price level, and if the market is pushed up a bit further by high procurement prices then the profitability of exporting will disappear and exports will stop," Petrichenko said.

Agriculture Minister Alexei Gordeyev said in Kazan on July 30 that the price on class-3 food-grade wheat would be no less than 3,000 rubles per tonne, however experts believe this is overpriced. Intervention purchases are expected to begin in the third week of August.

Source: Interfax  |  #grain   |  Comments: 0   Views: 121

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