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Russian farmers hold on to wheat, keep an eye on 6-month-high prices

Reuters, 31.10.19

In previous seasons, Russian farmers sold wheat early

MOSCOW- Cash left from previous sales, more storage, and no sign the government will introduce export restrictions are encouraging Russian farmers to hold onto their wheat, despite prices hitting six-month highs, traders said.

Farmers in Russia, the world's largest wheat exporter, have long been viewed as indebted and in a hurry to sell crops, fanning a grain export rush early in the season for many years.

But this may be changing.

"(Farmers) have earned very well, and they were able to provide themselves not only with new equipment and technologies, but also with storage capacity," Genrikh Arutyunov, deputy head of major Russian meat products maker Prodo group, told Reuters.

Black Sea prices for Russian wheat with 12.5% protein content have risen 12% since mid-September to $208 per tonne, their highest since late April, according to consultancy IKAR.

Farmers have already sold 50% of this season's exportable surplus during the first four months of the season which started on July 1, a Moscow-based trader said. "They are holding on sales and will continue to do so," the trader predicted.

Russia will export 36 million tonnes of wheat this season, of which 14 million have already been shipped, according to the agriculture ministry. Current exports are down 11% from a year ago, when they were running at a record pace.

Last year, Russian officials, worried by rising domestic prices, intensified phytosanitary and customs checks of wheat, fuelling concerns about potential export restrictions, two other traders recalled.

"Last year was the anomaly, farmers sold the hell out of the crop due to fear of export ban/tax. The two previous seasons there was just too much to sell," one of them added.

Russian wheat missed out this week in the latest state tender from Egypt, one of its key customers. Egypt bought Ukrainian, French and Romanian wheat.

"If Russia used to be closer to the bottom of the list in terms of price at these tenders, now it is closer to the middle," Andrey Sizov at consultancy Sovecon said.

Russian prices are supported by exporters buying wheat from farmers for previously signed contracts, lower stockpiles in southern regions close to Black Sea ports, and relatively high prices in central regions.

Along with a stronger rouble currency and competition between exporters, trade margins are thin, while farmers are focused on selling sunseeds and maize (corn) which are more difficult to store, Sizov said.

Slower exports in the first half of the season mean Russia will be more active than usual in the global wheat markets in January-June.

"The trend we see is the transition (of exports) from the first half of the season to the second half," the agriculture ministry official said this week.

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