Russian grain market potential increases

Russia, the world’s largest wheat exporter, is experiencing an unusual anti seasonal rise in wheat prices. Recently, the U.S. Department of agriculture sharply lowered the Russian wheat harvest expectation, and grain prices rose in the international market. However, Russian officials and analysis institutions take a positive attitude towards this year’s grain harvest and export, believing that Russian consumer rights and national food security are guaranteed.

The US Department of Agriculture recently lowered the assessment of Russia’s wheat harvest and export this year from 85 million tons and 40 million tons to 72.5 million tons and 35 million tons (excluding Crimea). The Department believes that there are two reasons: first, the freezing disaster after one year reduced the planting area of Russian winter wheat by about 1.3 million hectares; Second, continued export tariffs will reduce Russia’s share in the international grain market.

USDA’s forecast has brought fluctuations to the grain market. In the international market, wheat prices on the Chicago exchange once rose by 4% – 5%, and most experts believe that grain prices will rise further.

However, contrary to the US forecast, the Russian government and analysis institutions have positive expectations for the grain market this year.

There is little fluctuation in output. The Russian Ministry of agriculture is expected to be more optimistic. Minister Dmitry Patrushev said recently that the Ministry of agriculture expects Russia’s grain harvest to remain at 127.4 million tons this year, including 81 million tons of wheat. Russia’s grain harvest can fully meet domestic demand and will maintain good export potential.

The predicted value of academic institutions is between the agricultural departments of the United States and Russia. Vladimir petrichenko, general manager of prozerno, an analysis company, believes that Russia will harvest 77.1 million tons of wheat this year and the total grain output will reach 123 million tons, which will be the third highest level in Russia’s grain output history after 2017 and 2020.

For the difference in the evaluation of the agricultural departments of the two countries, the Russian Bureau of statistics explained that the data of “the reduction of grain planting area by more than 1 million hectares” predicted by the U.S. Department of agriculture was based on the evaluation of the situation by the Bureau of statistics in early June, after which farmers carried out replanting, and the data of the Russian Ministry of agriculture took into account the replanting area of 1 million hectares.

Exports remained stable. After the outbreak of novel coronavirus pneumonia, the Russian government implemented a floating tariff mechanism for food exports after facing the world food shortage that may result from it. The mechanism came into effect on June 2 this year. The Ministry of agriculture adjusts the tax rate every week according to the contract data of grain market participants, and the tariff collected will be returned to grain producers such as wheat and rye in the form of subsidies. Russian Deputy Minister of science and higher education Alexei Medvedev said that Russia is not considering canceling this mechanism at present. Floating tariff is formulated as a long-term measure, which can ensure the stability of Russia’s domestic food in the case of rising world food prices.

At the same time, there is still room for growth in the export potential of Russian agricultural products. It is reported that Russia’s total grain exports in the first half of the year reached US $15 billion, a year-on-year increase of 18%. Earlier, the Russian Ministry of Agriculture reported that in the agricultural year 2020-2021 (July 1, 2020-june 30, 2021), Russia’s grain exports exceeded 48 million tons, including 37.5 million tons of wheat. Patrushev predicts that Russia’s grain exports may reach 51 million tons in the agricultural year 2021-2022. The final export volume depends on the harvest, but he expects that the export volume will not be lower than that of the previous year.

Compared with grain harvest and export, Russian society pays more attention to food prices. On the one hand, with the global economic growth and Russia’s economic recovery, Russia’s inflation rate remains high and food prices rise sharply; On the other hand, natural disasters such as fires and floods occurred frequently in many regions of Russia, threatening agricultural production and causing people’s concern about the continued rise of food prices.

In this regard, Patrushev said that Russia’s grain increase will fully ensure the supply of basic necessities for the people and maintain price stability. At present, the Ministry of agriculture and other departments jointly monitor food prices. The measures taken by the government have curbed the unreasonable rise of basic food prices. At present, the dynamics of major food prices are basically within the range of seasonal fluctuations.

Russia’s grain production is safe in the short term, and there is also a certain guarantee for the long-term development of agriculture. At the “all Russia field day” held recently, Patrushev said that Russia will take measures to develop agriculture in many aspects. First, strategic guidance, strictly abide by scientific suggestions such as agricultural production technology, agricultural land and fertilizer supply, strengthen the strategic significance of seed production, and increase the proportion of domestic seeds of basic crops. Second, state support and constantly optimize the state support system. Last year, the Agricultural Bank of Russia and the savings bank issued 700 billion rubles of loans to support agricultural development. Third, digitization. The Ministry of agriculture signed agreements with banks and Internet companies to help farmers assess their consumption needs and sell agricultural products through online platforms.

Source: Economic Daily

Post time: Sep-08-2021