Officials underlined fears for dryness-tested grain harvests in both the Black Sea’s main producing states, and added Ukrainian corn to the list of crops on the watch list, fuelling a jump in prices.
Wheat prices soared 6% in Chicago, while hitting their highest in a year for the best-traded November contracts in London and Paris, which chalked up their highest-ever trading volumes too, of 1,270 lots and 48,200 lots respectively.
Russia’s grain ministry, in a long-awaited move, slashed to 85m tonnes its forecast for the domestic grains harvest, down from a previous estimate of a crop in line with the last year’s 94m tonnes.
The estimate for the wheat crop was cut to 46m-49m tonnes, down from a previous forecast of 57m tonnes, and last year’s 56.2m tonnes.
The US Department of Agriculture, whose data set global benchmarks, has forecast the crop at 53.0m tonnes.
The downgrade followed reports of a disappointing start to harvesting, and more of the dryness in Russia and parts of neighbouring Ukraine which has stressed crops.
Grains harvests in both countries are being brought forward to prevent yield loss to early-shed kernels – as in the drought year of 2010 – although Russia’s crop, at least, is still expected to come in ahead of that two years’ ago.
Over the weekend, "the Ukraine and south west Russia was pretty hot with readings over the southern half of Ukraine and all the Southern district [of Russia] at 32-35 degrees Celsius (90-95 degrees Fahrenheit", WxRisk.com said.
In Ukraine, grain experts at the official Hydrometeorological Centre on Monday lowered the bar for forecasts for the domestic harvest to 43m-44m tonnes, down from 56.7m tonnes a year ago.
Crop prices as of 18:00 UK time (12:00 Chicago time)
Chicago corn (December contract):$5.94 a bushel, +7.2%
Chicago wheat, (September): $7.29 ¼ a bushel, +6.1%
Chicago soybeans, (November): $14.18 ¼ a bushel, +3.1%
Paris wheat, (November): E225.00 a tonne, +3.9%
London wheat, (November): £168.00 a tonne, (+4.0%)
UkrAgroConsult, the crop consultant, two weeks ago trimmed its estimate by 800,000 tonnes to 45.5m tonnes, while the USDA foresees the crop, in terms of the total harvest of coarse grains and wheat, at 45.8m tonnes.
The Hydrometeorological Centre warned that its crop forecast could yet prove optimistic if dryness emerges to as a threat for corn, which is spring sown, and in which the country currently appears on track for a record 26m-27m-tonne harvest.
"At the present moment, the situation with corn is satisfactory. But it could grow much worse without significant rain in the next one or two weeks," the centre’s agriculture head, Tetyana Adamenko, said.
The downgrades were viewed by Barclays Capital analyst Sudakshina Unnikrishnan as "interesting, as the [global] wheat market has been viewed as oversupplied", although estimates for inventories have been falling in recent months.
Grain prices soared on both the US and European markets, boosted too by fears for dry weather on prospects for the US corn harvest.
Black Sea wheat supplies are particularly closely watched because of their importance for world values, with the region seen as a price leader on exports.
However, Russian agriculture minister Nikolai Fyodorov downplayed fears that the country would, as in 2010-11, and were threatened in 2011-12 too, introduce grain export restrictions.
"We see no reason to scare anyone with talk of an export ban or others levers or tools", he said, according to the Interfax news agency.
Mr Fyodorov estimated Russia’s grain export potential at "not lower than" 20m tonnes.
Statistics: Posted by yoda — Mon Jun 25, 2012 11:52 am
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Curbs in wheat exports have returned to the former Soviet Union after all in the form of unofficial curbs on Ukraine shipments, in face of dire prospects for the 2012 harvest, the US Department of Agriculture said.
Russia, the region’s top exporter, two weeks ago eased concerns over resuming its own trade curbs, in lifting to 27m tonnes, from 23m-25m tonnes, a ceiling for grain shipments this season.
However, Ukraine, once known as the breadbasket of the former Soviet Union, appears to have limited its own shipments by striking "non-official agreements" with state traders to focus on corn shipments instead, USDA officials said.
"Bureaucratic barriers and severe winter conditions–low temperatures, high winds and ice in the ports–have been identified as the main obstacles to exporting wheat," the USDA said.
"However, those hurdles have not impeded corn exports that gallop ahead at a pace unheard of before."
With Ukraine’s wheat stocks seen ending 2011-12 at twice average levels, "there seem to be no economic reasons" for the country’s exports of the grain lagging so far behind the historical pace.
"An unofficial lid has likely been applied to wheat exports," to protect supplies of a grain "expected to be in short supply next season following substantial damage to winter crops".
‘Does tick some boxes’
Indeed, such an agreement would boost the chances of Ukraine avoiding a wheat shortfall in 2012-13 even if autumn sowings, damaged by drought and extreme cold, emerge from winter in as poor shape as expected.
Mykola Azarov, the Ukraine prime minister, last week forecast that 3.5m acres of winter grains, more than 40% of the sown area, will be reseeded with spring crops.
And such an arrangement would also limit the chances of political fall-out, after exports quotas in 2010-11, and levies in the early months of this season, provoked criticism from international buyers and Ukrainian farmers.
"Politically, it does tick some boxes for Ukraine. But it also shows again the difficulties you are dealing with if you try to rely on Black Sea wheat for supplies," a UK grain trader told Agrimoney.com.
"It is often cheap. But some would say ‘cheap for a reason’.
Statistics: Posted by yoda — Tue Feb 14, 2012 11:30 am
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Argentina and Russia – will either curb grain exports?
It would hardly be unprecedented for either Argentina or Russia to trip up free trade, speculation of which, in crop trade, has added an extra leg to the rally in grain futures.
Both countries are serial offenders as far as closing off trade to protect their own farm commodity pipelines goes.
And crop supply alarms are ringing in both – in Russia because of the speedy pace of exports, with wheat shipments alone approaching 15m tonnes in the first half of 2011-12, more than the country usually manages in a full year.
In Argentina, the problem is drought, which has slashed hopes for corn and, increasingly, soybean harvests.
However, only one of the pair looks likely to enact export curbs.
Not far to go
And that’s Russia.
The maths stacks up better. Russian grain shipments so far in 2011-12 look set to reach 20m tonnes by the end of this month, according to analysis group Sovecon.
It’s not a stretch to think they can, before the season ends five months later, add the 3m-5m tonnes needed to reach a level which the government has said will trigger export restrictions.
And there is no reason to think the government will not be as good as its word, even if presidential elections in March come up with a surprise.
Protecting domestic grain supplies, and keeping food inflation in check, is likely to prove a far bigger priority than free trade, after the export ban in 2011-12 worked so well. It met domestic objectives without alienating customers, who queued up for Russia’s cut-price grain as soon as the curbs were lifted.
For Argentina, the case for curbs is not nearly so compelling.
Even the gloomiest production forecasts so far do not strip the country of exportable surpluses of corn and soybeans.
Nor are politicians so likely to jump so quickly anyway at restricting shipments of crops, despite in recent years imposing bans for exporting the likes of scrap steel, and restrictions on products from honey to quinces to some destinations.
Grain shipments are a nice little earner for the government, through export levies – duties which also mean Argentina cannot, like Russia, bank on low prices to win back favour with spurned customers.
Indeed, hefty restrictions on shipments would likely play out badly with the Chinese customers Argentina has expended significant political effort attempting to curry favour with for long-term trade deals.
Room for manoeuvre
Of course, it is possible that neither country will restrict exports. Russia’s grain harvest last year proved some 3m tonnes bigger than had been expected, giving the government some elbow room to lift its export ceiling.
But Russia looks far more likely to act.
So investors should be pumping more risk premium into wheat futures than into corn or soybean ones. Which is exactly what they have been doing.
Statistics: Posted by yoda — Sun Jan 29, 2012 2:47 pm
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