Potential problems with Russia fuelling latest grain rally

EU grains closed mostly higher again, with Jan 15 London wheat up GBP0.70/tonne at GBP132.50/tonne, Jan 15 Paris wheat jumped EUR4.00/tonne at EUR188.25/tonne, Jan 15 Paris corn was EUR3.75/tonne firmer to EUR156.00/tonne, whilst Feb 15 Paris rapeseed rose EUR1.25/tonne lower at EUR338.25/tonne.

Widespread talk about an assortment of potential problems with Russia are fuelling this latest rally. We've got talk that summer and autumn dryness means that winter planted crops are in poor condition, possibly the worst state on record. There's also speculation that these same poorly established crops are more vulnerable to winterkill this year.

APK Inform said that 20-30% crop losses are possible in the main southern winter wheat regions of Rostov, Stavropol and Krasnodar, due to the lack of snow cover with night-time temperatures down to -10c in the region. These three areas have been planted with around 6 million hectares of winter grains, according to Ag Ministry data.

"The key Southern District, where 61 percent of Russia’s winter wheat is produced, has received only 8 mm of precipitation in the past month against 35 mm normally. Drought has been ongoing since the summer when intense drought first developed. Meanwhile, the Black Earth wheat, north and east of Ukraine, is in the throes of historic drought, receiving less than 25% of average precipitation over the past 3 months," said Martell Crop Projections.

The demise of the Russian rouble, which was set to post its worst one day loss in 5 years today, falling to new all time lows against the US dollar and euro, is also serving to encourage Russian growers to hang onto their remaining grain stocks. Signs are emerging that exports are starting to slow up.


Russian seaports exported 353 TMT of grains in the last week of November, including 258.3 TMT of wheat (73% of the weekly total), 71.1 TMT of barley (20%) and 23.6 TMT of corn (7%). That total was down 41% on the 599.3 TMT shipped out the previous week.

That means that Russia exported 2.71 MMT of grain in November, up versus 2.55 MMT in Nov 2013, although lower than the 3.0-3.1 MMT predicted by Rusagrotrans.

There have been reports on Reuters this past few days meanwhile of Russia introducing new self-imposed tougher phytosanitary conditions on grain storage and exports. Exactly why they would do this is not really clear, as it doesn't seem that it is something that international buyers are asking for, but their own Veterinary and Phytosanitary Surveillance Service (VPSS) said on Friday that it could lead to a significant fall in exports in 2015.

Is it for "insurance" reasons due to early concerns about production next year? Or is it simply a deliberate (and so far successful) attempt to get world and local wheat prices up? Who can tell.

Meanwhile we also have rumblings of a large inter-government deal between Russia and Iran, in which the former will supply "grain and other goods" in exchange for oil in a barter deal. Is the Russian government attempting to rein in exports to reserve stocks for this?

The slump in global crude oil prices is also helping to drive down the already under pressure rouble. That's pushing up input costs for next year too. As Western sanctions bite probably more than President Putin would like to admit, lack of access to credit is another problem that Russian growers will be faced with in the spring.

Grain shipments out of Ukraine are also slackening off, particularly for wheat. Their seaports exported 537.4 TMT of grains last week, down 23% from the previous week. Corn accounted for 85% of that total versus 69% the week before, and wheat's share fell to 15% from 26%.


Potentially then, this leaves more export business to come to Europe in the second half of the current season. The EU Commission today raised their estimate for 2014/15 EU-28 soft wheat exports to 30 MMT, which they say would just about beat last year's record. The IGC forecast soft wheat exports at 28.1 MMT last week, and the USDA currently go for a figure of 28.0 MMT, and that's for all wheat.