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Sunday, March 18, 2018

To set all new records of the Russian grain crisis helps

“We can get just an outstanding result.” With these words, Prime Minister Medvedev about the prospects of the grain harvest, which will be in Russia this year. Our country has already reached first place on the supply of grain on the world market, and the current crop could further strengthen these positions. Such progress is quite understandable explanation.

The grain harvest in Russia this year may become a record. “The Ministry of agriculture as of August 12 already has the data that is harvested about 70 million tons of grain. It’s almost a third more than last year”, – said Prime Minister Dmitry Medvedev during a meeting with Deputy Prime Ministers.

“Even if the price of grain in foreign markets will be reduced, devalued the ruble in any case ensure super-profits and the government and exporters, and the agricultural holdings”

According to him, the year 2015 also showed good results of grain yield, “But nevertheless, this year, if all goes normally, safely and the weather will not fail, of course, we can simply obtain an outstanding result. Therefore, the intermediate result is good.”

Traditionally, the results of collecting and processing of grain are held at the end of the year. Last year, Russia had harvested to 104.8 million tons of grain in net weight, of which 61.8 million tons of wheat. According to the forecast of the Ministry of agriculture on 2016, may be collected 106-110 million tons of grain. According to the forecast of experts, Russia could reap from 110 to 118 million tons (versus 105 million a year earlier). For comparison: neighboring Ukraine expects to collect only 61 million tonnes, almost twice less.

With such a good harvest Russia quite on forces to strengthen its leadership and for export. In the last agricultural year (July 2015 to June 2016) Russia has already won that fight, pushing and Canada, and the United States from the first positions among the largest exporters of grain. And it happened for the first time in modern history. So, Russia exported a record 33.9 million tons of grain. Of them of Russian wheat was sold at 24.5 million tonnes for export, against 22.5 million tonnes sold to Canada, and 21 million tons from the United States.

In the coming season – from July 2016 to June 2017 – Russia has all chances to preserve the newfound leadership. And sure, even in the North America. In July, the Ministry of agriculture of the USA declared that the export of Russian wheat in this crop year may increase by another one million to 25.5 million tons. This means that Russia’s share in the global market will grow from 14.4% to 16%.

But a month later, the American Ministry is forced to admit that Russia will sell the currency for more grain – only wheat exports will reach 30 million tons. For comparison, all EU countries will be able to supply to foreign markets is much smaller – not more than 27 million tons, expected by the Americans.

The reasons for the success

The export success of Russia explains, of course, a good harvest. But it became possible not only because of the lack of bad weather. One of the main reasons that Russia for three consecutive years collects stable yields and establish all new records and for the collection and export of grain, in a sensible financial investment in the agricultural sector. Russia made a bid for the cultivation of grain in the southern regions. “Played into the hands of the sanctions that have emboldened the Russian agricultural market, and loans on the opening of new production facilities began to be subsidized,” notes Kirill Yakovenko from “ALOR Broker”.

Finally, the Russian grain was seriously helped by the crisis and the devaluation of the ruble. Russian farmers – the main beneficiaries of the unfavorable economic situation of the last few years.

“Export records were attributable to increased demand for Russian wheat, which due to exchange rate differences fell,” says Yakovenko. For example, Russia due to high quality and low price of grain easily won the lion’s share of contracts to supply wheat to Egypt. Wheat is the main export cereal product of the Russian Federation, since more than 70% of the new crop is just out of it.

But many rivals Russia, on the contrary, the whole situation in the economy greatly tarnished the export potential. For example, not much luck last year in France: not only is the quality of its grain was badly damaged due to flooding, so also the course of the war did not allow her to put a price tag better than the Russian.

“Those Egyptians are attracted by the availability and relative geographical proximity of Russian goods. So, a ton of Russian wheat is worth 10 thousand rubles, or $ 150, while the Americans and the other market leaders, the French, sell for 15-20% more”, – said Kirill Yakovenko.

The consequences for Russia itself and its competitors

On the background of crop growth in Russia over the capacity for the storage of grain. “Grain storage capacity is only rated for 115 million tons, the rest of the grain, albeit in small numbers, just nowhere to store. For example, high-quality elevators in the country designed only 38 million tons of grain, the rest is barns, which can not guarantee the safety of the affected product, in this case to build a new warehouse, the farmers can not, because the payback period of 15 years,” – says Yakovenko.

That space for the storage of grain in Russia is low, evidenced by the fact that this year the state United grain company, which provides traditional grain interventions, for the first time will provide farmers the opportunity to decide for themselves how much they are willing to give grain to the state. “It is clear that UGC precisely the same not enough storage capacity, and the only real way to find buyers on the side,” – says Yakovenko.

This means that Russia can expect new records in grain exports and, as a consequence, enhancement of the welfare of Russian farmers. Although, on the other hand, the excess supply from Russia will have a negative impact on the global purchase prices for grain. “It is expected that they will decline, which can negatively impact on other players who will be forced to sell at a loss,” – says Yakovenko.

However, Russian farmers, unlike their competitors, will benefit even in the context of the ongoing decline in prices for grain on world markets.

Even the introduction of last year export duties in the amount of 50% of the value of the export batch minus 6,5 thousand rubles per ton allowed by the absolute majority of agricultural holdings in Russia to show revenue growth. “Most likely, the situation will be repeated this year. Despite the current decline in wheat prices in the domestic market about 21 per cent, global market conditions for Russian producers promises substantial foreign exchange earnings, which will more than cover all the losses,” – said the CEO of the company Transitplus International Dmitry Portnyagin.

Last year, given the sharp decline of the ruble, the government chose to sacrifice part of the export potential, by sending to foreign markets for only 25 million tons, to reason with the appetites of exporters and to curb inflation. If this year will set a new record for the harvest, then it is possible that the export duty will soon be cancelled and the exporters will loose hands, said Portnyagin. Moreover, the need for large scale interventions not now.

“Even if the price of grain in foreign markets will decline as a result of growing supply from Russia devalued the ruble in any case ensure super-profits and the government and exporters, and agricultural holdings. In addition to importers that will get a chance to fill the store with cheap grain, the main beneficiary will be Russia”, – said Dmitry Portnyagin.

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