No need to fear grain deficit because of weather

Russian Agriculture Minister Yelena Skrynnik has rebuffed concerns that warmer than average summer temperatures could see Russian grain exports slump or that Russia could face domestic shortages.

Speaking with Prime Minister Putin, Skrynnik said the grain forecast was being reduced from 90 million tones to 85 million, to account for the drought in some grain producing areas.

"Our losses are bigger now than we expected. So it will be somewhere around 85 million tonnes.”

But the Minister said even with reduced domestic production Russian would still be a major grain exporter, adding that export capacity should remain at about 20 million tones, with Russia’s grain reserves at record levels.

"Even if the drought reduces the grain harvest, we will be able to fully meet domestic demand and maintain our export potential. There is no cause for alarm in that area. Russia's grain reserves, which total 24 million tonnes, are 20% higher than they were last year. Therefore, even if grain production declines, we can still fully meet domestic and export demand."

With Central Russia and much of eastern Europe experiencing a warmer than average summer, Oleg Sukhanov, grain market analyst at the Institute for Agricultural Markets says that although this will see grain output fall, it is still well above Russian consumption.

“This year we expect to have about 85 million tones of grain, which is 12% down from 97 million tones in 2009. This compares to the average consumption figure of 77 million tones. In fact, 2008 and 2009 had record harvests, with 108 million tones of grain collected in 2008."

Andrei Danilenko, President of Russian Farms group of Companies also says that the drought will have an impact but that this should be minor

“The drought we have here in some Russia’s regions will certainly influence the volume of grain harvest. But we should keep in mind that we compare this year figures to 2009 ones – a year of excess supply. So, in 2010 we’ll have just enough grain, there’s no a real problem.”

Oleg Sukhanov says that the record in previous years make the downturn in production this year look statistically worse, but also provides a strong buffer before any thought of grain deficits needs to be considered.

“If this year we have about 80 – 85 million tones, that would show a normal long run average performance of the market, the market won’t suffer. Also, during those fruitful years of 2008 and 2009 we gathered a substantial reserve supply, an intervention fund, which is currently estimated at 9.5 million tones of grain. So, all this means that there definitely won’t be a deficit in the market.”

Andrei Danilenko, also thinks that even with reduced output it is highly unlikely Russia will experience a sharp rise in prices.

“There won’t definitely be a sharp price rise. First, disposable incomes of the average Russian consumer won’t let the prices go up too high. Second, the world markets will also keep the prices in particular limits. And, the last but not least, is our intervention fund, that will also help balance the price.”

Oleg Sukhanov the reduction in output could even have a beneficial impact, in that it will help clear reserves.

“In fact, less grain in Russia is favorable for the market, as lower harvest will help to get rid of excessive supply and balance the food prices, which is good for both the producers and consumers.”