SovEcon cuts hopes for Russia grain harvest, again

19th Jun 2012, by Agrimoney
SovEcon for the second time in a month cut its forecast for Russia's grains harvest, citing damage from dry weather, and warned of a potential impact on the competitiveness of wheat exports.

The influential analysis group cut to 85m tonnes, from 88.5m tonnes, its forecast for the grains harvest, citing weather which was "still hot and dry in many regions".

While some regions had received rains, they came "too late to improve things", Andrey Sizov, the SovEcon managing director, said.

Hot weather was proving a "particular problem" for the Volgograd area, but also in the black earth region, around Voronezh, in the Urals and Siberia.

Farmers were being forced to harvest grains earlier than usual – as in the drought year of 2010 - to avoid losing out to stressed crops shedding kernels prematurely, although conditions were still far better than two years ago, Mr Sizov told Agrimoney.com.

Export implications

Indeed, while SovEcon cut its forecast for the Russian wheat harvest by 3.0m tonnes to 50.0m tonnes, the figure remains well above 2010's 41.5m-tonne result.

Nonetheless, with the forecast well below last year's 56.2m-tonne crop, the Moscow-based group warned of the potential impact on Russia's wheat exports, which are closely followed worldwide because of their price competitiveness.

SovEcon, which at 14m tonnes already had one of the most downbeat estimates for Russian wheat exports in 2012-13, is to cut this forecast to reflect reduced harvest hopes, Mr Sizov said.

And, with wheat supplies for export set to prove scarcer than expected, producers will gain the upper hand in an annual battle with merchants over early-season prices.

"This year, farmers are likely to win this contest," Mr Sizov said.

Indeed, it "not be easy" for exporters, some of whom have signed up to exports at $250-255 a tonne from July, to fulfil their obligations at a profit.

'Very serious moisture stress'

The comments come amid a continued debate among investors over the impact of Russia's dryness on yield prospects, and on price implications.

Gail Martell at Martell Crop Projections took a downbeat view of yields, saying that "drought that originally began in Ukraine and southern Russia has shifted eastward into the Volga Valley, Urals and Siberia.

Satellite data from the US Department of Agriculture "confirms very serious moisture stress over a broadening area of the Russia grain belt.

"Not only is the lower Volga affected, important for winter wheat, but also spring wheat and barley areas in Volga and Urals."

'Largely priced in'

However, Rabobank analysts, estimating Russia's wheat harvest at 52.0m tonnes, said that investors had already factored in reduced crop expectations.

"While conditions in the Black Sea region continue to deteriorate, we believe they are largely priced in at current levels," the bank said.

"Further supply side shocks will be needed to result in a sustained bullish rally for wheat prices."