Russia to record bumper grain harvest over the last 15 years

Updated September 16, 2008

   The statistics of grain gathering published by the Russian Ministry of Agriculture confirmed the summer forecasts of the Ministry on the most bumper harvest in Russia over the 15 years: after 78% of land was handled, the growth exceeded the indices of the previous year by 20 million tons, and it is the highest index of the Russian export in 2007-2008. In the opinion of the market participants and analysts, the troubles related to the harvest will accelerate the implementation of the government’s plans on the strengthening of Russia’s presence at the grain market.

   According to the data published by the Ministry of Agriculture, this year, the agency recorded the highest grain harvest over the last 15 years. As of September, 15, 78% of the crop acreages in Russia gave 95,3 million tons of grain, and it is 21,3 million tons more as compared to the previous year. The forecasts of the Ministry’s head Aleksey Gordeev on the record grain harvest are a bit lower than the real figures. The most bumper grain harvest was recorded in the core industry region, in the Southern federal district, - 33,1 million tons, in the Central federal district the harvest reached 23 million tons, and in the Volga federal district - 27,2 million tons. Three districts increased the crop yield by 8 million tons on average as compared to 2007, and the productivity growth, provided mainly with the large agricultural farms, totaled 21,2%. Thus, in the Siberian, Ural and Far Eastern districts the indices are lower, than the previous year. As of September, 15 the gathering of grain in the southern Russia that brought about 10 million tons of grain more is finished, and thus, the figures of the 2008 harvest can change, but insignificantly.

   It is better to remind that the harvest of 2007 was good, however, it was insufficient to stabilize the prices at the Russian internal market, since in autumn, 2008, after the prices for wheat had gone up sharply at the world markets (it was the beginning of the world price rise for food), the government of the Russian Federation tightened the state regulation of the grain markets. From 2007-end, the export of wheat and the range of other grain was restricted by the tax duties, and the Ministry of Agriculture intensified the grain interventions; and in spring, 2008, it was announced about the plans to incorporate the state grain trader that would own no less than 25% of the grain export from Russia (in 2007, it totaled nearly 14 million tons).

   The record harvest of 2008 could reduce the state’s activity at the grain market, however, the market participants consider that it would accelerate the scenario announced by first Vice Premier Victor Zubkov in May, 2008. In the opinion of Ivan Nikolaev from Renaissance Capital, "such bumper harvest will accelerate the establishment of the state grain corporation, and it is a quite positive aspect". "The distribution of harvest is uneven, since some districts don’t have good harvest, and in some regions it is even lower, than the previous year. The key problem is the shortage of freight cars and grain elevators", Dmitry Rylko from IKAR Company states.

   The bumper harvest can result in the core problem of the grain market - the transport one, the head of OGO Group Ilya Karpov agrees. "We don’t have enough freight cars. However, when such problems with grain transportation arise, it is "locked" in the regions, but it will not result in the sharp prices drop". According to the forecasts of OGO Group, the present situation will not impede the growth of the export volume; however, the imbalances at the grain market that will escalate with the larger harvest, will intensify the necessity of the state interventions. In the Group are convinced that the interventions of the Ministry of Agriculture at the market will be directed to support prices and the profitability of the grain farms. It is better to remind that the interventions of 2007-2008 were targeted at cutting prices at the market.

   However, as per the forecasts of Renaissance Capital, the structures of the Ministry of Agriculture will both buy in and sell grain. "The core volume of the harvested grain is of the 5th class, or feed grain. Russia doesn’t require such high amount of this type of grain, and its price will fall. The prices for other grain will continue to grow, because it is insufficient. Secondly, the export will grow as well, but the capacities of the seaports are insufficient also, therefore grain will be transported via the railway, and it is expensive", Mr. Nikolaev supposes. It is better to remind that in July, 2008, after the first data on the future harvest had appeared, the Russian Ministry of Agriculture declared that the success of the agribusiness wouldn’t suspend the incorporation of the state grain trader and the activity expansion at the grain market.