The Russian Wheat Crop and the World Wheat Market

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The worst drought in years in Russia has caused a sharp rise in the price of wheat and is the first short crop among major wheat exporters since the high market prices of 2007 et 2008. International trade accounts for 18-19 percent of world wheat consumption and weather problems are felt throughout the market. Recent decisions by the Russian and Ukrainian governments to intervene in export contracts are a step backward in keeping trade flowing during production shortfalls.

Russia had two large wheat crops in a row according to statistics from the Foreign Agricultural Service of USDA. Their 2008/09 crop was 63.7 en millions de tonnes (MMT), 9.3 pour cent de la production mondiale, et le 2009/10 crop was 61.7 MMT, 9.1 pour cent de la production mondiale. Dans 2009/10 Russia was the world’s fourth largest producer after the EU at 138.2 MMT, Chine 115.0 MMT and India 80.7 MMT and just ahead of the U.S. à 60.3 MMT. Russia exported 18.4 MMT dans 2008/09 et 17.5 MMT dans 2009/10, respectivement, 12.9 pour cent et 13.5 pour cent des exportations mondiales. They were the fourth largest exporter in 2009/10 after the U.S. à 23.6 MMT, l'UE 21.0 MMT et Canada à 18.5 MMT. In late July, les Etats Unis. agricultural attaché in Russia projected production for this year at 50.0 MMT and exports of 14.0 MMT.

Small wheat crops are nothing new for Russia. It had a crop of 44.9 MMT dans 2006/07 et 49.4 MMT dans 2007/08, quand les exportations ont, respectivement, 10.6 MMT et 12.6 MMT. De 1990/91 par 2005/06, yearly production ranged from 27.0 MMT à 50.6 MMT and exports ranged from 0.5 MMT à 10.5 MMT. Production swings from one year to the next were as much as 16 MMT. Until this year, wheat production and exports have been trending upward over the last decade.

Russia is not the only country with wheat production challenges this year. Canada’s wheat crop is projected by USDA to be down 6 MMT à partir de 2009/10 à 20.5 MMT due to wet weather at planting time that reduced acreage planted. Kazakhstan, a neighbor of Russia, is expected to produce at least 3 MMT less wheat this year than last at 14.0 MMT, which will likely be reduced further as the harvest continues. Ukraine, another Russian neighbor, may have a small cut in production. Reports from Western Australia indicate that winter weather has been dry for the crop that is normally harvested in November/December and will be smaller than expected earlier. The Food and Agriculture Organization (FAO) of the UN reported that this year’s world production will likely be 651 MMT crop, still the third largest crop.

World carryover supplies at the end of the 2009/10 marketing year are estimated at a record of 193.0 MMT compared to 165.1 MMT dans 2008/09, 124.4 MMT dans 2007/08 et 130.6 MMT dans 2006/07. Before the wet weather in Canada and dry weather in Russia and other countries in the region, carryover supplies at the end of the 2010/11 year were expected to be unchanged from a year earlier at 193.0 MMT. With world consumption projected at 667.0 MMT pour 2010/11, a crop of 651.0 MMT as estimated by the FAO would reduce carryover to 177.0 MMT, the second largest after the carryover for the 2009/10 surgir.

Not all of this carryover would be available to the international market for export. China’s carryover stocks at the end of the 2010/11 campagne de commercialisation sont projetées à 64.9 MMT, à partir 56.1 MMT at the end of 2009/10. China usually exports only 1-3 MMT par an. India’s carryover for the 2010/11 marketing year is expected to be 15.0 MMT and the country normally limits exports to a few neighbors. News reports indicate India has trouble finding storage for excess wheat held last year in response to a domestic drought. The government may be open to moving some of those supplies. Excluding these two countries, carryover supplies at the end of 2010/11 would still be larger than any year except for 2009/10.

The wheat problems in Russia and neighboring countries immediately raised the issue of restricting exports to maintain domestic supplies, which has been a recurring issue in world grain trade. Ukraine joined the WTO in May of 2008 after it had limited exports in 2007 to protect the domestic market. News reports indicate that Ukraine has canceled feed wheat contracts with Asian buyers. This has set off a scramble to source wheat from other suppliers at substantially higher prices.

Russia is not a member of the WTO but has tried for 17 years to join the group. It most recently talked of joining as a customs union with Belarus and Kazakhstan. Russia had initially ruled out restricting wheat exports. About half of the wheat used domestically is for livestock and poultry feed, and with other grains in short supply, pastures for livestock hurt by the drought and an ongoing effort to increase livestock and poultry output, domestic pressures overruled international contracts. Restrictions will include existing contracts and cover August 15 à Décembre 31.

The market situation in wheat is similar to the rice market conditions in late 2007 et tôt 2008. Rice supplies were totally adequate, but decisions by some exporters to limit shipments as all commodities prices were increasing led a surge in rice prices as importers scrambled for the few remaining supplies accessible to the market. Wheat price and supply adjustments are being forced onto a few market participants who believed they had firm contract commitments.

This summer’s weather problems are a reminder of the uncertainty of wheat production in any particularly year. Two years of record large crops had led to more concerns about low market prices than short supplies. With almost one ton out of every five tons of consumption involved in international trade, open trade is the best way to match up supply with demand in both large and short crop years.

Wheat importers need to accept the fact that wheat supply contracts have performance risk factors that vary by country. Low priced wheat from less reliable suppliers has an additional cost factor that is not fully recognized in the market. Perhaps an insurance market will develop so buyers can protect against that risk and seller will understand the money they are losing by being unreliable suppliers. This issue is worthy of discussions at the WTO, but there is no reason to expect a solution that is not at least partially driven by market requirements.

Ross Korves
ÉCRIT PAR

Ross Korves

Ross Korves servi la v̩rit̩ sur le commerce & La technologie, avant qu'il ne devienne r̩seau mondial Fermier, de 2004 Р2015 comme l'analyste politique ̩conomique et commerciale.

La recherche et l'analyse des questions économiques importantes pour les producteurs agricoles, Ross a fourni une compréhension intime au sujet de l'interface d'analyse des politiques économiques et le processus politique.

Monsieur. Korves a servi la American Farm Bureau Federation comme économiste de 1980-2004. Il a été économiste en chef d'Avril 2001 à Septembre 2003 et détient le titre d'économiste principal de Septembre 2003 à Août 2004.

Né et élevé à la ferme d'un sud de l'Illinois et ses études à l'Université Southern Illinois, Ross est titulaire d'une maîtrise en économie agro-industrie. Ses études et des recherches plus approfondies à l'échelle internationale grâce à son travail en Allemagne comme 1984 McCloy Fellow agricole et Voyage d'étude au Japon 1982, Zambie et Kenya 1985 et l'Allemagne 1987.

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