The US Agriculture Department's attache in Moscow released the following report, dated December 31, on the wheat outlook for Russia.
With a lower 2003 wheat crop and relatively strong export pace to date, the domestic market is now finding feed grain availability constricted. As a result, prices for both milling and feed quality wheat have risen.
In an attempt to limit the negative impact on consumers, the government will impose export tariffs on several grains in January to supplement other policy measures already taken by some regional authorities.
As supplies tighten on the internal market, grain prices continue to increase.
This increase is led by milling quality wheat, which has reached about 5,500 rubles (US $188) per metric ton in some regions.
This short supply in general has not only affected bread consumers, but also the livestock industry, as wheat is often a component of animal rations.
In fact, greater demand for all wheat types has bid up feed wheat prices to nearly those for food quality.
Local administrations have attempted to curb the bread price increase with limited success, and the Federal government has taken an increased role through a temporary wheat and rye export duty of 25 Euros per metric ton to be implemented in January.
As demonstrated in Table 1 (not shown), grain prices in all regions have been increasing during the fall and into the beginning of December.
According to Russian Grain Union data, milling quality wheat prices have increased from about 15 percent in the Volga Valley to almost 24 percent in the North Caucasus region.
Dollar-denominated prices have been increasing even faster, making Russian wheat and rye less competitive on world markets.
Notes: Milling quality wheat is Russian 3rd class, 23% gluten. Price data includes VAT that, for exported grain, is later reimbursed to the exporters. This process usually takes several months. Prices in rubles or dollars per metric ton at elevator.
High current domestic prices for wheat and rye, plus significant transportation and freight expenses, have already created disincentives to export these grains.
When the 25 Euro export duty takes effect in January, trade will in all likelihood be prohibitively expensive, as the ruble cost of exported milling quality wheat will increase by 15-19 percent, feed wheat by 17-19 percent, and rye by 17-19 percent.
However, the export tariff's ability to stabilise the market is not certain, as a number of other economic factors will influence prices.
Among these factors are the structure of stocks next spring (milling quality vs. feed quality), Kazakhstan's grain export policies, and demand by the livestock and poultry sectors.
Some specialists estimate that by next March, feed quality wheat reserves will be exhausted, and more milling quality wheat will be fed to poultry. This could push wheat prices past 6,000 rubles per metric ton.
TRENDS IN FLOUR, BREAD AND CEREALS PRICES: As shown in Table 2 (not shown), the continued rise in wheat and rye prices influenced growth in other grain prices during the September to November 2003 period, albeit at a slower rate than for milling quality wheat.
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