Russia's government, coping with a drought which has slashed grain yields by a more than a quarter, will not limit grain exports even if its exportable surplus is exhausted, Deputy Prime Minister Arkady Dvorkovich said on Friday. Markets had been bracing for an indication of some controls on Russian grain exports after watching crop forecasts fall week after week as the drought wore on, raising concerns of a blanket ban as happened after similar weather in 2010.
December wheat on the Chicago Board of Trade WZ2 fell 8 cents or 0.9 percent to $8.95 a bushel by 1033 GMT, while November milling wheat in Paris BL2X2 stood 2.25 euros or 0.8 percent lower at 264.50 euros a tonne. While prices abated somewhat, analysts believe export taxes or quotas are still a possibility as Russia seeks to avoid another huge dent to its reputation as a reliable major grain supplier like that of two years ago, when it was world number three wheat exporter.
"It's a classic. They are playing a waiting game, giving the trade time to do their business and then they will impose taxes, or something else," said analyst Pierre du Peyroux of Horizon Soft Commodities. Traders took a similar stance on recent World Trade Organisation debutant Russia. "It just a headline grabbing stunt. In 2010 they kept being reassuring and then they changed their mind suddenly (and banned grain exports). They could do just the same this year," one trader said.
Dvorkovich told reporters no export curbs were planned. "We consider any export restrictions harmful. We will use the instruments we have - market interventions and information exchange with market participants." He was speaking after chairing a meeting of the government's food security commission, which was closed to the press. "As long as I am in charge of this sector, I will be against any export restrictions," he added.
Dvorkovich appeared to harden his stance against export limits. After previous meetings of the commission, he had said the government could look at a protective tariff to keep grain in the country, though not until the end of the calendar year. Agriculture Minister Nikolai Fyodorov told reporters the ministry now forecast the grain harvest in a range of 70-75 million tonnes. Its previous forecast was 75 million tonnes. Russia barred grain exports for almost a year in August 2010 after its worst drought in decades. Some market observers have speculated this year Russia's wheat harvest may fall below the crop of 2010, when it brought in 41.5 million tonnes of wheat out of a total grains harvest of 61 million tonnes.
"Domestic requirements will be covered 100 percent. There is an exportable surplus of 10-14 million tonnes," Fyodorov said. Analysts and traders view that range as unrealistic, and say the real surplus could be as little as 9-10 million tonnes. It is being rapidly exhausted in the early months of the season. Dvorkovich said 4.6 million tonnes had already been exported in the new crop year, which started on July 1. But he said Russia would use market interventions to cool domestic prices if the surplus ran out. Traders have said it may happen as early as October-November.