Fires in Russia



Russia faces fires; the anomaly heat dominates through the territory of Russia; Russia has the strongest droughts for recent 40 years; Russia closes grain exports; Russia provoked world grain prices growth...

Those as the headlines of the Russian and world Inform Agencies, which continue developing the rise of panics on the exchanges and among the population.

To date, the droughts and anomaly heat occupied 27 regions of the Russian Federation, including the traditional grain producing regions o0f the country: the Republic of Tatarstan, the Republic of Bashkortostan, Orenburg, Belgorod, Voronezh, Saratov, Samara oblasts. Due to the droughts, the sowings perished throughout over 10 mln ha of the general sowing areas at the level of 43.6 mln ha.

Beside such objective data, there is the information which is not objective at all, and sometimes is rather speculative.

During recent 10 days, the forecasts of grain production in Russia of various experts became almost catastrophic. As of the end of July – first days of August, almost all official and private agencies had the same opinion about grain production decrease to the level of 73-75 mln tonnes due to the droughts, and as of August 5, the forecast which totals 60-65 mln tonnes, became the most popular, and some experts told about the forecast which totals 58 mln tonnes. Consequently of such estimations, the Government of Russia closes grain exports till the end of 2010. The world prices sharply increased and the market was caught by panics.

But were such sharp and too pessimistic forecasts legitimate? That depends on the different points of view.

According to the agrarian lobby (of agricultural producers), the worse the forecast is, the better the situation becomes. First of all, due to the pessimistic estimations, wheat prices increased by two times on the domestic market from June to August, which is the best result in the terms of the pessimistic estimations of the new crop efficiency in May, for example.

By the way, the Government stated more than once that Russian officials will assist to the suffered regions. And some agrarians know very well how to get the assistance without being suffered.

And there is the real base for such admissions. According to the press-service of the Ministry of Agriculture of the Russian Federation, the regions of Russia inflate the damage from the perished sowing areas due to the droughts. Thus, the internal expertise estimated that the damage throughout 18 regions, which suffered from droughts and delivered documents about it, totaled 26 bln RUB, but according to information from the regions, the damages totaled 37 bln RUB.

And according to the Government view at this situation, you can also understand everything in clear way.

The Government has the absence of real and objective information about crop damage (especially on the base of forest fires, mass panic not only among the population, but also among Heads of the regions), and due to such situation, wheat and feed crops prices increase (it means also the attack at animal production), and still the imminence of the growth of bread prices becomes even more decisive (and as you know bread price is like the fetish throughout the former Soviet Union countries, excluding the Baltic ones).

Exporters also receive positive effects from dominating of the present negative forecasts of the future grain production. The world market continues increasing prices, due to increasing of the number of such announcements, which stimulates world trading process and makes buyers to be more compliant.

But in the case, when the price exceeded all acceptable maximum levels between the domestic and export markets, the export ban becomes very suitable – force-majeure!

Transnational grain trading companies also received advantages from establishment of the export ban in Russia only, due to decreasing of the number of global competitors! Thus, the ports of Egypt, Turkey, Syria will start importing American and French wheat volumes with low-scale volumes of Kazakh and Ukrainian wheat.

But do the grain losses, estimated by Russian Government and many experts, really reach such large-scale volumes, which threat the domestic food security of the Russian Federation? Especially, taking into account the essential grain carry-over stocks – over 20 mln tonnes, including nearly 10 mln tonnes of grains in the intervention fund.

Unfortunately, and we should concentrate the attention at the fact that to date there is no objective information concerning the real indices of grain losses in all damaged regions, which gives the possibility to market participants to manipulate the data. That is why, we have to use operative harvesting data for the present analysis.

We should mark that as of August 10, Russian agrarians harvested grains and leguminous plants throughout 41% of the planned areas (43.6 mln ha – the preliminary estimations of the sowing areas by the Federal State Statistics Service), the general grain production totaled 38.2 mln tonnes with the average yield of 21.3 c/ha. At the same time, to date only one half of the present harvested areas cover the regions with the Emergency Situation (the Volga Federal District, and several oblasts of the Southern, Central and Urals Federal Districts). The Siberian Federal District has not started the mass harvesting campaign yet.

And we also should estimate the real harvesting areas, which remained from 43.6 mln ha of primary sowing areas. Of course, we can estimate that the index totals 32.7 mln ha, if we take away “burned” 10.9 mln ha from the primary index of 43.6 mln ha of grain sowing areas (statement of D.Medvedev). At the same time, the Ministry of Agriculture provides other estimations at the level of 41 mln ha.

Taking into account the dynamics of reduction of grain yield during the harvesting works, we forecast that the average yield index will not reduce below the level of 19.1 c/ha. Thus, the index provides the following grain production levels in the terms of the above mentioned harvesting areas: 62.46 mln tonnes or 78.31 mln tonnes, respectively. Thus, we expect for the average grain production in Russia at the level of 70 mln tonnes.

And taking into account the carry-over stocks, the volumes completely satisfies all requirements of the domestic market of the Russian Federation, and also provides rather good export volumes.

Russia: grains and leguminous plants supply and demand balances, thsd tonnes, thsd ha
  2007/08 2008/09 2009/10 2010/11*
optimistic forecast pessimistic forecast
Beginning stocks 5 728 5 361 16 788 20 111 20 111
Sowing areas 44 265 46 883 47 553 41 000 32 700
Yield, c/hа 19,8 23,8 22,7 19,1 19,1
Production 81 472 108 179 97 036 78 310 62 457
Imports 1 133 438 360 500 500
Total supply 88 333 113 978 114 184 98 921 83 068
Consumption: 70 130 74 351 73 556 72 568 72 568
food 19 481 19 725 19 635 19 335 19 335
feed 34 980 38 160 38 292 38 100 38 100
seeds 9 990 10 290 9 215 9 700 9 700
losses 2 154 2 641 2 650 2 450 2 450
others 3 525 3 535 3 877 2 983 2 983
Exports 12 842 22 839 20 517 14 000 5 000
General distribution 82 972 97 190 94 073 86 568 77 568
Ending stocks 5 361 16 788 20 111 12 353 5 500
Stocks-to-distribution ratio 6,5% 17,3% 21,4% 14,3% 7,1%
* Forecast of APK-Inform Agency

At the same time, nobody has the certain information concerning the real figures of grain losses in Russia!

The protracted droughts in the Russian Federation also affects winter sowing works for the harvest-2011. In several cases, agrarians almost have no sense to provide any winter crops sowing operations. In such situation, agrarians will have to provide serious corrections to spring crops sowing areas, at the same time, arraigns will face problems with compensation of winter wheat deficit. Thus, the season-2011/12 will possibly become even more deficient compared to the present season, especially in the sphere of milling grain volumes.

P.S. Taking into account the topicality of the article, we plan to enlarge the methodology of receiving the objective information with assistance of the mass polling of market participants of the damaged regions in order to form correct data for forming of the accurate grain balances for 2010/11 МY.