Dry weather has damaged the early growth of winter wheat in Russia’s key growing areas, threatening to push up food prices not only domestically but also in key export markets such as Egypt, Iran and Morocco.
The damage to the country’s wheat crop comes amid a ban on food imports from Western countries in response to sanctions imposed by the U.S. and the European Union following Moscow’s actions in Ukraine.
The dry conditions started in September, when the winter wheat was planted, and caused the quality of the crop to deteriorate. Agricultural forecaster SovEcon, based in Moscow, projects Russia could produce less than 50 million metric tons of wheat in the 2015-16 crop year. In the prior season, Russia produced 59 million tons.
“A lack of moisture resulted in a very weak development of winter grains. Weak plants are less resistant to low temperatures thus the risk of increased winter kill losses is quite significant,” said Andrey Sizov, managing director of SovEcon.
As a result, Russia could export as little as 18 million tons of wheat in the 2015-16 harvest, compared with the record-high 24 million tons in the current season.
While Russia doesn’t face the possibility of running out of wheat supplies, a smaller crop could cause domestic prices to rise, adding to the country’s consumer-price inflation woes, say analysts. This would hit countries that are heavily dependent on the country’s grain hardest—in particular for Egypt, Iran and Turkey, the country’s biggest customers.
Egypt, the world’s largest importer of wheat, is relying heavily on wheat imports from Russia to bring down rising food prices—a key factor behind street protests in 2011 that resulted in the resignation of President Hosni Mubarak .
Egypt, which sources wheat via international tenders, has already bought 1.6 million tons of Russian wheat in the 2014-15 crop year, which was then fed into the country’s state-subsidized bread system. The country typically imports around 10 million tons of wheat a year and gets over half of its supplies from Russia.
Doug Bergman, vice president of agricultural derivatives at Chicago-based RCM Asset Management, said political uncertainty in Russia and a weakening ruble could also eat into the country’s production potential.
“As sanctions pressure Russia’s finances, it will make it harder for the country’s farmers to maintain high yields because they don’t have enough credit to buy the materials they need, such as fertilizer and machinery,” said Charlie Sernatinger, head of grains trading at ED&F Man Capital Markets.
Wheat prices hit a two-month high Wednesday, led not only by concerns over the size and quantity of Russia’s winter wheat crop, but also by fears over adverse weather conditions in the U.S. and Australia.
Analysts and dealers said U.S. farmers may reap a smaller-than-expected crop of soft-red winter wheat because of rainfall in eastern parts of the U.S. farm belt, which slowed harvest progress of other row crops, and delayed planting of the grain.
“I think the wheat market can go higher, but I would rather wait for a better correction to the downside to buy. Longer term, I think the price movement of wheat will be heavily dependent on the price of corn,” added Mr. Bergman.
Source - http://online.wsj.com/
