Forecast Lowers Grain Prices

Grain prices have fallen in anticipation of the 2000 harvest after the Agriculture Ministry said it should cover the nations domestic needs.

The price of wheat suitable for baking, which was over 4,000 rubles ($144.13) per ton mid-July, has fallen by nearly 1,000 rubles per ton. In the south, prices are as low as 2,800 rubles per ton, while in Moscow, prices are no higher than 3,200 rubles per ton.

Wheat sellers are chasing buyers and not the other way round, as was the case two weeks ago, said Andrei Sizov, head of the SovEcon Ltd., an independent research organization specializing in agricultural production and trade in the former Soviet Union.

"The market has changed direction. This hasnt been the case since the record grain harvest [88 million tons] in 1997," Sizov said.

The last two harvests have been poor in 1998 the harvest was a record low 47.8 million tons, and in 1999 the harvest was 54.5 million tons.

SovEcon said that prices in the worlds leading grain growing nations Canada, the United States and Australia ranged from $113 per ton to $136 per ton.

The harvest forecast for this year is the main reason for the sharp fall in wheat prices.

The levels predicted suggest that this year the harvest will finally be able to cover its needs for grain suitable for baking, despite the average quality of these types of wheat. Only 60 percent of the forecast 36.5 million tons to 38.5 million tons will be usable.

Russia needs 22 million tons of wheat per year. Eighteen million tons are used internally, and 4 million tons goes to the nations grain fund.

According to the Agriculture Ministrys forecast of 22 million to 23 million tons, the nation should easily manage without imports. Last year, Russia gathered only 19 million tons, and the shortfall was imported principally from Kazakhstan.

However, anticipation of a good harvest on its own is not enough to explain the fall in grain prices.

Sizov said a surplus was created by 300,000 tons of wheat imported into Russia in the form of aid from the United States. This happened literally on the eve of the harvest coming onto the market.

Deliveries of wheat from Kazakhstan, which began at the end of July, may also have contributed.

The price shift has alarmed grain traders, though they see nothing surprising in this so far.

"The sale price is still higher than the production cost. The situation has certainly changed, and there will be no sharp price rise as there was last year. Todays falling prices are not as catastrophic as was the case after the crisis of 1998, when the price of wheat dropped from $120 per ton in August to $40 per ton in September," said Alexei Ivanov, general director of the Moscow-based grain trader Razgulyai-Zerno.

Elbert Dvurechensky, trade representative in the Moscow office of the Swiss grain company Tradigrain S.A., believes that prices will stay low and stable until the end of September, when they will principally depend on deliveries from Kazakhstan. If there are few of these, as Kazakh farmers promise, then prices will begin to rise at "about 150 rubles per ton per fortnight," Dvurechensky said.

The grain harvest in Kazakhstan should not exceed 12 million tons this year after reaching 15 million tons in 1999.