Russian Government Begins Selling Intervention Grain

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Posted on: 23 Apr 2012

Intervention sales may decrease domestic grain prices, but are unlikely to impact exports, which have slowed considerably since January.

THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Voluntary Public - Date: 4/13/2012 GAIN Report Number: RS1224 Russian Federation Post: Moscow Russian Government Begins Selling Intervention Grain Report Categories: Grain and Feed Approved By: Levin Flake Prepared By: Yelena Vassilieva Report Highlights: The Russian government has begun selling grain from the intervention fund, and plans to sell up to 2 million metric tons (MMT) in those regions where prices are relatively high and grain stocks are low. Intervention sales may decrease domestic grain prices, but are unlikely to impact exports, which have slowed considerably since January. General Information: On April 4, 2012, the Russian government began selling grain from the State Intervention Fund to grain processors and other consumers. This selling is called ?commodity interventions?. In accordance with the Russian legislation, the Ministry of Agriculture officially opened these interventions through an Order of April 3, 2012 and a letter of March 12, 2012. In February 2012 the Ministry of Agriculture determined the maximum level of market prices (so called maximum prices) when the government would begin selling grain (Order #121 of February 20, 2012, published March 16, 2012). These maximum prices differ by crops by federal districts and even by provinces (Table 1). The Ministry of Agriculture?s Order on prices came to force on March 27, 2012 and will cease to be in force on December 31, 2012. By the beginning of April the Intervention Fund had almost 6.92 million metric tons of grain worth over 32 billion rubles ($1.1 billion). According to recent government information, the structure of this grain was the following: 67,000 MT of grain purchased in 2005, 4.81 MMT purchased in 2008, 1.64 MMT purchased in 2009, and over 0.4 MMT purchased in 2011. The Ministry of Agriculture is going to sell up to 2 MMT of grain of grain from 2005, 2008 and 2009 harvests to consumers in those regions where grain prices exceeded the determined maximum levels, and where stocks are low. These are the North- Western, Central, Southern and North-Caucasian Federal Districts. According to media reports, the government began selling grain from the intervention fund with the following purposes: to free up and clean storage facilities before the 2012 crop, to curb grain price increases in European Russia, and to support exports. Russian State Statistical Service (Rosstat) reported that by beginning of March 2012, Russia?s grain stocks at farms (except small private farms and households, so called small forms of agricultural enterprises) and storing and processing enterprises were 29 MMT, which is only 3 percent higher than in March 2011, when the crop had been very poor and the grain export ban was in force. This March 2012 level is also 20 percent lower than on March 2010. Moreover, stocks in the main grain exporting (Southern, North Caucasian) and grain consuming (Central and North-Western) federal districts were below March 2011 levels. Of all grain, wheat stocks have decreased faster than other grains due to the very strong export pace in late 2011, and by March 1, 2012 the country?s stocks of wheat were 12 percent (or 2.5 MMT) smaller than March 2011. During the first four days of commodity interventions (April 4, 5, 11 and 12) the government, represented by the United Grain Company (UGC), sold 427,384 MT of grain for 2.2 billion rubles ($74 million), including: - 13,590 MT of soft milling quality wheat, Class 3, harvests 2005, 2008 and 2009; - 171,705 MT of soft milling quality wheat, Class 4, harvests 2005, 2008, and 2009; - 169,343 MT of soft wheat of feed quality, Class 5, harvest 2008; - 24,710 MT of food quality rye, harvests 2008 and 2009; - 48,036 MT of feed quality barley, harvest 2008. Market prices of wheat stopped rising on the eve of interventions. Industry analysts expect that interventions sales of up to 2 MMT of grain may decrease Russia?s domestic grain prices, but cannot forecast the speed and scope of this decrease, or its possible effect on export sales. Wheat prices in world markets have been decreasing, and Russian wheat has lost its competitive price advantages in February ? March 2012. Meanwhile, domestic demand in wheat remains strong. Thus, intervention sales are likely to fill domestic demand rather than stimulate export sales. Annex 1. Maximum [Market] Price Levels for Beginning of Commodity Interventions, Prices include VAT [i] , Rubles per MT [ii] . Wheat, Wheat, Wheat, Rye, Barley, milling, milling, fodder Food fodder quality, quality, soft, quality, soft, Quality quality soft, Class Class 4 Class 5 3 Harvest 2005 5,000 4,500 Harvest 2008 - Southern, North- 6,050 5,400 4,550 4,300 4,450 Caucasian, part of Central (Ural Federal and Volga Valley federal District districts included) - Part of Central Federal 7,550 7,150 6,000 District, Volga Valley Federal District, and part of the North-Western Federal District Harvest 2009 - Central, North-Western, 6,050 5,400 NO 4,300 NO Volga Valley (except (Orenburg Orenburg oblast), oblast Southern and North included) Caucasus federal districts. - Ural, Siberian, Far 6,600 5,300 Eastern federal districts, (Orenburg Orenburg oblast oblast excluded)) Note: detailed list of provinces by maximum price levels is in the text of the Ministry of Agriculture?s Order #121 of February 20, 2012, published March 16, 2012: http://www.rg.ru/2012/03/16/minselkhoz- dok.html [i] ?Maximum price? means that the government will begin selling grain from the intervention fund when market prices in the region exceed the ?maximum?. However, grain sales do not begin automatically, and special orders and letters of the Ministry of Agriculture are required. [ii] The exchange rate in 2012 may be close to 30 rubles per $1.
Posted: 23 April 2012

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