Russian domestic wheat prices to rise until new year

December 12, 2012

RECORDER REPORT

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Russian domestic wheat prices may continue to rise until the New Year but the drought-hit and tight market could then see weaker demand, SovEcon agricultural analysts said on Monday. "There are no noticeable drivers for growth closing up besides declining market activity ahead of the upcoming holidays. In the short term, we expect the upward trend to continue," SovEcon said in a note.

One of the world's key wheat exporters, Russia was hit by hot and dry weather this year, which slashed the wheat harvest by a third and raised domestic wheat prices by about 60 percent since the spring to record levels. Last week, average domestic EXW (ex-silo) prices in the European part of the country for third-grade and fourth-grade milling wheat rose 150 roubles to 10,700 roubles ($350) per tonne and to 10,675 roubles per tonne, respectively.

Fifth-grade feed wheat rose 175 roubles to 10,325 roubles per tonne, SovEcon said. Russia's Institute for Agricultural Market Studies (IKAR) said average domestic wheat prices rose 150 roubles per tonne last week because sales from the government's 5-million-tonne grain interventions stocks have had no effect so far.

"It's perhaps the first time in Russian modern history when both interventions and market prices are strengthening," the head of IKAR, Dmitry Rylko, said in a note. Russia has already sold 820,000 tonnes of wheat from 1.25 million tonnes of grain which it planned to sell by the end of 2012 to help ease prices.

As to wheat export prices, demand remained weak last week as Russian prices are $20 higher than Paris January milling wheat at 270 euros ($350) at 0854 GMT on Monday. Russia December wheat exports are expected to decline to 0.5 million tonnes from 0.9 million tonnes seen in November, IKAR said on Monday. Fourth-grade milling wheat purchase prices in Russian deep-water ports were flat at 11,300 roubles ($370) per tonne on a carriage-paid-to (CPT) basis last week, according to SovEcon.

In shallow-water ports it was seen at around 10,500 roubles per tonne on CPT, up 500 roubles. The IKAR pegged price for wheat with 12.5 percent protein content was unchanged at $325 per tonne. As for maize (corn), purchasing prices in deep-water ports were seen at 9,400-9,600 roubles per tonne, up 100 roubles, by SovEcon and seen flat at $305 per tonne by IKAR. In shallow-water ports both saw prices flat at 9,000-9,200 roubles per tonne and $284 per tonne respectively.