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Drought may halve Russian grain exports

Moscow, 28 July 2010

SovEcon believes that severe drought that has hit many Russian grain-growing regions may nearly halve grain exports to 12 million tonnes in the 2010/11 crop year started on July 1 from 22 million tonnes in the previous year.

Wheat exports excluding flour may fall to 11 million tonnes from a record 18.2 million tonnes in the 2009/10 season. Barley exports this year may total 0.5 million tonnes, down from 2.8 million tonnes in the previous crop year. Shortage of feed grain may force the government to impose restrictions if active exports continue in the summer and autumn.

SovEcon expects exports in 2010/11 to target countries where the competitiveness of Russian grain may be high due to lower freight costs like Egypt, Turkey, Syria and the

Middle East region. Shipments to more distant markets like Bangladesh, the Philippines, Indonesia and Latin America are expected to shrink drastically.

Russia, which harvested 97 million tonnes of grain in 2009 after 108 million tonnes in 2008, managed to export nearly 22 million tonnes of grain including flour in grain equivalent, down from 23.5 million tonnes in the previous season. Wheat exports excluding flour reached an absolute record volume in 2009/10 of nearly 18.2 million tonnes. In June alone wheat exports were 1.273 million tonnes, down 100,000 tonnes from May, but nearly 70 percent more than in June 2009.

Flour exports fell to 276,000 tonnes in 2009/10 from 474,000 tonnes in 2008/09. Barley exports declined to 2.8 million tonnes from a record 3.48 million in 2008/09, maize exports fell to 400,000 tonnes from 1.306 million tonnes.

DROUGHT TO CUT CROP, EXPORTS

On Tuesday, SovEcon cut its forecast of Russia's 2010 grain harvest to 70-75 million tonnes from previous 77-78 million tonnes, adding that the harvest may fall below 70 million tonnes as severe drought was killing more crops. SovEcon believes active exports at the start of the new season from North Caucasus, where the crop is abundant, will not be followed by supplies from regions hit by the drought.

Falling supply pushes prices up cutting the competitiveness of Russian grain. The government intervention stocks of 9.5 million tonnes equal to nearly half of the country's carryover stocks will be used exclusively to stabilise the situation on the domestic market.

Acute shortage of animal feed, including hay and straw will require an additional amount of feed grain. The agriculture ministry estimates this volume at some 7 million tonnes, but SovEcon believes that it may be lower as additional feed may be found in autumn and the animal population may shrink.

However, if the crop proves to be below 70 million tonnes and grain exports remain active in the summer and autumn the government may seriously consider restricting feed grain exports.

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