Formazor

Russian Grain Drives Demand

Importers have shown favor for cheaper Russian wheat, reducing demand for grain supplies and feed ingredients from the world's top exporter, the United States. Russia lifted the previously instilled ban on grain shipments on July 1. The August 2010 ban was imposed as a result from the damage to crop caused by drought.

"At these prices, I'm not optimistic," said the president of Advanced Market Concepts in Wamego, Kansas, Darrell Holaday, in a telephone interview with Bloomberg reporters. Holaday explained that Russia is "dumping their wheat" and excess grain into the export market in order to turn a profit. The low prices offered by Russian grain exporters help control the demand for the product by making it more appealing.

Government data shows that wheat is the fourth-largest U.S. crop, just behind corn, soybeans and hay. With the influx of Russian wheat and the anticipation of Russia exporting as much as 20 million to 25 million tons of grain in this season alone, many U.S. exporters are concerned about the future of their animal feed and grain exports.

However, some importers were reluctant to import from Russia due to the relationships built with French and United States exporters. They're also wary to get into business with Russian exporters after the August 2010 ban. Egypt, the top-wheat importer, was one of the reluctant nations; however, Egypt could not resist the low grain prices offered by Russia.

"Russian exporters need to re-establish their positions in their traditional markets... If not for the aggressiveness, Russia would not have won the Egyptian tender,” said Andrei Sizov Sr., Chief Executive and President of Agricultural Analysts at SovEcon. Many believe that for buyers like Egypt it is about mitigating your risk, which is why many are surprised that Egypt revived their imports from the previously drought-ridden Russia.

Some are concerned over the value of the grain produced by Russia. One analyst believes that Russia is trying to move some of the old crop to make room for new crop, which explains the low-priced grain compared to the price of other international grain exporters. Russia is estimated to have a harvest of nearly 92 million tons of grain, compared to the 2010 harvest of 61 million tons of grain. Other countries struggle due to the depleted quality of grain caused by the various breakdown margins.

While many countries are struggling with whether or not to trust Russian exporters and the grains available elsewhere in the world, many exporters are trying to find unique ways to market their animal feeds, feed ingredients and other grains. Only time will tell what the outcome of the 2011 grain export season will hold, so for now, many companies watch and wait.