Russia Lifting Grain-Export Ban as Drought Hits Crops Elsewhere

May 28, 2011, 7:23 PM EDT By Maria Kolesnikova and Marina Sysoyeva

May 29 (Bloomberg) -- Russia, once the world’s second- biggest wheat exporter, will let a grain-export ban expire July 1, increasing supply as drought and flooding threatens crops from Europe to the U.S.

Farmers have sown 10 percent more acres and stockpiles exceed 6 million metric tons, First Deputy Prime Minister Viktor Zubkov said yesterday, according to a government statement. Russian grain traders accelerated purchases in the last several weeks, moving supply to silos near ports in anticipation of the end of the ban which began in August, agricultural researcher SovEcon said May 20.

Wheat traded in Chicago, a global benchmark, as much as doubled in the past year as drought and flooding from Canada to Russia to Europe ruined crops. Russia’s export ban, combined with quotas on shipments imposed by Ukraine, tightened supply and contributed to global food prices tracked by the United Nations surging to a record in the first quarter. While extra shipments will help ease supply concerns, extreme weather may curb output elsewhere and keep prices high.

“The complicated weather and crop situation around the world means we shouldn’t expect a significant price drop,” Dmitry Rylko, general director of the Institute for Agricultural Market Studies in Moscow, said yesterday. It may also take some time for exports to resume after the ban is lifted and “I don’t expect record-high exports from Russia in July,” he said.

Wheat Prices Jump

Wheat for July delivery rose 0.6 percent to $8.1975 a bushel on the Chicago Board of Trade on May 27, while corn for delivery in the same month jumped 1.7 percent to $7.585 a bushel. Rain is delaying planting in the U.S. Great Plains and Canadian prairies. About 45 percent of the U.S. winter wheat crop was in very poor or poor condition, the U.S. Department of Agriculture said May 23.

By contrast, Russia’s Agriculture Ministry estimates the total grain harvest may be 85 million to 90 million tons, up from 60.9 million tons last year.

Russia will export 10 million tons of wheat in the 12 months ending in June next year, up from 4 million tons in the current year, according to the USDA. That’s still less than the 18.6 million tons sold a year earlier. Corn shipments will jump to 1 million tons from 25,000 tons and barley cargoes to 800,000 tons from 300,000 tons, the USDA estimates.

Wheat Available

Russia has about 4 million tons of wheat available for export in the south of the country, though as much as half of it may not be of good enough quality to ship, said Alexander Korbut, vice president of Russia’s Grain Union, the largest lobby group for cereal exporters. Russian ports can handle as much as 3.5 million tons a month, he said.

The resumption of exports may drive international wheat prices 5 percent to 7 percent lower, while boosting domestic prices 15 percent to 20 percent, Korbut said.

Ukraine President Viktor Yanukovych said in an interview May 24 he would lift export quotas because of forecasts for a 15 percent increase in the harvest. Ukraine, once the world’s biggest barley exporter, set export quotas on corn, wheat and barley in October after drought ruined crops.

Increasing Russian and Ukrainian supply will help compensate for anticipated declines elsewhere. The U.S., the world’s biggest wheat exporter, will ship 29 million tons in the next marketing year, down from 35.5 million tons this year, the USDA says.

‘Weather Risks’

“The weather risks that are developing in other producing regions will be more than enough to offset any type of exports coming of Russia,” Erin FitzPatrick, an analyst at Rabobank International in London, said before the Russian announcement. “Wheat prices will stay at elevated levels.”

While international prices may decline on the resumption of Russian exports, domestic prices will likely jump, SovEcon Managing Director Andrey Sizov Jr. said yesterday. That may spur the government to restrict sales again later in the year, he said.

The jump in world food prices means inflation is accelerating around the world, spurring at least two dozen central banks and the European Central Bank to raise interest rates this year, data compiled by Bloomberg show. Higher interest rates may curb global economic growth the Organization for Economic Cooperation and Development said May 25 would rise to 4.6 percent next year from 4.2 percent this year.

--With assistance from Denis Maternovsky in Moscow. Editors: Claudia Carpenter, Sara Marley

To contact the reporter on this story: Maria Kolesnikova in London at mkolesnikova@bloomberg.net; Marina Sysoyeva in Moscow msysoyeva@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net

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Fund Manager Turned Farmer Birch Contending With Drought

May 20, 2011, 10:37 AM EDT By Tony C. Dreibus

(Updates weather forecast in 13th paragraph.)

May 20 (Bloomberg) -- England’s hottest weather in more than three centuries is making Graham Birch, the country’s best natural-resources fund manager for a decade, concerned about the state of his spring crop.

The corn and grasses grown for livestock on the 2,300-acre farm in the southwestern county of Dorset are already beset by the heat and lack of water, Birch said by phone on May 18. Rain will be needed soon to keep yields for wheat and rapeseed planted at the end of last year from dropping, he said.

European farmers are contending with the driest growing conditions in more than three decades. The European Union warned this week that soil moisture is now “critical” in at least six countries after some places had their driest March on record. France’s soft-wheat crop, the EU’s largest, will drop 12 percent, and German output will slide 7.2 percent, local forecasters said May 18.

“It’s the spring crops I’m worried about because that’s what’s seeing some severe drought stress,” said Birch. “It’d be nice to have some rain in the next couple of weeks.”

Birch started a sabbatical from BlackRock Inc., the world’s biggest money manager, in 2009 and formally left in 2010, when the team was managing $36.3 billion of assets. His BlackRock Gold and General Fund was the top performer among 858 U.K.- domiciled mutual funds over a decade, averaging gains of almost 23 percent a year, data from Morningstar Inc. show.

Ruined Crops

The former fund manager left BlackRock in a year in which drought or flooding from Europe to Canada ruined crops and spurred Russia to ban grain exports. Wheat rose as much as 90 percent and corn 87 percent, driving the United Nations Food Price Index to a record and draining global stockpiles.

Weather is threatening crops again this year, from drought in China to temperatures as high as 100 degrees Fahrenheit (38 degrees Celsius) in Kansas. Wheat traded in Chicago rose as much as 7.6 percent on May 18 as European forecasters predicted smaller harvests.

On Birch’s farm, winter wheat and rapeseed were seeded in the fall when the ground was moist and roots could grow deep. Corn and grasses planted this spring in dry conditions didn’t have those same conditions, he said.

“Forage, maize -- those crops are really suffering quite badly from the weather because they didn’t have much of a chance to establish deep roots,” he said. “The crops we planted in the autumn, they’re looking OK at the moment.”

Record Keeping

The Central England Temperature gauge showed the region bound by London, Bristol and Manchester was an average of 11.8 degrees Celsius in April, the warmest since record keeping started in 1659, according to the Met Office.

If rain doesn’t fall in the next two weeks, wheat yields will suffer, Birch said. Irrigating crops isn’t an option because the farm can only draw a set amount of water from reservoirs, and most of those sources are dry, he said.

“Even if we could take out more, the water table is dropping because of the drought,” Birch said. “The reservoirs and little streams have all dried up. I’ve found in Dorset, we’re probably not as badly off. If you speak to farmers in Norfolk, you’ll hear a worse story on winter crops. They’re just hanging in there.”

Light rain is forecast in northern Europe in the next 72 hours while next week will be dry, agriculture forecaster Telvent DTN said in a report today. The U.K. is the EU’s third- biggest wheat producer after France and Germany, according to the International Grains Council. The U.K. crop in the year through July 1 was 15.1 million tons, or 11 percent of EU output, IGC data show.

Milk Production

While rising prices for grains may offset losses caused by dry weather, Birch’s farm is also paying more to feed its 500 dairy cows.

“Our biggest single cost for the milk production is the feed,” he said. “We haven’t yet seen a sufficiently big increase in the price we get for milk. Our margins have been squeezed.”

Birch still prefers those worries to the ones he dealt with in his days as a stock picker.

“The stress as a fund manager was relentless,” Birch said. “Every day you have to beat the stock market again. With farming, it’s physical challenges and practical challenges.”

--With assistance from Rudy Ruitenberg in Paris. Editors: John Deane, Claudia Carpenter

To contact the reporter on this story: Tony C. Dreibus in London at tdreibus@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

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