Ukraine, Russia May Lift Wheat Exports As EU, U.S. Crops Wither

KIEV, Ukraine -- Ukraine and Russia may return to the world wheat market in coming months as local harvests rebound from last year's drought, in a reversal of roles with the U.S. and Europe, where dry conditions are wasting crops this year.

Ukraine plans to lift grain-export quotas that reduced its wheat shipments by more than half, while Russian grain traders are gearing up to make foreign deliveries as the government in Moscow considers letting a ban on grain shipments expire.

The export curbs implemented by Russia and Ukraine will cut their share of world wheat trade in the year through June to 6 percent from 22 percent a year earlier, the International Grains Council forecasts.

Now the U.S. and France, which lifted shipments to fill the gap left by the Black Sea countries, are struggling with drought that is hurting this year's crop and may reduce export availability in the 2011-12 crop year.

"It's a return to the market that is more than necessary," Nicolas Pinchon, an analyst at Paris-based farm adviser Agritel, said in a phone interview. "Without the Black Sea this year, it would be a disaster."

Ukrainian President Viktor Yanukovych plans to sign into law a proposal by parliament last week that would replace export quotas with duties, he said in an interview in Kiev yesterday. The duties may be cut in 2012, he said. The corn export quotas ended May 5.

World food prices rose to a record in February and were near an all-time high last month, adding to inflation that has spurred at least two dozen central banks and the European Central Bank to lift interest rates this year. Costlier food also fueled riots across northern Africa and the Middle East.

Food Crises

"We cannot close the grain market in Ukraine, considering world food crises," Yanukovych said. "We have to be suppliers of available grain surplus and will certainly do this."

Ukraine, once the world's biggest barley exporters, set export quotas on corn, wheat and barley in October after drought ruined crops. Russia, once the second-largest wheat exporter, banned shipments completely in August after its worst drought in at least a half century.

Wheat traded in Chicago, a global benchmark, as much as doubled from June to February.

Russia is considering letting its ban on grain exports expire as scheduled on July 1 because of forecasts for a surging harvest, according to two people with direct knowledge of the discussions.

Grain traders in the country are preparing to make deliveries abroad on prospects for an improved harvest this year, agricultural researcher SovEcon said last week.

Wheat Buying

Traders intensified buying of wheat, mostly the fourth- grade milling variety, about a month ago and stored the grain in silos of their own or located in ports, SovEcon Managing Director Andrey Sizov Jr. said.

Crops in northwestern Europe are suffering from the driest weather in decades, while Texas A&M University said yesterday wheat and cotton on in the U.S. state are in an "extremely dire" situation on a lack of soil moisture.

Soft-wheat exports outside the EU by France, the 27-nation bloc's largest shipper, may slump to 6 million metric tons in the 2011-12 crop year from 12.8 million tons a year earlier, as a result of a smaller harvest, according to Agritel.

Total soft- wheat exports including sales within the EU will be a record 19.4 million tons in the year through June, according to crops office FranceAgriMer.

The U.S. will export 28.6 million tons of wheat in the next crop year, according to a U.S. Department of Agriculture estimate. That would be down from 34.7 million tons in 2010-11, the most wheat shipped abroad since 1992-93.

'Positive' News

Ukraine will lift grain output this year about 15 percent to 45 million tons, the Agriculture Ministry estimates. The country will boost grain exports in the crop year starting July 1 to 20 million tons from 13 million tons in this year, Agriculture Minister Mykola Prysyazhnyuk said today.

The quota withdrawal "is positive news as it will allow supply to flow," Erin FitzPatrick, a commodities analyst at Rabobank International in London, said in a phone interview. Black Sea grain is "still going to be the lowest cost" and consumers "are not going to hesitate to buy it," she said.

Ukraine may export 10 million tons of wheat, 3.5 million tons of barley and 6.5 million tons of corn in 2011-12, according to estimates by Agritel, which has an office in Kiev.

European Union wheat exports in the year starting July 1 will slump to between 13 million and 14 million tons from about 22 million tons as drought slashes this year's crop, Pinchon said.

Reversed Roles

"The roles will be somewhat reversed from last year, when Europe compensated for Russia and Ukraine," Pinchon said. Increased wheat shipments by Ukraine "will make up for the European decline in exports," he said.

Ukraine's grain supplies for the season starting July 1 will be sufficient for domestic needs, Nikolay Vernitsky, an analyst at the Kiev-based agriculture researcher ProAgro, said by phone yesterday.

Chicago wheat prices jumped 11 percent last week, the most in five months, as local forecasters cut the outlook for grain harvests in France and Germany, the EU's largest growers.

The market is volatile before a new harvest, said Oleg Sukhanov, a grains analyst at Russia's Institute for Agricultural Market Studies.

Russian Harvest

"The news from Ukraine can be bearish for the market, along with other global factors," Sukhanov said by phone from Moscow. Russia may end its ban on grain exports, depending on the size of the harvest, he added.

Russia's harvest may be between 85 million and 90 million tons, Interfax reported today, citing a preliminary estimate by the Agriculture Ministry. The national crop fell 37 percent to 60.9 million tons last year, government figures show, after the drought.

The arrival of low-cost supplies from Russia, Ukraine and Kazakhstan will be " cooling" for the market, Sukhanov said.

Source: Bloomberg