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Black Sea wheat supply grows

07/18/2013 @ 11:36am

A bumper wheat crop in the Black Sea region threatens to undercut European milling wheat prices in coming months, with both Russia and the Ukraine already yielding more wheat than expected, bringing losses to local farmers.

European wheat prices have already fallen 14% so far this year--trading Thursday around EUR 193.25 a metric ton--and market players predict ample supplies from the Black Sea crop could contribute to a further 10% fall in global grain prices by September.

"With peak wheat exports from the Black Sea region starting in August and more certainty around spring wheat and U.S. corn crops in the next month, downward pressure will remain on new crop prices," Paul Deanne, senior agricultural analyst at ANZ Bank, said in a note to clients. He predicted that global grain prices will fall 10% by September.

Moscow-based agricultural consultancy SovEcon last month raised its forecasts of Russian wheat production and exports for the 2013-14 crop year, the company's Director General Andrey Sizov Jr. told The Wall Street Journal, citing improving weather conditions for the cultivation of the crop.

Russia--the world's third-largest wheat exporter--is forecast to produce as much as 52 million tons of wheat in the 2013-14 crop year, said Mr. Sizov, who raised the prior forecast of 50 million tons.

Mr. Sizov Jr. also estimates Russia's wheat exports for the 2013-14 crop year will be 14 million-15 million tons versus the March forecast of 10 million tons.

Kiev-based agricultural analysis body APK-Inform expects Ukraine's wheat exports to hit 9.2 million tons this crop year--that is 37% higher on the previous year--adding further bearish sentiment to the wheat complex.

While a bumper Black Sea crop could give European origin wheat extra competition in terms of exports, farmers in Russia are suffering because of falling prices.

"We expect farmers to have serious financing difficulties this year because of the large harvest and consequent fall in prices. We recommend that farmers hold back their grain until the government starts intervention purchases in September or even until February-March 2014, when grain stocks become low and prices begin to rise," Alexander Korbut, vice president of the Russian Grain Union, a farmers' group, told The Wall Street Journal. "Farmers will have problems buying seeds and equipment for the next season."

"The good harvest threatens farmers with considerable financial losses. Prices have fallen and will continue falling for some time. Some farmers say the situation is catastrophic," said one Russian farmer.

Alexander Miroshnikov, a farmer in the Primorsko-Akhtarsky district of Krasnodar region, described the bumper crop as a burden. "It's more expensive to harvest it: you need more fuel, equipment and you have to pay more to your work force," he said. "I'll say a controversial thing: a poor harvest is better for a farmer than a good one."

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