When Russia’s spiraling inflation drove up bread prices last year, a bumper wheat crop helped contain costs. The next harvest isn’t looking so good.
Dry weather left wheat vulnerable to damage this winter and higher interest rates make it harder for farmers to expand production, said Amy Reynolds, a senior economist at the International Grains Council in London. Russia’s output may drop 15 percent to 50 million metric tons in the season that begins in July, data from the Moscow-based Institute for Agricultural Market Studies and government show.
President Vladimir Putin told regional leaders Jan. 29 they must watch food prices as the country heads toward a recession because of plunging oil prices and a tumbling currency. Policy makers in Russia, the fourth-biggest wheat exporter, have sought to protect domestic supplies and will tax exports. The curbs may be extended if the next harvest is too small, says the Russian Grain Union, representing the largest producers and traders.
“Unfavorable climatic conditions may cause a significant loss of the harvest” and economic conditions may limit the use of fertilizers and pesticides, Alexander Korbut, vice president of the grain union, said by phone from Moscow on Jan. 26. “If these two factors overlap, it will be a serious problem.”
Consumer prices in Russia rose 11 percent from a year earlier in December, the fastest pace in more than five years, as the economy contended with U.S. and European sanctions and oil prices that collapsed 55 percent since mid-June. While food costs jumped more than 15 percent in December, bread rose about half as much, government data show.
Plentiful grain supplies helped control prices last year, according to Dmitry Rylko, the director of the Institute for Agricultural Market Studies. Mild winter temperatures and ample rain helped the wheat crop, leading to the highest production in five years. This growing season has been less favorable after parts of Russia and Ukraine had dry weather after crops were sown in September and October.
Growing regions south of Moscow to the Ukrainian border received about half the normal amount of moisture since mid- September, said Don Keeney, a senior agricultural meteorologist at MDAWeather Services. Some plants failed to emerge from the soil and some fields may need to be replanted in spring, he said by phone from Gaithersburg, Maryland.
There may be enough time left in the growing season for the crop to recover, according to Veronique Fradin, an analyst at Strategie Grains. Recent weather has been better for growing with precipitation closer to normal in most areas since October and snow cover insulated crops from cold temperatures, data from MDA Weather show.
“Winter is far from finished in Ukraine and Russia,” said Fradin in an interview from Moret-sur-Loing, France. “You have also very critical months in spring for crops to develop.”
About 3.5 million hectares (8.6 million acres) of winter crops, mainly wheat, may need to be replanted in spring if they don’t recover from the fall’s dry conditions, the Russian Grain Union said on Jan. 26.
“Conditions are rather on the poor side,” Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, said by phone on Jan. 26. “If the expectation of lower supplies drives up domestic prices and domestic inflation, then this could lead to an extension of the export tax.”
In an effort to reduce food prices, Russia plans to tax wheat exports from February through June. The move follows similar export duties in 2008 and 2004. In 2010, the nation banned exports after the worst drought in a half-century, leading to a 47 percent surge in Chicago prices that year.
Wheat fell 0.3 percent to $5.01 a bushel on the Chicago Board of Trade on Monday, extending January’s 15 percent decline. Futures are off to the worst start to a year since 1975 amid ample global supplies.
Ukraine’s inflation accelerated to a six-year high of 24.9 percent in December. The nation, the sixth-biggest wheat exporter, signed an agreement with traders to limit overseas shipments through June.
The country’s next wheat harvest will probably reach about 20 million tons, said Sergey Feofilov, director general of UkrAgroConsult, a Kiev-based research company. That compares with a six-year high of 24.5 million tons this season, according to the U.S. Department of Agriculture.
“Most people are assuming output will be down in both Russia and Ukraine,” said Reynolds of the London-based IGC. “Crop prospects aren’t as good as they were last year.”