Q & A With a Grain Trader
As the result of severe drought, heat, and thousands of miles of forest fires, Putin has instituted a ban on Russian grain exports. I recently interviewed an American grain trader working in Eastern Europe about the implications of the ban. Below is an excerpt from the interview. Because the right to free speech is not always guaranteed in the country in which she is working, I'll refer to the interviewee as "Miss GT" (short for Miss Grain Trader) to protect her identity.
Diane Ellis: Can you give readers an idea of the magnitude of the situation? How much of the total grain supply does Russian grain represent?
Miss GT: Russia is the world's third largest producer of wheat (after the EU and the United States), so the recent export ban will have a large impact on the global supply and demand. Since Russia produces comparatively small amounts of barley and corn, the other grain supply and demand schedules will be less directly affected by the ban; however, the tightening of the global wheat situation will spillover and affect all grains and oilseeds. Currently the USDA estimates global wheat production at 344mmt (million metric tons), with Russia producing 53mmt. In terms of export flows, the USDA's 120mmt will have to be reduced by 15mmt for Russia, and the 8mmt from Kazakhstan and Ukraine are also increasingly called into question and will likely be significantly reduced.
DE: What are the implications of the ban on grain export for a) Russian grain producers and consumers and b) the rest of the world? Who will be hardest hit by this ban?
Miss GT: Some Russian grain exporters lobbied heavily for the ban, in order to escape cheap contracts after the precipitous rise in prices. Similarly, local consumers will benefit as prices stabilize. In Russia the price of bread and beer have large political implications, so politicians (read: Putin) will also benefit from taking a strong stand.
Egypt is the hardest hit by the ban, as last year they imported around 6mmt of Russian wheat. This wheat will be replaced by French wheat, but since the EU does not have enough room to increase its export numbers by such an amount, other origins will have to be brought into the mix. Global prices have already risen dramatically, which will slightly decrease demand, but there still is a lot of wheat that needs to be "found." Since the United States boasts the world's largest wheat reserves, it seems the exports will have to come from there. However, US wheat still prices at a premium to French wheat.
- Comment (3)
- · Quote
- · UnfollowFollow (1)
Comments :
Jun '10
Re: Q & A With a Grain Trader
Spring Wheat chart
http://www.mgex.com/quotes.html?page=chart&sym=MW
Jul '10
Re: Q & A With a Grain Trader
Diane Ellis, Ed
"Who will be hardest hit by this ban?"
You're interviewee knows better than I, but a broader answer is: those who buy much more than they grow.
Though it may be heresy here, I'm ambivalent about federal farm subsidies. There are plenty of boondoggles. Even so, how effective is the creative class (the not-so procreative group formerly known as yuppies) if its diet is held hostage.
Forget wheat, these artistes might fold over a shortage of soy juice for their... well, whatever.
May '10
Re: Q & A With a Grain Trader
Putin is a dunce. Expected rising prices will increase the reservation demand of grain holders (grain producers and grain speculators) now in anticipation for such prices. As prices actually rise, the reservation demand will fall and the quantity of grain supplied will increase. Russian grain exports will naturally decrease since money can be made merely by selling it domestically at higher prices caused by the lower supply - as long as the Russian authorities allow grain prices to rise. If they institute price controls, then shortages will follow.