Contract Risk: Restrictions on grain exports are not likely due to an abundant harvest, but major delays at seaports are to be expected.

Official statistical data has recently been released and indicates that Russia will reap an abundant grain harvest in the 2011-2012 agricultural year. The preliminary estimate of the grain harvest stands at 93 million tons. This is in contrast with the previous year: On August 15, 2010, the Russian government imposed a comprehensive ban on all grain exports in response to a major drought and devastating wildfires. The export ban was eventually lifted on July 1, 2011, and since then, Russia has already exported 9.1 million tons.  In September alone, a record 3.8 million tons were shipped from the Russian ports on the Black and Azov seas and in the Pacific Far East. Given that Russia’s domestic consumption is approximately 70 million tons and at least 6.6 million tons of grain is still stockpiled in government granaries, we assess that it is likely that the volume of Russia’s grain export will amount to 20-23 million tons by July 2012.

The Russian government is keen to encourage exports this year, as it is reluctant to face the high cost of grain interventions to maintain low prices domestically. According to the agriculture minister, the authorities are equally unwilling to foot the bill for storing excess grain during a year when the harvest is bountiful. On September 23, 2011, with the purpose of facilitating grain exports, the government lowered the tariff on grain transportation by rail to seaports and land border crossings. We assess that major exporters are likely to fulfill and even exceed their quotas over the course of this agricultural year. This will prevent global grain prices from rising and will also mitigate food shortages and related risks of public protests in importing countries.

However, Russia’s seaport infrastructure is largely underdeveloped. This is particularly true at the ports on the Black (Novorosiysk, Sochi and Tuapse) and Azov (Taganrog and Yeysk) seas. These seaports are likely to struggle with dispatching grain cargo ships in a timely manner. In mid-September 2011, over 2,000 grain-laden trucks were waiting to be unloaded at the port of Novorosiysk alone. Thus, substantial delays in transporting grain shipments are likely to occur at all major Russian seaports at least until December 2011. In turn, this is likely to jeopardize delivery schedules of major grain exporters. 



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