Russian state purchase of grain a last resort: Tkachev

Russia's use of its Intervention Fund to support grain prices in rural areas will only be used as a last resort, Russian Minister of Agriculture Alexander Tkachev told parliament’s upper house Wednesday, underlining government policy that favours increasing exports over domestic stockpiling.

In a wide-ranging update to the Federation Council, Tkachev effectively ruled out any state buying of grains in the near future, despite Russia experiencing a second year of record production of wheat and a slump in global prices.

“At the moment we consider state intervention to be a partially harmful mechanism,” Tkachev was quoted as saying in Russian business news outfit RBK.

“There is so much grain and the elevators are full, grain is bought, and there is nowhere to put it.”

Last resort

Russia has made extensive use of its State Intervention Fund over the past 15 years, purchasing grain from farmers in remote parts of the country to ensure security of supply when prices are low.

However, the State Intervention Fund has not bought grain at auction since December 2016, according to data from the Moscow Exchange.

Instead, support for the market is now to come in the form of payments to the state railway operator if it moves grains from remote parts of the country, such as Siberia and Central Russia to ports.

Since launching earlier this month, over 100,000 mt of grain has been shipped with the freight subsidy at a cost of over $1.85 million.

Capacity

In addition to the cash subsidy, the change of tack from the Russian government will require additional investment.

“There is a need for about 7,000 additional wagons”, Tkachev was quoted as saying, referring to fears a logistical breakdown on rail or at ports could cause bottlenecking and hamper the current pace of export sales.

To date, however, there appears to be no sign of letting up.

Tkachev updated the Council on production for the 2017/18 marketing year, with total agricultural output forecast to come in at 134.1 million mt – leaving capacity for up to 47 million mt of grain exports.

Included in this is Russia’s biggest wheat crop on record.

Production for the 2017/18 marketing year is estimated to be in the region of 85 million mt, according to the USDA, the biggest on record and 12.5 million mt higher than the year before.

And higher production has led to higher exports, with total wheat exports since July 1 34.9% higher than at the same stage in the 2016/17 marketing year at almost 22 million mt.

“I am confident we will firmly consolidate the status as the world’s largest wheat supplier,” Tkachev told the Federation Council.