Skip to comments.Russia Fights for World Dominance—in Wheat
Posted on 06/07/2010 9:38:08 PM PDT by cunning_fish
Russia Fights for World Dominancein Wheat It may supplant the U.S. as the world's top exporter in less than 10 years By Maria Kolesnikova and Tony C. Dreibus
On May 28, Egypt, the world's biggest importer of wheat, bought 180,000 metric tons from Russia for $178.50 per ton, about $13 less than the U.S. price. The deal is one of many signs that Russia is challenging America's supremacy in the global wheat market. In the past 11 months Russia has won 58 percent of Egypt's regular purchases of wheat, compared with 40 percent the year before. The U.S. share of Egypt sales fell to 8 percent from 13 percent over the same period, says Egypt's General Authority for Supply Commodities.
For Russia, it's an extraordinary turnaround. As recently as the 1990s, it had to buy wheat from U.S. farmers to feed its people, so inefficient were its farms after decades of ruinous Soviet practices. Then Russian investors slowly started buying land and introducing modern farming in the country's fertile "black earth" region near Ukraine and the Black Sea. In 2002 the country emerged as a major exporter for the first time in decades by selling 15.6million tons abroad. "Exports suddenly became profitable," says Arkady Zlochevsky, president of Russia's Grain Union, a lobby group.
(Excerpt) Read more at businessweek.com ...
Moscow is now making dominance of the wheat market a goal, and it has a shot: The U.S. Agriculture Dept. predicts that Russia will become the top wheat exporter by 2019. President Dmitry Medvedev last year ordered the creation of a state company, United Grain, to modernize the storage and shipment of wheat in a $3.3 billion overhaul. United Grain will also pursue export deals in Southeast Asia and Latin America, says CEO Sergei Levin. Those regions are traditional strongholds for Australian and U.S. grain exporters.
U.S. farmers are worried. "The Black Sea region is becoming a bigger competitor for us," says Dean Stoskopf, 54, a wheat grower near Hoisington, Kan. Up to now, he says, U.S. farmers have commanded premium prices for higher qualityU.S. wheat generally has higher protein content than Russian grain and suffers less from insect infestations. That may change, Stoskopf fears, as the Russians improve their growing practices and storage facilities.
Some members of Congress want Washington to do more. "I would not rest on the attitude that we have a great product," says Senator Mike Johanns (R-Neb.), who was Secretary of Agriculture from 2005 to 2007. "Price is a factor. We should be working on free-trade agreements or very quickly we'll find ourselves behind." Free-trade agreements in certain parts of Latin America and Asia would open up new markets for U.S. wheat. Russia is part of a bigger problem, says Jason Britt, president of Central States Commodities in Kansas City, Mo. Wheat futures on the Chicago Board of Trade have fallen 32% in the past year as stockpiles have grown.
Kirill Podolsky, 39, is CEO of Valars Group, Russia's No. 3 wheat exporter. "We are completely opportunistic. We ship anywhere there is demand," he says at his headquarters in Taganrog by the Sea of Azov, which connects to the Black Sea. Valars will supply a third of the shipment in the Egypt deal. Podolsky founded Valars in 2006 and has spent $250million on farmland and $108million on equipment.
Vasily Pechersky, 64, who runs Valars' 41,230-hectare Sarmat farm, north of Taganrog, says his winter wheat yield was 4.4 tons per hectare, on a par with U.S. yields. He credits his U.S.-made New Holland tractors and harvesters as well as higher use of fertilizers and new technologies. "One New Holland harvester stands in for two Russian-made ones," he says. Russian-made tractors sit to one side, covered in rust.
The Russians still have challenges to overcome. Investors such as Podolsky bought land at top prices right before the global financial crisis and are struggling to pay off debts. Valars may sell shares on the market to repay $500 million of debt before investing anymore in farming: Wheat-growing brought "zero" profit last marketing year after a plunge in prices, says Podolsky. The Grain Union is asking Moscow for $320 million in subsidies to improve the profitability of exports. Such state aid could help Russia's growers compete even more ferociously with the U.S. on price.
The bottom line: As Russia strives to replace the U.S. as the world's No. 1 exporter of wheat, pricing pressure will remain intense, affecting profits for all players.
Hey thanks again Carter - that grain embargo worked wonders for our farmers didn’t it.
Anyway, we don't care about wheat in the USA anymore. All we care about is subsidized sugar cane...
... and corn, corn corn: to feed to beef that can't digest it, to put in cars so they can run less efficiently, and to turn into high fructose corn syrup so all are kids can get type 2 diabetes.
does this mean there isn’t a food shortage outside of communist, tyrannical nations?
There’s a big problem with exporting wheat from Russia and the Ukraine: the Russian gauge for their railroads. If Russia had not been so xenophobic and adopted the 4 feet 8.5 inch (1435 mm) standard for railroads, they could have bought a huge number of grain hopper cars that could have exported a huge amount of grain to western European customers. However, that may not be such a problem exporting to Asia, since the grain from Russia and the Ukraine could be shipped by hopper car unit trains to Vladivostok (the eastern terminus of the Trans-Siberian Railway) and then transferred by boat to Japan and other Asian destinations.
Dmitry, Dmitry, Dmitry, you still don't get it...
I took a train from Russia to Poland back in the 1990s. In Belarus, in the middle of the night, our sleeper car was separated from the rest of the train and jacked up. The Russian undercarriage (if that’s the right word) was rolled away. The European undercarriage was rolled under the sleeper car and attached. And then we went on our way. The transition time was less than an hour, I think.
It would indeed be very inefficient to ship wheat with a procedure like that being performed on every car.
I guess Global warming is turning out OK for Russia.
Yeah, that should slow em down.
In the USA we pay folks not to grow wheat.
too late for the millions starved by the bastards...
Sounds good to me, why be worried or bothered by more food in the world? All this does is prove how stupid collectivism was.
Also, we need to disband the agriculture department here and stop all subsidies. I’m sure it’ll drop prices more and equalize the market (ie, less farm profits) but that’s how it works I thought.
ah - this is the basic insight. What is the true growing season for Russia?
The Ukraine was once "the bread basket of Europe."
They grow wheat up in Canada.
What's your point?