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    Senior Member AirborneSapper7's Avatar
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    The Global Food Crisis, Drought, Fire and Grain in Russia

    The Global Food Crisis, Drought, Fire and Grain in Russia

    Commodities / Food Crisis
    Aug 10, 2010 - 06:40 AM

    By: STRATFOR

    Three interlocking crises are striking Russia simultaneously: the highest recorded temperatures Russia has seen in 130 years of recordkeeping; the most widespread drought in more than three decades; and massive wildfires that have stretched across seven regions, including Moscow.

    The crises threaten the wheat harvest in Russia, which is one of the world’s largest wheat exporters. Russia is no stranger to having drought affect its wheat crop, a commodity of critical importance to Moscow’s domestic tranquility and foreign policy. Despite the severity of the heat, drought, and wildfires, Moscow’s wheat output will cover Russia’s domestic needs. Russia will also use the situation to merge its neighbors into a grain cartel.

    A History of Drought and Wildfire

    Flooding peat bogs appears to be bringing the fires under control. Smoke from the fires has kept Moscow nearly shut down for a week. The larger concern is the effect of the fires — and the continued heat and drought, which has created a state of emergency across 27 regions — on Russia’s ordinarily massive grain harvest and exports.

    Russia is one of the largest grain producers and exporters in the world, normally producing around 100 million tons of wheat a year, or 10 percent of total global output. It exports 20 percent of this total to markets in Europe, the Middle East and North Africa.

    Cyclical droughts (and wildfires) mean Russian grain production levels fluctuate between 75 and 100 million tons from year to year. The extent of the drought and wildfires this year has prompted Russian officials to revise the country’s 2010 estimated grain production to 65 million tons, though Russia holds 24 million tons of wheat in storage — meaning it has enough to comfortably cover domestic demand (which is 75 million tons) even if the drought gets worse.

    The larger challenge Moscow has faced in years of drought and wildfire has been transporting grain across Russia’s immense territory. Russia’s grain belt lies in the southern European part of the country from the Black Sea across the Northern Caucasus to Western Kazakhstan, capped on the north by the Moscow region. This is Russia’s most fertile region, which is supported by the Volga River.



    Though drought and wildfires have struck Russia over the past three years, they have not affected its main grain-producing region. Instead, they struck regions in the Ural area that provide grain for Siberia. Those fires tested Russia’s transit infrastructure, one of its fundamental challenges. Russia has no real transportation network uniting its European heartland and its Far East save one railroad, the Trans-Siberian. While its grain belt does have some of the best transportation infrastructure in the country, it is designed for sending grain to the Black Sea or Europe — not to Siberia. The Kremlin began planning for disruptions of grain shipments to Siberia during the droughts and fires of 2007-2009. During that period, Moscow established massive grain storage units in the Urals and in producing regions of Kazakhstan along the Russian border.

    This year’s drought and fires do not primarily affect Russia’s transportation network, but rather the grain-producing regions in the European part of Russia that make up the bulk of Russia’s grain exports. These regions lie on the westward distribution network, with the port of Novorossiysk on the Black Sea handling more than 50 percent of Russian exports.

    Russia has focused largely on being a major grain exporter, raking in more than $4 billion a year for the past three years off the trade. This year, the Kremlin announced Aug. 5 that it would temporarily ban grain exports from Aug. 15 to Dec 31. Two reasons prompted the move. The first is the desire to prevent domestic grain prices from skyrocketing due to feared shortages. Russia’s grain market is remarkably volatile. Grain prices inside Russia already have risen nearly 10 percent. (Globally, wheat futures on the Chicago Board of Trade have risen nearly 20 percent in the past month, the largest jump since the early 1970s.)

    The second reason is that the Kremlin wants to ensure that its supplies and production will hold up should the winter wheat harvest decline as well. Winter wheat, planted beginning at the end of August, typically fully replenishes Russian grain supplies. Further unseasonable heat, drought or fires could damage the winter wheat harvest, meaning the Kremlin will want to curtail exports to ensure its storage silos remain full.

    Russia’s conservatism when it comes to ensuring supplies and price stability arises from the reality that adequate grain supplies long have been equated with social stability in Russia. Unlike other commodities, food shortages trigger social and political instability with shocking rapidity in all countries. As do some other countries, Russia relies on grain more than any other foodstuff; other food categories like meat, dairy and vegetables are too perishable for most of Russia to rely on.

    Russia’s concentration on food volatility has a long history. Lenin called grain Russia’s “currency of currencies,â€
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    Senior Member uniteasone's Avatar
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    http://articles.latimes.com/2010/aug/06 ... 20100806/2

    Russia's wheat woes could hit U.S. grocery shelves
    A planned wheat export ban in response to an expected shortage is heightening fears about tight supplies and could lead to soaring food prices.
    August 06, 2010|By P.J. Huffstutter and Sergei L. Loiko, Los Angeles Times
    (Page 2 of 3)
    The country had been expected to produce 80 million to 85 million tons of grain this year, according to Russian agricultural experts.

    They said Russia now would be lucky to turn out 75 million tons this season.


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    "Our main responsibility is to provide people with basic foodstuffs," Shuvalov said Friday in an interview with radio station Echo of Moscow. "And then we will certainly fulfill our export obligations."

    He added, "If we have a surplus [of grain], then exports will be renewed."

    In some ways, the run-up in wheat prices makes little sense, said Jay O'Neil, a senior agricultural economist with Kansas State University's International Grains Program.

    The U.S. has enjoyed a bumper crop this year and, at least until recently, reports of global wheat stockpiles have remained high.

    "The world is awash in feed grains," O'Neil said. "This is silly. These grain prices shouldn't be this high."

    Yet prices of these crops — a staple for many cultures and the basis of livestock feed — have been rising steadily, driven in part by speculation by investors and financiers. Soybeans started the rise earlier this year, O'Neil said. China, faced with a burgeoning middle class with expendable income and a hunger for protein-rich meals, increased its demand for U.S. exports of soybeans for cooking oil and animal feed this year.

    Then, this summer, for the first time in more than a decade, China placed orders for U.S. corn — a reported 750,000 metric tons — and ships have started delivering it to the country's eastern coast.

    "As prices rose on corn and soybeans, wheat floated up with it," O'Neil said.

    But wheat has outpaced the other grains, amid dark portents of the year's harvest. Australia's stockpiles were healthy, but its fields suffered from below-average rainfall and a locust plague. Dry weather is hampering fields in Kazakhstan and the European Union.

    In the last two months, wheat prices have nearly doubled in Chicago.

    On Friday, wheat prices closed at $7.2575 a bushel, down 60 cents. Corn closed at $4.05 a bushel, up 1.5 cents, and soybeans were $10.59 a bushel, up 4 cents.

    The hope that Russia may ease back on its wheat ban offered little solace to some world leaders, who still recall the painful memories of grain shortages, rising prices and deadly food riots in 2007 and 2008.

    Media reports this week said the Indian government has been aggressively stockpiling wheat, hoarding piles underneath tarps where the grain has started to rot.
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