Going against the grain: why Russia was pessimistic over its record crop

MOSCOW (Reuters) - A desire to support local grain prices has been a key factor in the rare situation of Russian officials being among the last in the global agriculture industry to say Russia’s 2017 grain crop would hit a record, analysts and sources said.

FILE PHOTO: An employee works in a grain warehouse in the town of Blagodarny, Russia, July 5, 2013. REUTERS/Eduard Korniyenko/File Photo

Some countries are routinely suspected of understating their commodities output in a bid to shore up prices for their producers, but Russia, one of the world’s top wheat exporters, is usually keen to promote its agricultural achievements, reminding some market players of the five-year plans in the days of the Soviet Union.

However, Russia’s agriculture ministry only said the country’s 2017 grain crop was on track to hit an all-time record on Sept. 28. The previous record of 127 million tonnes was reached in 1978, it told a government meeting.

The significant upgrade from a previous official estimate came three weeks after unofficial forecasts from Moscow’s leading agriculture consultancies SovEcon and IKAR were upgraded to around 133 million tonnes.

“Amid quite limited resources, the Agriculture Ministry was probably hoping to constrain the fall in prices with low forecasts,” said Andrey Sizov, managing director of SovEcon Agriculture consultancy.

Russia’s domestic grain prices have been under pressure as the country harvests a large crop for a fourth consecutive year.

The agriculture ministry has been refraining from large domestic purchases for its state grain stocks which it has used to support prices in previous years, as it aims to lower federal budget spending on the reserves.

Three other industry sources, who asked not to be named due to sensitivity of the issue, quoted the same reason for the difference between the ministry’s forecast and market estimates.

“They (the Russian officials) were naive in an attempt to hold (up) global prices and thus support the profit margin of Russian farmers,” one of the sources said.

The agriculture ministry declined to comment.

It has previously explained the difference between its and unofficial forecasts by the risk that some regions would be unable to harvest before cold weather sets in.

According to sources, the second reason for the relatively late forecast upgrade was caused by the way the process of obtaining crop harvesting data is handled.

“The Agriculture Ministry is collecting data (with crop forecasts) from regions, and they are playing it safe because if they fail to reach the plan it will be quite negative for them,” the third source said.

Also, the agriculture ministry is seeking funds for the sector from the state budget, and “if you come with the record crop, why would you ask for money?” another source added.

Farmers have already harvested 124 million tonnes of grain by bunker weight - before drying and cleaning - from 88 percent of the total area as of Sept. 29, ministry data showed.

The drying process usually reduces the crop by 5-6 percent, SovEcon said. Forecasts are for the crop’s clean weight.

Reporting by Polina Devitt; editing by David Evans