Guest article by Brendan Dunleavy, Russia and Ukraine expert
At the outset of World War II, Winston Churchill observed that “Russia is an enigma, wrapped in a puzzle, enclosed in a maze. But there is a key: That key is Russia’s national interest.” He could just as easily have been speaking about Russia today, particularly as far as its agricultural and food markets are concerned.
As recently as five years ago, Russia was still importing the vast bulk of the country’s food & agricultural commodity requirements. However, next year (2018), Russia looks set to produce a record grain crop for the fifth year in-a-row. Precisely how Russian farmers can reach this target on a national wheat yield that tends to be in the region of 3 tonnes per hectare, is a puzzle for many.
That said, farming in Russia is a very high-risk and unprofita-ble occupation. Climate extremes mean a very short growing season in most regions. Specifically, over most of the country, soil temperatures do not support agricultural seed germination and plant growth until mid-May to early June.
Current reports suggest that the country is again on-track to surpass last year’s record grain harvest. Total wheat area is pro-jected to be 25.2 million hectares with 12 million hectares of this being winter wheat. In autumn 2017, Russian grain crop sowings were estimated projected to produce up to 130 million tonnes from the 2017/2018 crop. That is well above this year’s (2016/17) record harvest of 114.2 million tonnes. Wheat is fore-cast to account for 80Mt of this total, a 10% increase on this year’s harvest (72.5Mt). However, it needs to be emphasised that statistics which estimate Russian grain production have fre-quently been unreliable and there is a cultural tendency to over-estimate.
That said, on the above basis, Russia is expected to have 41.8Mt of grain available to export next year, a new record. This will be well up from the 2017 Russian grain export of 36.2Mt. Feed wheat accounts for almost 77% of total grain exports.
Russian grain exports are boosted by four main factors:
1. low Russian land prices & land rental rates
2. weakness of Russian Rouble
3. low farm management & labour rates
4. low prices & applications of fertilisers & agrochemicals These factors combine to ensure that Russia’s has the lowest costs of producing grains in the world; the current cost of Russian grain production is as low $80 per tonne.
This extraordinarily low cost of production is likely to hold for many years to come. It will also continue to put enormous pressure on American, Cana-dian, British, and other European grain producers, particularly in animal feed markets.