Falling wheat prices in Russia may force many producers to go out of business, according to the National Association of Exporters of Agricultural Products.
The group, which includes Cargill Inc. and Louis Dreyfus Commodities LLC, said low prices are making it hard for farmers to buy seeds for the next harvest, according to a March 25 letter sent to Deputy Prime Minister Arkady Dvorkovich. Domestic wheat prices have fallen after Russian regulators started taxing exports to keep food prices low after the ruble’s collapse.
Declining prices “may lead to mass bankruptcies of grain producers and a sharp decline in grain production in Russia,” the association said in the letter obtained by Bloomberg on Monday. Russia may also lose its “recently won position as one of the world’s leading grain exporters,” it said.
Russia’s international wheat business that last year sold more grain to overseas buyers than any country except the U.S., Canada and France. The country is exporting about half as much wheat as last year, government figures show.
Exporters will pay farmers no more than 7,500 rubles ($129.75) a metric ton for a variety of lower-quality milling wheat, the group said, using data that excludes transportation costs. That’s about 200 rubles more than the cost of raising wheat for next season.
While the government has said it will buy wheat for 9,300 rubles in the European part of the country, prices can fall below that level as farmers sell wheat to raise money and traders dump stockpiles that were meant for export, according to Vladimir Petrichenko, director general of Moscow-based market researcher ProZerno.
The government should cancel the wheat export tax before it expires in June and allow sales of excess wheat stored in southern Russia, the exporter group said. That will open up silos and port terminals for the next harvest, it said.
Most traders are losing money exporting wheat to fulfill previous contracts, rather than pay penalties for breaking the agreements, according to the association’s letter.
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