Column by Anatoly Kostyrev on estimates of the Russian harvest

Statements by foreign agencies and analysts, which have become common lately, especially after the grain deal was stopped, about Russia’s growing role in the wheat market may be accompanied by pessimistic assessments. An indicative example is the recently published report of authoritative analysts from the US Department of Agriculture (USDA) on the global wheat balance, which caused bewilderment among many market watchers in the Russian Federation.

Contrary to expectations, the USDA maintained the forecast for wheat harvest in Russia this year at 85 million tons. With about 80 million tons already threshed, the figure looks “not serious,” they say at Sovecon. At the end of August, they raised their estimate for this year’s wheat harvest by almost 5 million tons, to 92.1 million tons, due to high yields. The Institute for Agricultural Market Studies (IKAR) also raised the wheat harvest forecast from 89.5 million tons to 91 million tons.

It is difficult to clearly assess the reason for the USDA’s stubbornness. As one of my interlocutors notes, in recent years, the American analytical service, when assessing the Russian harvest, apparently relies only on satellite data and does not use expert estimates in the fields, which can lead to significant errors. And the authority of the service probably does not allow you to admit and correct your own mistake. According to another version, the reluctance to increase the assessment of the Russian harvest may be due to politics. Perhaps the USDA believes that figures in excess of 85 million tons are provided by the harvest of wheat in “new regions”, which the service, of course, does not take into account in Russian estimates.

Something else is more interesting. By stubbornly insisting on its own assessments, the USDA is thus playing into the hands of Russian wheat exporters. After all, by refusing to raise the harvest forecast in the Russian Federation, American analysts are at least maintaining world prices at current levels, and may even contribute to an increase in quotations. In particular, due to the continued forecast for the Russian harvest at 85 million tons, with lower estimates of wheat harvest in the EU, Canada, Australia and Argentina, the USDA’s September estimate of world reserves was 6 million tons lower than market participants’ expectations, which could already affect prices .

On Wednesday, Sovecon reported, the December contract for the supply of wheat on the Chicago exchange rose in price by 1.7%, to $219 per ton, and wheat quotes on Euronext grew by 2.6%, to €238 per ton. The Union of Grain Exporters even considered that the USDA was concerned about the aggressive play of funds to lower prices, based on optimistic forecasts for the harvest. And, apparently, the latest analytics should sober up market participants. The question remains how long-term the effect will be.