After some recent short crop years, Russia would like to rebuild its domestic grain stocks.
So, the Russian government recently announced it would intervene if necessary to limit wheat exports to 20.0 MMT for the 2013/14 marketing year.
Since Russian decision makers are concerned that an early rush to export could leave them short later, I am sure they see this announcement as reasonable and prudent. But it is not. The Russians just don't seem to understand how markets work.
The threat of export curbs and their actuality in Russia twice since 2007/08 encourage private exporters to rush to get as much grain out of the export door as they can before the door closes.
Russian grain floods the market early, artificially driving down prices not just for Russian farmers, but for wheat farmers around the world. Later, when the flow stops, prices become artificially higher for all of our customers, but are still depressed for Russian farmers because their export potential is gone.
Russia's recent announcement virtually guarantees the same scenario this year, causing the very outcome they hope to avoid within Russia while distorting the market for everyone else.
If instead they were to announce a policy of non-interference, and stick with it, their exporters would be able to spread their sales and shipments throughout the marketing year, use their facilities more efficiently and seek to maximize their margins rather than scrambling for the largest possible share of a diminishing export quota.
They would still compete to get grain from farmers and would gradually have to pay them better as the internal market reflects world prices more appropriately. That would encourage production and foster rural prosperity while ensuring adequate supplies. It sounds simple, and it is.
Driving with alternating brake and throttle application is not a smooth way to your destination. And it is hard on the car.
Russia is likely to be the world’s second largest exporter this year. It is past time for them to be responsible to other market players and to their own producers.
We hope they will learn to let the market determine prices and move grain supplies to where they are needed. And that means leaving the market alone and trusting it works for everyone.
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