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Minister: Harvests Damaged by Drought, Exports to Drop Just Slightly

Russia will likely produce 85 million tons of wheat this year, and will export as much as 20 million tons of that. Denis Grishkin

Agriculture Minister Yelena Skrynnik said Monday that Russia's worst drought in a decade had scorched more harvests than the ministry had estimated, a concession that industry analysts had been expecting for weeks.

She insisted, however, that the world's fourth-largest wheat exporter would see its foreign trade in the commodity slide only slightly from the previous year because of stockpiles.

“There's no worries in this regard,” Skrynnik told Prime Minister Vladimir Putin at a session of the Presidium, a downsized Cabinet. “We will preserve the export capacity.”

Grain production will likely fall 6 percent from the previous estimate to 85 million metric tons, she said, adding that 12 grain producing regions along the Volga River and in the south of the Ural Mountains have declared a state of emergency.

Grain exports will reach about 20 million tons, down from 21.1 million tons projected for the marketing year that ended last month, Skrynnik said.

As a result, world grain prices will likely climb higher, said Dmitry Rylko, director of the Institute for Agricultural Market Studies, a research center.

“The global market will not remain indifferent,” he said. “It will at least not let the high U.S. prices fall.”

U.S. exporters normally charge a premium for their grain quality.

Grain supply may also suffer from excessive moisture in Canada, the world's No. 3 exporter, and dry weather in Kazakhstan, he said.

According to estimates made by the institute, Russia will export 18 million to 19 million tons of grain this marketing year, which starts in July, Rylko said.

Given the potential rise in prices, Russian grain exporters may rake in as much money — or even more — than they did during the previous 12 months, he said.

The institute has long been forecasting a harvest of at least 86 million tons for the coming year.

Putin said he would hold a meeting dedicated to supporting farmers after Thursday, the deadline for the Agriculture Ministry to submit proposals for alleviating the situation. The prime minister met with farmers in the Tambov region on Friday.

The measures may include extensions of loans and other fiscal backstops, Rylko said.

Russia, which consumes 77 million tons of grain annually, has put aside 24 million tons of the previous harvest, Skrynnik said.

Grain farming has been an increasingly important economic mainstay in Russia as the industry recovers from harmful Soviet policies. In a bid to lift export restrictions, the government has vowed to expand ports' capacity to handle grain.

By 2019, the country could dethrone the United States as the world's top wheat exporter, according to the U.S. Department of Agriculture. U.S. wheat production is leveling off, as producers there shift acreage to corn and soybeans to seek greater competitive advantage.

Russia first re-emerged as a major global grain market player in 2002 after decades of Soviet-engineered depression in the sector.

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