Re-Emergence of the FSU Region in World Grain Markets

Click here to read the full article – October 2010 FSU Newsletter

Overview: A key event underpinning recent strength of U.S. crop prices is the 2010 crop drought in the Former Soviet Union (FSU) countries. Wheat and feed grain production in 2010 is 27% and 36%, respectively, less than in 2008. Around 85% of harvested FSU cropland lies in the Russian Federation (Russia), Ukraine, and Kazakhstan (hereafter, referred to as RUK). About half of harvested FSU land is in Russia.

Wheat and Barley are the 2 largest crops in RUK. Wheat is about 50% of harvested land, up from 35-40% in the early 1990s. Barley is about 15% of harvested land, down from 20- 25% in the early 1990s. Figure 1 (page 2) contains annual and trend production since the Soviet Union dissolved.

Meat Production declined noticeably after the Soviet Union dissolved and the economy contracted and adjusted to life after central planning. Figure 2 (page 2) contains beef, pork, and poultry production for Russia (only FSU country with consistently available data). Production of these 3 meats declined 48% from 1992 to 2000, in part leading to increased exports of wheat and barley. Since 2000, meat production has steadily increased. It now equals 73% of its 1992 level. However, the mix has changed dramatically, as beef production continues to decline while pork and, especially, poultry production increases.

Wheat and Barley Exports from RUK began increasing around 2000, as did their share of world exports (Figure 3, page 3). In 2008 and 2009, RUK accounted for over 20% of world exports of both barley and wheat. During these 2 years, RUK’s wheat exports were 44% larger than U.S. wheat exports while RUK’s feed grain exports were about 80% of Argentina’s exports.

Variable Production: Annual production and yield of both barley and wheat are more than twice as variable in the RUK as in the U.S. (Figure 4, Panels A and B, page 4). For barley, RUK increases the variability of production and yield for the world. In contrast, the RUK does not noticeably impact world variability of wheat production and yield. (Figure 4, Panel C).

Observations and Implications ► Russia, Ukraine, and Kazakhstan have emerged as major players in world grain markets.
► Their emergence represents a return to their historic role as one of the world’s bread baskets.
► Available land and the potential to improve storage suggest RUK can further increase exports.
► For the 2010 crop year, Russia instituted an export ban while the Ukraine limited exports. These decisions can be seen as a move to protect domestic consumption and the livestock sector. A key short- term question is, will they import grain to maintain recent gains in livestock production.
► A key question for the 2011 crop year is how much land will be planted to higher yielding winter (than spring) wheat before the onset of winter. While rain has fallen in much of the Russian and Ukrainian production areas, Kazakhstan remains dry.
► A key strategic question is how much of future increases in grain production will be absorbed by increased livestock production.
► A 2nd strategic question is, will Russia use its emerging food power for political gain.
► Going forward U.S. agriculture will need to monitor the RUK just as much as South America.

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