Russian farmers rush to sell grain to profit from high interest rates

MOSCOW — Russian farmers appear to be changing their habit of withholding excess grain for better times amid low global prices, as high interest rates make it attractive to cash in and deposit money in banks at home, analysts said.

The Russian central bank hiked its key interest rate to 21% last month, the highest level in more than 20 years, as it fights inflation in the overheated economy. Many banks are now offering short-term deposits with interest rates of up to 25%.

“It is easier to sell grain right away, put it in a bank at over 20%, and forget about it,” Dmitry Rylko, head of the IKAR agriculture consultancy, said.

“No one is holding anything back here, quite the opposite. This year, we have no incentives to hold on to it, which is why we had such a large export,” he added.

In analysts’ view, the possibility of further hikes in wheat export duty in recent weeks, on top of recent sharp rises, also outweighed the benefits of holding back stocks.

While in many regions of the world,  to sell grain at current prices, Russian sales are proceeding at a near-record pace, with domestic stocks falling and firms turning to state auctions to buy more grain for exports.

According to Sovecon consultancy, Russian wheat stocks were down 14% to 38.7 million metric tons as of Oct. 1, compared with last year. The stocks were up 21% year on year in the second quarter.

“The wheat reserves have sharply decreased compared to the previous quarter due to low production levels of Russian wheat and active exports,” the consultancy said.

Russia’s seaborne grain exports rose 11% year on year in October to 6.3 million metric tons, and so far this year are up 2.1% on the same period of 2023, according to shipping data obtained by Reuters.

Analysts estimate that Russia has already shipped about 45% of its grain export potential for the current season, which is estimated officially at 55-57 million tons.

The agriculture ministry forecasts this year’s grain harvest at 130 million tons, following months of bad weather. This figure represents a 12% decrease from 148 million in 2023 and an 18% reduction from a record 158 million tons in 2022.

Earlier this year, when early spring frosts and then drought inflicted heavy losses on the Russian harvest, some farmers considered holding back sales until global prices rebound.

“Poor harvest years in agriculture occur periodically, so to get through them, a rise in prices is needed. We are waiting,” Konstantin Yurov, a farmer from the Krasnodar region, said in August. — Reuters