Russia 100811 Basic Political Developments

No halt in Russia heat, winter crop sowing

http://ca.reuters.com/article/topNews/idCATRE6793M920100811
Wed Aug 11, 2010 1:22am EDT

By Aleksandras Budrys

MOSCOW (Reuters) - Scorching heat will keep hammering Russia for the next 10 days, a top weather official said on Tuesday, and seeding for the winter grain crops is in danger if there is no rain after that.

Russia's worst heatwave on record has stoked wildfires and parched crops in last year's No. 3 global wheat exporter, leading to a grain export ban, sending prices of wheat to two-year highs at one point and prompting the World Bank to warn against hasty restrictions on exports.

"The situation is not changing radically," Dmitry Kiktyov, deputy director of Hydrometcentre, the government weather forecasting unit, said of the heatwave that has cost 54 lives in fires and, economists said, could wipe $14 billion off economic growth.

"The temperature will change insignificantly, and there will be only local rains. They will be insufficient to cushion the current situation," he said.

The drought could slash Russia's 2010 grain output by nearly 40 percent to 60 million tonnes, and the winter wheat sowing campaign could begin to be in jeopardy if there is no rain during or right after the next 10 days.

"Our investigations show that the sowing may be delayed by some 10 days without losses. But only in case of rains," agricultural forecasting official Anna Strashnaya told Reuters.

Prime Minister Vladimir Putin, who said Russia's ban on grain exports could extend into next year, noted the drought could prevent some regions from starting the sowing campaign for the 2011 winter grain crop, which normally accounts for roughly 40 percent of the total.

The majority of Russia's grain crops are not planted until the spring, allowing much more time for conditions to improve.

WORLD BANK

On Tuesday, World Bank President Robert Zoellick cautioned against countries taking any action that could add to market uncertainty, in particular widespread export bans like Russia's.

"The situation in world grain markets is very uncertain and therefore somewhat volatile," Zoellick told reporters in Sofia.

"What is better this time is that the buffer stock is a little higher than a couple of years ago," he said, referring to tightness in global grains markets in 2008.

"We are cautioning countries about taking actions that might be appealing domestically but could add uncertainty on markets such as bans on exports," Zoellick said, echoing comments by World Bank Managing Director Ngozi Okonjo-Iweala.

Economists say the heatwave could knock 1 percentage point off Russia's gross domestic product, weakening an economic recovery from a 2009 slump due to the global financial crisis.

The crop failures will hit Russian farmers particularly hard. Only around 25 percent of Russia's crops are insured, compared with 80 percent in the United States, Swiss Re, the world's second-biggest reinsurer said on Tuesday.

Wheat markets slid further on Tuesday from last week's two-year highs, as traders assessed the damage to grains production across the Black Sea region that also includes major grains producer Ukraine, and pointed to ample stocks after two years of good harvests.

"With these bull runs you need to keep feeding the rally and we've seen most of the bad news now," said Rabobank analyst Luke Chandler.

Wheat prices on the Chicago Board of Trade traded as low as $6.90 a bushel on Tuesday, around 18 percent below last week's peak of $8.41, before rebounding to $7.10-1/4 by 1559 GMT.

Prices remain far below the peaks set during early 2008 when shrinking inventories and rising energy markets saw CBOT wheat futures rise as high as $13.34-1/2.

The two largest global wheat crops in history in 2008 and 2009 have resulted in much higher stock levels now and a return to the prices seen two years ago is considered unlikely.

Still, prices remain more than 50 percent higher than June lows, and importers are reluctant to commit to deals at current prices.

Turkey's state grain office said on Tuesday it had sufficient wheat stocks while Jordan said it had enough wheat stocks to cover its needs for six months but would be forced to switch to more expensive U.S. or European grains.

(Additional reporting by Naveen Thukral in Singapore, and Nigel Hunt in London; writing by Sue Thomas; editing by Anthony Barker)
Budget deficit at 2.2% of GDP in January-July

http://www.businessneweurope.eu/dispatch_text12479

Renaissance Capital

August 11, 2010

Yesterday (10 Aug), the Ministry of Finance released monthly budget statistics for July. The key implications are listed below:

• The budget deficit in January-July came out at 2.2% of GDP, below the official forecast of 5.4% of GDP for 2010. The deficit's nominal value is RUB540bn. The deficit rose in July from the previous month's level of 1.9% of GDP. However, this does not mean that fiscal performance deteriorated, in our view, as the January-June figures were influenced more by one-off sources of income.

• Collected revenues amounted to 59.9% of the budget plan for 2010, with a nominal value of RUB4.7trn. The revenues exceeded estimates due to greater-than-expected oil and gas revenues and significant one-off income from the Central Bank of Russia and sovereign fund management.

• Expenditures reached 50.9% of the budget plan for 2010, with a nominal value of RUB5.2trn. Traditionally, a large share of budget funds is spent at the end of the year; so that expenditures usually lag the planned schedule. However, in 2010 the distribution of funds in the year seems to be more even than in previous years.

• No money from the Reserve Fund was used in July to cover the deficit. Other sources were used: domestic borrowing and federal budget accounts.

• Net borrowing in the domestic market was very stable at RUB60bn in July. The Ministry of Finance borrowed RUB60-70bn in June, which was the first month when it actively tapped the market.

• The government remains a net lender to the regions and has provided RUB70bn in inter-budget loans YtD.

• The government has started to execute its privatisation programme - about RUB2bn of assets were sold in July. The initial estimate of the programme is RUB18bn in 2010. There is more to come, as airports and seaports are included in the plan.

Budget performance seems to be better-than-expected YtD; however, we estimate that the budget deficit will reach 4.8- 5.1% of GDP, as a high share of government spending is usually allocated to the end of the year.

Anton Nikitin
Corporate loan growth excluding Sberbank was only 0.1% m-o-m in July

http://www.businessneweurope.eu/dispatch_text12479

Alfa Bank

August 11, 2010

According to the CBR, corporate loans excluding Sberbank grew only 0.1% m- o-m in July. Even adjusted for ruble appreciation, this figure was equivalent to only 1.1% m-o-m, which is weak.

Taking into account preliminary figures that Sberbank's corporate loans increased 1.5% m-o-m in July, corporate loan growth for the overall sector in July is very likely to be around 0.5% m-o-m. This growth is as weak as in March: as of April, the growth rate was in the range of 0.9-2.1% m-o-m. Even if the CBR explains this slowdown in lending activity as a seasonal slowdown in economic activity, we believe the size of the slowdown in lending growth is too large. We previously expected loan growth of around 2.0% m-o-m in July- August.

Nevertheless, Sberbank's corporate loan growth is still relatively high, suggesting that demand for loans is good. Furthermore, we believe that the drought will fuel cost inflation in Russia and therefore create additional demand for loans. This might create an opportunity for banks to generate additional corporate lending growth; however, this would be at the price of taking additional credit risks. Thus, we will be looking for 1.0% m-o-m loan growth in August.

Natalia Orlova