July 20 (Reuters) - Russia's worst drought in 130 years has destroyed crops in an area the size of Portugal, forced up wheat prices and led to the intervention of Russia's leaders.
Following are details of the drought’s effects on markets, Russia’s macro-economic outlook, policy and official forecasts for how long the high temperatures may last.
WHICH REGIONS ARE AFFECTED?
Scorching temperatures, which have reached 40 Celsius (104 Fahrenheit) in the shade, have affected regions throughout Russia, from Moscow to the Pacific coast.
A state of emergency had been declared in 23 grain-producing regions, in central European Russia, the Volga, Siberia and along the south of the Ural mountains.
The drought is Russia’s most severe for 130 years, according to the Russian Grain Union, a powerful lobby group.
Moscow’s summer is on course to be the hottest since 1938, although temperatures might fall next month, Dmitry Kiktyev, deputy head of Russia’s state weather agency, told Reuters.
"The temperature hike this month in Moscow could surpass the 1938 July figures, when the average temperature was 5.4 degrees above the norm," he said.
WHAT IS HAPPENING TO CROPS AND PRICES?
Russia is Europe’s biggest wheat producer but grain plantings in 9.6 million hectares (23.7 million acres), nearly one-fifth of the 43.6 million hectares sown for the 2010 crop, have been destroyed so far, the Grain Union said.
Prices for ordinary wheat with 11.5 percent protein content, Russia’s main export cereal, rose to $198 per tonne last week from $178 a week earlier at the country’s main export outlet, the Black Sea port of Novorossiisk, the Institute for Agricultural Studies (IKAR) said.
The forecast for the grain crop of 80-85 million tonnes now looked optimistic, Deputy Economy Minister Andrei Klepach was quoted as saying by the RIA state news agency.
Last year Russia harvested 97 million tonnes of grain, down from 108 million tonnes in 2008. Russia’s grain stocks stood at 24 million tonnes on July 1.
With annual consumption of 77 million tonnes, this provided an exportable surplus of up to 20 million tonnes, according to the Grain Union.
INFLATION AND INTEREST RATES
The drought has raised fears that Russian inflation forecast at between 6 and 7 percent for 2010 may have to be revised.
"The drought may add 1.5-2 percentage points to the current inflation level," Grain Union chief Arkady Zlochevsky said on Monday.
Prices have risen 4.6 percent so far this year, according to data from the Federal Statistics Service.
Deputy Economy Minister Klepach said higher rises as a result of the drought might be seen in September figures.
Agricultural output might turn negative in year-on-year terms in July-September, the investment bank Troika Dialog said in a research paper. That could stimulate non-monetary inflation, although the annual inflation rate would still be less than 6 percent, it said.
Russia’s central bank might raise interest rates this year to counter inflationary pressure cause by drought affect farm output, economists polled by Reuters said on Friday.
Russia’s potash miner Uralkali outperformed the benchmark MICEX stock index on Friday on what traders said was a gamble that demand for fertilisers would rise.
POLITICS AND POLICY
President Dmitry Medvedev and Prime Minister Vladimir Putin have ordered officials to help farmers deal with the drought, a sign of the seriousness with which the Kremlin views the situation.
"The unusually hot summer has caused serious losses for rural areas … Of course we will not leave the farmers on their own with this major calamity," Putin said at a meeting last month. Medvedev ordered banks to extend the maturity of loans for struggling farmers.
First Deputy Prime Minister Viktor Zubkov, who oversees agriculture, said a bread shortage was unlikely because Russia had significant reserves, although some agriculture officials said meat prices might rise.
