SOVIET-US WHEAT TRADE: AN UPDATE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP08S01350R000200670002-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 3
• Document Creation Date: December 22, 2016
• Document Release Date: March 26, 2012
• Sequence Number: 2
• Content Type: MISC

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Declassified in Part - Sanitized Copy Approved for Release 2012/03/26: CIA-RDP08SO135OR000200670002-1
Soviet-US Wheat Trade: An Update
Rumors persist that Soviet Union is prepared to honor its
commitment in the Long Term Grain Agreement (LTA) if it is
granted a subsidy under the Export Enhancement Program (EEP) that
will make US wheat prices competitive. In particular,
on the eve of last week's
US-Soviet LTA consultations, the Soviet foreign trade official
heading the USSR delegation stated the Soviets would purchase the
required 4 million tons of wheat if the US offered a subsidy of
$40 per ton. In addition, the official said that Moscow wants to
include language in a new LTA--the current agreement expires next
year--stipulating that the USSR will be obligated to buy US grain
only if terms are as favorable as those offered by other
suppliers or as favorable as those offered by the US to its other
customers. During the actual consultations on 23-24 February,
the US explained how the enhancement program operates. The
Soviet participants reportedly made no comment. They did not
request the subsidy or suggest any subsidy level that would make
US prices attractive to them.
How serious Soviet intentions are to honor the agreement is
still not clear. Moscow's purchases of US wheat fell about 1.1
million tons short of the commitment during the 1984/85 LTA
(which runs from October to September) and ended up 3.8 million
tons short during the 1985/86 LTA. No wheat purchases from the
United States have been made so far during the current
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1986/87 LTA. The Soviets argue, however, that they are in
compliance with a looser interpretation of the agreement if
purchases of corn, wheat, and soybeans are combined and not
considered separately. For example, combined Soviet purchases
during the first three years of the accord were roughly 43
million tons compared with the 27 million tons called for in the
agreement.
Soviet officials claimed last summer that commitments for
wheat purchases would be honored if subsidies were offered, but
the USSR stayed clear of US wheat markets, even when the EEP was
extended to them for a two-month period that began on 1 August.
At that time Moscow argued that cheaper wheat was available
elsewhere, while US officials contended that the $15 per ton
subsidy offered was competitive, given the quality of US wheat.
However, the Soviets did not need additional wheat then, in view
of foreign purchases already in hand as well as domestic
supplies. Similar circumstances appear to exist at the moment.
-- Purchases of some 24 million tons of grain in the past
eight months, combined with a 1986 domestic grain crop of
210 million tons, provide a supply more than adequate to
meet needs for the 1986-87 marketing year. Should the
USSR's wheat crop face severe difficulty--for example, the
USSR periodically suffers drought during crucial periods
in development of winter grains--Moscow may want to come
into the US wheat market later in the year, but probably
not before May.
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-- An attractive EEP extended to the Soviets--even one with a
$40 per ton subsidy--does not guarantee that US prices
would be competitive. Regardless of the size of the
subsidy, major US competitors
have stated that they will match or
undercut the effective price, leaving Moscow the opening
to continue claiming that US prices are not competitive.
Indeed, Moscow may hope to use US subsidies as leverage to
depress further world grain prices.
A Soviet decision to purchase US wheat in the near term
could be made for reasons other than price. Should Soviet
demands for milling quality wheat unexpectedly increase in the
near term, the US remains about the only supplier with sufficent
stocks. Moscow may also have some political agenda in mind and
hope that token purchases of US wheat will help improve bilateral
relations. Moreover, the Soviets may believe that it is in their
interest to have a some type of long-term grain agreement in
place--even if underutilized--and therefore should make some
purchases before the old agreement expires to make sure the US
remains interested in striking a new accord.
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