One of the major factors influencing global wheat market is the importers demand. Middle East and Northern African countries are the key buyers of Ukrainian grain, meanwhile the military conflicts in the region are affecting the demand. We interviewed Irina Prodan, the agrarian market analyst of analysis and planning department and Olesya Starozhuk, the Deputy Director of the financial Department Rise Company of Ukrlandfarming Group of companies.
Irina Prodan, agrarian market analyst at analysis and planning department
Olesya Starozhuk, Deputy Director of the financial Department of Rise Company of Ukrlandfarming Group of companies.
Reference
The Ukrlandfarming Group is the largest Ukrainian vertically integrated agricultural holding company, managing 654 thousand hectares of highly fertile black soil, the largest stock of black soil in the country. The company is specialized at the agricultural crops cultivation and sugar production of sugar beet, cattle-breeding for beef and diary production, seeds production, leather and various agricultural raw-material distribution. Ukrlandfarming is in TOP-10 of the largest-scale grain exporters.
- What are your expectations of the wheat global supplies and exports in 2015/16 MY? What factors will be the key ones for market formation?
I.P. According to the USDA data, in 2015/16 MY global wheat supplies to decline. Wheat production to reach 721.95 mln tonnes as opposed to 725.92 mln tonnes in 2014/15 MY, down 0.54% of the rate of season 2013/14. Meanwhile non-US wheat crop to decrease by 9.2 mln tonnes. Thus, the stated rate to face a bearish trend in the EU, India, Argentina, Canada, Russia, Ukraine which would exceed the expected larger crop in China, Turkey, Australia, Iran and Syria.
Heat being in July in the Western Europe increased the stress on wheat after rainless period in the end of spring and to cause crop decrease. In total the EU wheat crop to decline by 5.48% a year to 147.87 mln tonnes. Wheat exports to increase despite the EUR strengthening. The reason is the limited supplies of qualitative milling wheat to be n the global market in 2015/16 MY.
However, despite unfavorable weather in June/July to date their improving in the major producing countries and the fast temps of the harvesting campaign to be higher of our expectations.
Meanwhile, the oil market is in bearish trend due to the world economics slowing down, especially in Asia.
- What is your estimation of the Ukrainian wheat qualitative parameters in the current season and how will it impact the major importers demand?
I.P. In the recent weeks there has been a problem of the insufficient supplies of high qualitative wheat on the domestic market of Ukraine. We think that nearly 60% of the Ukrainian wheat will be feed quality, 40% - the milling one which will cause the active demand of the milling enterprises and to cause the stress on the wheat market. Note Egypt is the main importer of Ukrainian grain in the North Africa and is the leader on the wheat imports on the global market. GASC is holding hard requirements for grain quality being presented for international tenders. Russia is our main competitor so I think we shall face hard competition in the new season.
Rise Company has been supplying grain to the North African countries where the military conflicts are taking place. What problems did you face while supplying grain to the region? What risks should you consider while concluding the contract?
I.P. According to our estimation the past 2014/15 MY was the most successful in the history of Ukraine. Thus grains and pulses in clean weight totaled 64 mln tonnes, up 2.4% compared to the previous season rate. Exports reached 34.6 mln tonnes which is the record rate of the previous MY and the exports in general.
Ukrlandfarming being one of the largest-scale exporters of the Ukrainian grain in 2014/15 season exported nearly 1.8 mln tonnes, up 200 thsd tonnes of the previous season rate. The major sales markets for Ukrainian grain were China. Egypt, Spain, Italy, Pakistan, the Netherlands, Bangladesh. There were no countries-importers of the Ukrainian grain where the military conflicted worsened. Note in 2014/15 MY, Ukrlandfarming used to export on CPT and FOB basis which is excluding the risks while supplying commodities to the countries involved in the military conflict.
O.S. Our company is the member of the International Grain and Feed Trade Association (GAFTA) which includes over 1500 companies in 89 countries. Nearly 80% of grain and feed trade is being realized under the rules and norms of GAFTA. Thus all the foreign economics contracts for grain supply are according to the standards of GAFTA contracts.
In order to minimize the financial and commercial risks while supplying grain to the countries of North Africa where the military conflict is sharp, we supply on FOB basis which means that all the risks or expenses on the commodities loss or damage is under the buyers responsibility. According to the terms of FOB basis our company is to realize commodities’ customs clearance for exports.
In order to minimize all the possible risks, it is necessary to cooperate with the stable partner: seller, buyer, broker, which is the number one point while concluding the contract.
- What payment forms is the most priority for you due to the instable financial situation in the MENA region?
O.S. CAD (Cash Against Document) – A payment arrangement in which an exporter instructs a bank to hand over shipping and title documents (see document of title) to the importer when the importer fully pays the accompanying bill of exchange or draft.
- Did you notice that countries involved in the military conflict announce low requirements for qualitative parameters of grain and are ready to consider all the offers due to the possible risks during the supply?
O.S. No, there is no such. Quality is stipulated by the contract and each region of the world has its own specific requirements.
- Will there be demand change for Ukrainian wheat from the MENA region countries in the current season?
If we talk about the region in general the volume of international trade with wheat totals nearly 150-160 mln tonnes. The importers sharply needing the wheat are the North Africa countries (Algeria, Egypt, Libya, Morocco, and Tunisia) and Middle East countries (Lebanon, Iraq, Iran, Israel, Jordan, Kuwait, Saudi Arabia, the UAE, and Oman). In these countries the wheat consumption level exceeds production by 2-3 times due to the fertile land lack.
However the most dependent on imports are the South Eastern Asia countries (Indonesia, Malaysia, the Philippines, Thailand and Vietnam) where wheat production level is very low. In order to satisfy the demands they have to import nearly 16 mln tonnes.
It is rather interesting that India and China despite the availability of big production volume are not able to satisfy the domestic demand every year so sometimes they have to buy wheat.
Saudi Arabia is slowing down wheat production and in order to satisfy the domestic demand the country will be fully dependent on imports.
To date, the question of food supplies to the MENA region countries is rather sharp.
Meanwhile, I am sure in 2015/16 MY there will be good demand for Ukrainian grain. The Black Sea region has returned on the market this summer as it is shown in exports dynamics from Ukraine. As of August 6, 2015 Ukraine actually shipped nearly 2.9 mln tonnes (wheat – 978 thsds tonnes, barley – 921 thsd tonnes and corn – 999 thsd tonnes) which is showing the stable demand for our products. Ukrainian grain traders and oilseeds producers are to reorient their exports onto the Asian region – those are China, South Korea, Japan, Bangladesh, Taiwan, and Indonesia. However, the traditional sales markets to remain the MENA region countries and the Persian Gulf countries.
So, I suggest Ukraine to save its stable place in TOP-3 grain and oilseeds exports. Forecast of the situation for 2015/16 MY as for the Ukrainian grain demand and crop production are positive.
Interviewed by Viktoria Torop
