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August 9, 13:06 Source: APK-Inform Views: 520

Beginning of the season on the Russian market of wheat

The harvesting campaign-2014 continues developing, and the market of milling and feed wheat became activated. The number of offers rapidly increased, so the bearish trend on the market strengthened. At the same time, it is quite difficult to forecast what minimum indices the prices will reach. However, it is worth noting that in most regions, which already provide the mass harvesting campaign, the share of feed grain in the general production of wheat is high enough. The present article focuses on what impact the current situation may on the price development.

 

Harvesting campaign-2014: quantity and quality

In most regions of Russia the harvesting campaign started on time. Only in some oblasts of the Southern Federal District agrarians started field works a little later of the planned terms, due heavy rains. At the same time, the adverse weather conditions, observed in late June –beginning of July 2014, in other regions mainly affected qualitative indices of new crop grains. We should note that by the end of July the Volga, Central and some oblasts of the Volga-Vyatka and Ural regions provided the mass harvesting works, and the Southern region almost completed the field works. Generally, the rates of harvesting works are relatively stable, and the yields are often significantly higher compared with last season. Thus, in the Southern region wheat yield totaled 3.5-4.5 t/ha, in the Volga region - 2-2.7 t/ha, in the Central – 3.5-4.5 t/ha. According to the Ministry of Agriculture, as of July 31, agrarians harvested grains throughout the areas of 14.2 mln ha, or 30.4% of the harvested areas, while the produced volumes reached 48.2 mln tonnes of grains. It is worth noting that in the beginning of the harvesting campaign many agrarians assumed that the share of feed grains in the general harvest would be negligible, due to rather dry weather conditions in the period of grain ripening. However, the weather made its adjustments. Therefore, many agricultural producers of the Southern and Central regions noted that the share of 3-grade wheat in the general grain harvest is quite small, but 4-grade wheat and feed wheat form the major share of the production volumes. The situation in the Volga region is somewhat different: the share of milling wheat in the harvest structure is quite high, and the share of feed wheat, particularly quality feed wheat, is less. It seems that there is nothing critical in the issue, because the harvesting campaign has not come to its end yet, but recently the market operators have informed that the share of feed wheat (by GOST) on the market is quite low, although generally in the current season agrarians will produce much more the grain volumes than last season. Naturally, such correlation of forces has its impact on wheat prices.

Russia: production and distribution of wheat, mln tonnes

 

2013/14

2014/15

Production

52,1

53,4

Domestic consumption

34,1

34,2

Exports

18,3

20,0

Source: estimations of APK-Inform Agency

 

 

Price situation: domestic market

In price terms 2014/15 MY started in rather predictable way for the markets of milling and feed wheat. The domestic prices for wheat began decreasing after beginning of the season. On the domestic market the supply/ demand prices for 3- and 4-grade wheat decreased by more than 3000 RUR/t, and on July 30 in the Volga, Central Black Earth and Central regions the prices varied within the ranges of 6000-6800 RUR/t, 5700-6500 RUR/t CPT and 6300-7000 RUR/t, 5900-6700 RUR/t EXW, respectively. As for feed wheat, the prices in the reporting regions declined by more than 3500 RUR/t - to 4900-6000 RUR/t CPT, and 5100-6200 RUR/t EXW depending on the region. The lowest prices were fixed in the Central Black Earth region. According to many market operators, such price reduction was not the limit. The price range for feed wheat may be wide enough, even within frames of one region. For example, agrarians will be ready to sell sprouted grains with high moisture content and contaminations at even lower selling prices, as it is inappropriate to store such grains.

As for feed wheat with qualitative parameters corresponding to the GOST requirements, grain producers will offer such wheat on the market as needed to replenish their working capital, especially the demand for the grain is high enough in the current season. As for milling wheat, it is worth noting that qualitative indices of the grain of the harvest-2014 are often quite high, and many market operators do not forecast any significant price cuts. Agrarians believe that the current prices for 3- and 4-grade wheat are unacceptably low, and plan to wiat a bit, expecting for their growth.

First of all, I would like to stress that the current situation on the market of both milling and feed wheat develops in rather beneficial and traditional way. But it should be mentioned that the foreign market always significantly influenced the work of the domestic market, and it may become a "legislator" of the price trends in the current season.

 

Price situation: export market

We should note that in the first weeks of 2014/15 MY exporters observed the growth of prices for milling wheat, which was caused by the high demand for the grain of Russian origin, and strengthening of RUR/USD exchange rates. But since the second week of July 2014 the prices began falling. The situation was mainly caused by increasing of the number of wheat offers on the domestic market, the positive forecasts of the world wheat production, and some reduction of prices on the global market. If in the last week of June the offer prices for wheat of 12.5% protein content were declared within 251-255 USD/t and 222-227 USD/t FOB in the ports of the Black and Azov Seas, respectively, then in the second week of July there was observed some decrease, and as of July 30 the average offer price did not exceed 243-248 USD/t and 222-225 USD/t FOB, respectively. Also, it is worth noting the volatility of prices depending on qualitative indices of the grain: the offer prices for wheat with higher qualitative parameters varied within the range of 248-253 USD/t and 225-230 USD/t FOB in the deep-sea and shallow ports, respectively. As for feed wheat, in the beginning of the season the prices varied within 223-225 USD/t FOB. By late July, the offer prices fell to 201-203 USD/t and 170-174 USD/t FOB in the deep-sea and shallow ports, respectively.

A representative of the export-oriented companies from Rostov oblast commented the current market situation: "To date there are problems with the qualitative indices of the grain throughout the world, feed wheat production is likely to exceed the volumes of good milling wheat. So, it turns that good milling wheat is likely to be high-priced in the current season. To date agrarians mainly purchase milling wheat, but not interested in feed wheat. And it is more profitable to supply the Ukrainian grain in the direction of Israel then the Russian one. We would like to note that usually traders mixed feed wheat with the milling grain (15-30%), but in the current season they should not do such operations, because the quality of feed wheat is not as good, as previously, it may corrupt the milling grain when added. As for the prices, in the future they may be stable, i.e. it will a normal year with a good harvest, and price changes throughout the year at the level of no more than 20-30 USD/t. To date the main problem is almost complete absence of the margin between the domestic market and the prices of buyers-importers. As soon as the domestic prices reduce or increase, the world market will get the margin, and traders will start concluding contracts at the new prices."

 

Expectations of the market operators

According to the market participants, in the first half of 2014/15 MY the market will face the usual scenario. In the autumn the grain prices will likely rise, until the market to balance supply and demand indices. Despite the fact that the expected results of grain production are high enough, we should not expect for low prices until the Christmas holidays. Agrarians well remember the high prices of wheat observed on the market during two last seasons, and will not be ready to sell the grain at low prices. And the following factors will affect the price situation:

- weather (the harvesting campaign has not been completed yet);

- number of market offers;

- grain qualitative indices;

- demand on the domestic market;

- export activity;

- exchange rates.

 

FORECAST OF APK-INFORM ANALYSTS

According to estimations of APK-Inform Agency, in 2014 the general harvest of grains and leguminous crops in Russia may reach 95 mln tonnes, an increase of 3% compared with 2013. The production of wheat is estimated at 53.4 mln tonnes, up 2.4% compared with the previous year production.

The expected volume of grain crops production will completely satisfy the domestic demand for grains (in the season-2014/15 the domestic consumption of grains is estimated at 67.5 mln tonnes, including 34.2 mln tonnes of wheat).

Taking into account the ratio of grain production and domestic consumption, the export potential of grain crops in the new season is estimated at 28 mln tonnes (up 8.8% to 2013/14 MY), including 20 mln tonnes of wheat (up 9.3%).

 

Alexandrina Ovdienko, APK-Inform

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