Price rise on the Ukrainian wheat market - whether to wait for changes?

Source

APK-Inform

2390

The 2014/15 MY has just begun, but the milling wheat price has grown and continues to rise. Such atypical price situation for the start of the season alerted the market operators. The  formed trend is determined  by several factors, which are discussed in detail in this document.

The Ukraine's position as a wheat producer is strong on the global market. Remind, Ukraine is in TOP-10 of the large-scale exporters in the recent years. The price situation which formed on the wheat market in August, 2014 is atypical for Ukraine. Note that the harvesting campaign is over, thus it is easy to evaluate the crop. The wheat general production exceeded the last season rate by over of 1 mln tonnes. However, according to the preliminary estimation of the market operators, the feed wheat share in 2014/15 MY is higher than milling wheat one, nearly 70/30 respectively, due to the unfavorable weather conditions being during the harvesting campaign. Here are the major factors caused the prices growth in this segment:

• Low quality of the grain harvest in 2014.

Deterrence of wheat sales: the agrarians offer on the market only small-scale parties of grain, primarily implementing the feed wheat and other cereals;

Unstable currency rates: respectively, the prices rise in all the segments of agribusiness industry (grain seed, lubricants, plant protection products, etc.). By prices increase the agrarians intend to compensate the production costs rise

High demand on the domestic market: By the sales hold the agrarians aggravate the market situation. Thus, the exporters, in order to execute the contract, are able to rise the purchasing prices owing the USD currency rate increase, meanwhile the processers being dependent on the end-commodities sales temps are not able to do the same;

Global market: according to the preliminary estimation, most of the milling wheat countries-producers harvested very little share of the crop due to the unfavorable weather conditions.

Serhey Filimonov, Vinnitsa Bread Products Combine №2:Thus, wheat prices increase on the global market is caused by the low quality of the product. Note, the general production of wheat is rather high, but the share of feed wheat and grain infected with fusarium is too big. Besides, the unstable currency rates affects the market prices too. It is more profitable to sell the volumes to the exporters being in the better situation owing the USD/ UAH currency rate increase, so they can offer higher price. By December, 2014 the milling wheat prices to reach  2600-2700 UAH/ t CPT.”

Miroslav Kapustnyak, PE Dobrobut: "It is expected the 2- and 3-grade milling wheat prices further increase, so in the second half of the season, the stated rate to reach 3000 UAH. This situation is caused by the lack of the qualitative milling grain on the market, the crop yield is rather high, but the volume of good milling wheat is really small-scale, unless there is the permission of the Ministry of Agrarian Policy of Ukraine to purchase 6-grade wheat with the less content of gluten, the price to face stabilization, but the quality still will be low. So, the crop is good, meanwhile the quality is not, especially in the Western region. Meanwhile in the Central and Southern regions the situation is better, but in the Western one there is very limited volume of qualitative wheat.”

 

 

 

Summing up, note that most of the Ukrainian wheat market operators are agree that the bullish trend, which was formed in the beginning of the current season, to be the main trend of 2014/15 MY. Some factors influencing the price situation will, probably, change, but the current price trend to remain the same. However, if the previous season price maximum are exceeded to be clear in time.

Analysts comments

According to the current data, in 2014 in Ukraine there was produced nearly 24.4 mln  tonnes of wheat. Considering the after-harvest grain treatment the analysts of APK-Inform forecast the general production of the grain at the level of 23.3 mln tonnes, up 5% of the last year rate (22.3 mln tonnes). At the same time there is complicated situation with the wheat quality of crop 2014. On the one hand, according to the official data of the National Academy of Agrarian Sciences of Ukraine, nearly 72-75% of the harvested grain is graduated by 1-5 grades, and nearly 60% of it is 1-3 grade. On the other hand, the millers state it is very difficult to form milling blends of the new crop grain. Thus, the essential share of the food grain (nearly 70%) being bought by the millers does not correspond to the baking condition on the following indices: gluten quality and falling-number value. So there are certain doubts on the available sufficient volume of the stated condition on the market. But it is also necessary to note another one factor – strategy of the qualitative grain sales holding by the agricultural producers while expecting the higher prices. In the current season the stated strategy is actual as never before, and will deliver benefits.

 

According to the analysts of APK-Inform, the general distribution of wheat in Ukraine in 2014/15 MY is following: the domestic consumption of grain to total 12.8 mln tonnes as opposed to 12. mln tonnes in the previous season, meanwhile the export potential – 9.2 (9.3) mln tonnes compared. The domestic use increase is based on the feed consumption rise to 5.8 (5.6) mln tonnes. At the same time the export potential to remain unchanged on the last year level due to the expected difficulties with the export consignments formation corresponding to the certain qualitative parameters.

 

Alexandrina Ovdienko, APK-Inform Agency

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