Russian export market - first results of 2014/15 MY, and the first records

Source

APK-Inform

1956

Russia occupies fairly strong positions among the world key producers and exporters of wheat. But in the current season Russia has a good chance to break its records. Undoubtedly, large-scale production volumes and good qualitative indices of grains of the harvest-2014 contribute to such situation development. But unfortunately, there are a number of factors which may provide negative effect on the market in the nearest future. The present article focuses on analysis of the export market in the beginning of the current season.

As a reminder, despite some difficulties,last seasonwas successful for the Russianexport market.The country supplied over18.3 mln tonnes of wheat on foreign markets.In many ways,high production volumes ofnearly52.1 mln tonnes,acceptable level ofselling priceson the domesticmarket, andthe global market conditions, contributed to the situation development. As a result,the season traditionallyendedwith lowering of grain prices. We should note that in May 2014 the average offerprices forwheatof the harvest-2013(FOB)varied within 270-283 USD/tin thedeep-sea ports. In June2014 the market segmentfaced the bearishtrend,due toexpectationsof grainproduction growingboth inthe world andRussia.At the end of the month the offer pricesfor new cropmilling wheatwith 12.5% protein content in the Black Seaports were declaredwithin the range of250-265 USD/t FOB.However, not allexport-oriented companieslowered their offerpriceson the threshold of the newseason,becausethe harvesting campaignhad just started only,andthe price situationon the marketwas difficult to forecast.

Beginning of the season faced keeping of the previousprice trendandthe record ratesof export trading. Accordingto the customs statistics,in JulyRussiasupplied2.7 mln tonnes of wheat on foreign markets, which became the recordindex of exports forthe reporting month(the previous recordof2.4 mln tonnes was observedin 2011). At the end of July the offer pricesfor12.5%wheatin the Black Seaportswere declaredwithin 243-250 USD/t FOB.At the same time,the offer prices for 12.5%wheat, butwith higher qualitative indices,varied within the range of248-253 USD/t FOB.Increasing ofthe number of offerson the grain market, and decreasing of wheat price quotationson the world market contributed todevelopment of the observed price fall. Also,the situation on the domesticmarket supportedthe dynamics ofprice reduction.In Julyagrarians activated sellingof the grainandwere ready tomake price discounts,in order to achieve urgent replenishment of theworking capital. Also, grain processorssignificantly reduced theirpurchasing prices,anddidnotform much competitionfor companies-exporters. Therefore, we stressed the factors whichcontributed to falling ofgrain priceson the export market:

- global market situation;

- high production volumes in the Russian Federation;

- high qualitative parameters of wheat of the harvest-2014;

- sufficient numberof offerson the domestic market;

- bearish trend on the domestic market.

Also,fluctuations of theforeign exchange rates andthe situation in Ukraine ambiguouslyinfluenced onoperation in the reportingsegment. Butat the same time,beginning of the season showed the record volumes of grain export supplies from Russia .We should note that theactiverates of grain suppliescontinued inAugust 2014.Butthe price tendencyon the export marketdramatically changed.

 

 

 

 

Record export rates

In Augustexport supplies of the grainincreased tothe maximumindex ofexports for thereporting month -4.2 mln tonnes.The pricesfor milling wheaton FOBterms faced the bullish trend, due to the rise of priceson the world stock exchanges, activation of demand fromthe Middle East countries.In the Black Seaports the pricesfor milling wheatwere declared within the range of244-254 USD/t FOB.Export-orientedcompanies increased their offer prices,due torather significant growthof grain priceson the domestic market. Laterthese factorswere offset bythe market conditionsofboth the domestic market, and the world one.

The unstableexchange rate,which traditionally"plays into the hands" of export-oriented companies, began working against them. Due to rising of the USD/RUR exchange rate, and the corresponding growth of pricesfor fuels and lubricants, agrochemicals, etc., agrarians sharply reducedsales volumesof the grain since the secondhalf of August 2014.At the same time, the demandon the domestic marketwas rather high,therefore thegrain pricesstartedactively increasing. On the contrary,the world marketshowed the bearishtrend.We should note that inSeptember 2014the number ofoffers fromcountries-exporterson the world marketwas large enough. Of course,due to therise of priceson the domesticmarket, Russianexporters primarilyproposedwheat of high-qualitativeparameters,but notacceptable prices.

In September the price situationon the export marketcontinued changing.Since the second half of the month, the prices for milling wheat started declining, caused by development of the situation on the world market.By October 1, export-orientedcompanies were forced to reducethe offer prices onFOB basis for wheatof 12.5% protein content in the Blackand AzovSeas ports to 234-236USD/t and 210-215 USD/t, respectively. Companies-exporters reducedthe grain purchasing volumes on the domestic market, andstarted reducing the bidprices. At the same time, exporters failed to make significant changes on the domestic market. Agrarians still offeredsmall-scale batches of the grain at almostmaximum selling prices. Of course,Russian exporters will be difficult to compete on the world market, while the domestic market shows such high prices. Butaccording to APK-Inform data, in 2014 during July-September period the Azov and Black Seasports already shipped more than7330 thsdtonnes of wheat,against 5534.7thsd tonnes in the same period of 2013. Thus, wecan say that, in general, the beginning of the season was quite promising, andthe positive expectationson the recordexport volumes in the current MYcan be real. Opinionsof the market participants aboutthe situationdevelopment are largelysimilar.

 

Opinions of the market operators

Representative of export-oriented company from Rostov oblast:

“First of all highproduction volumes of wheatin the world, and the corresponding low prices on the stock exchanges, became a distinctive feature of operating on the Russian export marketin the beginning of2014/15 MY. Also, the situation in Ukrainecontributed to formation of the prices. When everyone thought that the situation was running high, themarket prices started growing, and when the situation became relatively stabilized, the prices began gradually declining. All Russianmarket operators are glad withhigh qualitative parameters ofwheat of theharvest-2014,and absence of the problems with logistics. The export geographyof wheat supplies didnot change, the list of main countries-importers still includes Turkey, Egypt, the Philippines, Pakistanand Japan. I think that during the season the demand for Russian wheatwill be high enough,and the price will finally match the qualitative parameters of the grain.”

Representative of export-oriented company from Volgograd oblast:

“In August-Septemberperiod the price of wheatcontinued activelygrowing. As of the beginning of October, the price growth stopped, and in the coming months the index will keep at the maximum level. I should note that on the domestic market flour millingplants are ready to purchase 3-grade wheatwith 25 glutencontent at8000 RUR/t CPT, and it is the price at which producers will provide low-scale grain volumes.The situation is caused by positionof agrarians, whousually prefer holding downgrain volumes, almostwithout providing it to linearelevators, and activate their sales only when they find itnecessary. According to my information, Volgograd produced nearly 4 mln tonnes of grains, nearly 800 thsdtonnes are alreadystocked at elevators, 1 mln tonnes is taken from the oblast and usedfor domestic consumption. Thus, agricultural households store 2 mln tonnes of grains in their storing facilities, i.e. the grain stocks are available, but the price is open to question. In my opinion, until the New Year until it is clear, how the situation with winter crops areas develops, the RUR prices will keepwithin the formedrange. At the same time, I do not see any prerequisites to reduce it. The market situation depends on the USD/RUR rates, and the relations between Ukraine and Russia.

As of the export market, it should be noted that in May-October periodIran showed rather stable interest inpurchasing of Russianwheat. Every week 6-7 vessels with grain cargoes shipped to the country. The prices in the port elevators were established as follows:12.5% wheat- 7500 RUR/t.

Also, I do not think that we should be afraid of sanctions, as it will just contribute to growing prices of grain prices on the world market, and nobody wants to damage the world market conditions. The economics has long become united, and is directly dependent on manipulations with sanctions.”

Representative of export-oriented company from Rostov oblast:

“The price increasing in July-August period was caused by the fact that in the current year the qualitative indices of wheat of the harvest-2014 were quite low around the world, the share of milling wheat was rather small. But since August, we have observed a fall of prices, associated with the high expectations of wheat production in the world. Russian exporters were forced to take into account the fact that there were a lot of offers of wheat on the world market. Also, the situation in Ukraine had its impact on the market: some exporters reduced their trading activity rates, while others are trying to conclude the maximum number of contracts. Actions of both types of exporters were oriented to keep safe against a possible ban on grain exports. Generally, the market was working dynamically. The logistical problems were the same as last year: the terminals were overloaded, and consequently the ports provided poor grain acceptance. The export geography of wheat did not change: the share of exports to the countries of Africa (Sudan), South America (Mexico), increased, although Turkey and Egypt were the main buyers.

It should be noted that the USD/RUR exchange rate significantly influences the export market, and it is difficult to forecast. On the one hand, it provides support to grain exporters, allowing for increasing of RUR prices, on the other hand, the prices on the domestic market significantly grew, because farmers also reacted to growing of the USD/RUR rates. As a result, to date the domestic prices are quite high, which negatively affects the work of companies-exporters.”

Igor Pavensky, Rusagrotrans

"The current season for the Russian export market may not be easy at all, but it will break new records in terms of the supply of wheat on world markets.

The export peak,its maximum rate,was observed in August, Russiawill likely fail to exceed the monthly index. At the same time, the monthlyshipment rates willexceed the previously set maximumindices of grain export shipments. Such activity will be caused by the factthat there are noanalogues for Russian high-quality wheat on the world market in the current season, and the demand will be high.

I suppose that due to the USD/RUR exchange rate and the growth of demand caused byimport substitutionoperations in the segments ofmeat anddairy products, as well as increasing of theexports, the wheatprices on the domesticmarket will be rather high. Also, in 2014/15 MYwe should not expect for low prices forhigh-quality wheaton the world market."

 

The reporting season hasjust begun, and it is difficult to make any forecasts aboutthe further development ofthe price situation on the export market in the current terms. At the same time, we see strengthening of prices on the world stock exchanges for high-quality wheat and the stabledemand for the grain, as one of themost perspectivescenarios. As for Russia, in the current seasonthe wheat exports may rise to the record level of 22-23mln tonnes.

 

Alexandrina Ovdienko , APK-Inform Agency

 

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