In the current season the market faced the deficit of feed and milling wheat supply, which, in turn, adversely affected the general price situation. In terms of the continuous growth of prices, the competition between the processing and export-oriented companies was quite high, and traders even had some advantages. Despite the fact that during two recent months (March-April) the grain prices declined, many market operators did not exclude the possibility that the trend may again fundamentally change. The present article focuses on the prospects of such situation development in the segment of wheat and its influencing factors.
In 2014/15 MYthe wheat market mainly faced the bullish trend, due to the devaluation processes of the national currency and, as a consequence, a sharpdecrease of the grain supply from agrarians.
Only in March-April of 2015 the prices for milling and feed wheat started gradually decreasing by nearly 50-100 UAH/t per week. The relative stabilization of the national currency exchange rates, and activation of grain sales operations by agrarians in the beginning of the planting campaign, became the main causes of the current trends. According to APK-Inform data, as of the end of April 2015 the purchasing prices for 2- and 6-grade wheat from export-oriented and processing companies totaled 3800-4100 UAH/t, 3500-3700 UAH/t and 3700-4200 UAH/t, 3200-3750 UAH/t CPT-port/CPT, respectively. So, there is quite a logical question, whether to expect for any further price reductions? We should note that the market participants have various opinions on the future development of price situation in 2015/16 MY: some believe that the prices will continue declining, while others do not see any basis for such changes.
"Everything depends on the exchange rate fluctuations. If we assume that the exchange rate is stable, then in the beginning of 2015/16 MY the prices are likely to fall, as it happens every season. To date, the price of milling wheat is fixed within the range of 3800-3900 UAH/t EXW, and it is most likely the minimum possible index in the current terms. And according to our opinion, it is not necessary to expect for any significant decline of prices in the nearest future. At the same time, the foreign currency exchange rates will remain the key factor influencing price formation on the market, which is quite difficult to forecast,” - commented a grain processor from Kirovohrad oblast.
"I believe that during several recent years, the export prices still remain the major determining factor in formation of the prices for all major groups of grains. Taking into account the fact that during recent months, traders reduced both the purchasing volumes of grains and its bid prices, the further declining of wheat prices is the most possible trend. In such situation, reduction of the competition allows to grain processors not only to reduce purchasing prices for grain raw materials, but also to purchase grains as needed, without fear to remain without grain reserves at all. Therefore, we think that at the end of the current season the grain prices will reduce by 200-300 UAH/t,”- said a representative of the grain processing plant from Dnipropetrovsk oblast.
"The decline of wheat prices was observed during the whole March and partly in April 2015. However, at the end of the period the situation in the segment of feed and milling wheat somewhat stabilized. Moreover, in some regions we witnessed growing of the minimum demand /supply prices by nearly 200 UAH/t, due to insufficient number of offers of large-scale grain lots. In such terms, it is difficult to make any long-term forecasts, or even plan anything in three days ahead. However, we expect that by the end of the season the price of wheat will be relatively stable, and after coming of new crop grain volumes on the market it will rise to 4000-5000 UAH/t EXW. Taking into account the significant growing of costs for material and technical resources and disappointing forecasts for the USD/UAH exchange rates, we do not expect for traditional development of the price situation, namely the reduction," - said a grain processor from Dnepropetrovsk oblast.
According to opinions of the market participants, in the short-term outlook the gradual declining of prices is the most perspective development of situation on the wheat market. However, it is possible only in terms of relative stability on the foreign currency exchange market.
Some features of the current season somewhat complicated forecastingof the wheat harvest in 2015 and its startingprices. At the same time, it is clear that such factors as late plantingterms of winter grains, risk of failure of theplan on field works in some regions (due tomilitary operations), and significant rising of the costs for material-and-technical resources will have a negative impacton the wheat harvest volumes.
But in general, the forecasts of analysts are rather optimistic. Thus, the planted areas under wheat will remain unchanged - 6.6 mln ha (including winter wheat areas - 6.49 mln ha, spring wheat areas - 0.17 mln ha). The harvest volumes will total nearly 23.6 mln tonnes, down 2% only compared with the index in 2014. The average yield will total 3.6 t/ha. At the same time, the expected savings of agrarians on resources for cultivation of agricultural crops, particularly due to the increased prices for mineral fertilizers, will mainly decrease the average yield by 10%. At the same time, the carry-over stocks will total 4.8 mln tonnes, up 2.9% compared with 2013/14 MY.
Of course, the reporting data do not allowaccurately forecasting the levelof starting prices, andestimating features of the beginning of the season. However,many market participantsare ready to express their opinion on the issue, with the clear understanding that in the current conditions, any forecastsof expert and analystsare quite necessary to keep its positions in the agricultural business.
"The futures prices for new crop milling wheat with 12.5% protein content (August delivery) are announced within the range of 190-195 USD/t FOB. It means that the grain prices continue adjusting towards decreasing. At the same time, there are a lot of questions on further development of the price situation in the beginning of 2015/16 MY, and we can come to a common denominator only within the dialogue with other market operators. We will have such opportunity at the conference "Grain Forum & Maritime Days in Odessa - 2015", in which we plan to participate," - commented a representative of the export-oriented company from Kherson oblast.
We should note that in May2015 the market operators will have the opportunityto discuss problemsof the market segment of main grains,and prospects of the new season,with experts and specialists,at the international conference"Grain Forum& Maritime Days in Odessa-2015".
Despite some problems, to date the price situation on the Ukrainian market of wheat is formed meeting all requirements of the season. The number of grain offers continues gradually increasing, and the selling prices are falling, which means that there is no reason to panic. The level of carry-over stocks and preliminary estimations of wheat harvest in 2015, allow forecasting the further keeping of the bearish trends on the market. At the same time, the weather factor, the foreign currency exchange rates, and the global market conditions may make adjustments to work of the Ukrainian market of grains.
Thus, according to Daryna Kovalska,Agricultural commodities analyst at Macquarie Securities (UK), in the short-term outlook the weather will be the main factor influencing prices. "To date the attention of experts gets focused on weather conditions in the USA, Russia and Ukraine, and their impact on the yield of wheat and corn. In the countries of the Black Sea region, the level of provision of agrarians with mineral fertilizers and plant protecting agents will play rather important role, as the prices for the preparations significantly increased compared with previous seasons. Directly qualitative indices of seeds will considerably impact the future yields, especially for corn. Also, further currency rates fluctuations have its special role in price formation on the market," - said the expert.
As for the prospects of the Ukrainian wheat market in the new season, first of all, it is necessary to pay attention to the situation in the export segment, as the foreign currency income on foreign supplies will allow to agrarians to compensate the increased costs of grain production. In the current season Ukrainian wheat was in demand on the world market, at the expense of reducing of the qualitative indices of the grain in the EU, and therefore the qualitative indicators in the coming season will also have its significant impact on the price situation in the reporting market segment.
As for expectations on the global market situation in 2015/16 MY, the world leading analytical companies forecast some declining of the global wheat production, but it will not be significant - nearly 2% to the level of 2014. At the same time, the volume of world trade in 2015/16 MY is estimated at the current season level, which contributes to development of the price dynamics at the traditional scenario with some price reduction in the beginning of the season.
On the other hand, in the main countries-producers and exporters of wheat the grain quality would be better than in the current season, which will increase supply of the grain lots with high-quality indicators on the market, and reduce the interest in the Ukrainian wheat. As a result, Ukrainian traders will be forced to cut down prices to compete with the world exporters.
Another possible direction for price supporting in the segment of wheat in the coming season includes promoting of the flour milling industry and development of the flour export segment. In such case, flour millers will become more competitive compared with traders, and will be partially able to compensate the forecasted decline of world prices for wheat.
Alexandrina Ovdienko, Julia Shatravka
