General production rates, planted areas change, crop quality, supply and demand ratio under the conditions of the unstable situation on the currency market caused the less influence on the price tendencies in the segment of wheat. By touching all the sectors of the Ukrainian agriculture, the devaluation happened in 2014/15 MY made every market operator to “play by to the new rules” and even reach good results. According to the USDA data in 2014/15 MY Ukraine took the third position in the TOP of the largest-scale grain exporters by providing nearly 10% of the export trade. Thus owing the shipments increase and the foreign currency income from the grain exports the analysis of the currency fluctuations impact on the price formation and situation forecast to be in 2015/16 MY.
Domestic market: prices increase – single source
Last season general production high rates and background for traditional seasonality of Ukrainian wheat prices increase were leveled by the constant devaluation of the national currency. Thus in 2014/15 MY considering wheat general production at the level of 24.1 mln tonnes and floating exchange rate within 12-25 UAH per USD there were prices increase and grain limited supplies in the first months of the season. Considering the fact the share of milling grain did not exceed 40% in crop 2014, it was reasonable to suggest that feed grain prices should be less impacted by the currency factor. But he agrarians preferred to hold the grain sales because such strategy allowed to compensate the material technical resources appreciation and to increase sales prices for the crop.
The periods of the national currency active devaluation were in time with the periods of wheat domestic prices increase. Note the maximum high level of the national currency to the USD was fixed in February, 2015 (30/1) and in the mentioned period wheat prices reached the maximum rate.
In spring after the currency market situation change the agrarians changed the grain sales strategy. On the one hand the season was coming to an end, and the grain stocks were more than sufficient, and considering the good condition of winter wheat there was background for the grain prices significant decline, though it was not fast moving.
One of the agrarians noted that since January, 2015 due to the national currency devaluation they had to fill the grain reserve with small-scale batches. Since May despite the national currency significant strengthening wheat supplies were not sufficient. They had to purchase the truck batches of grain and to pay in short terms. After the season works finish the supplies increased and it was simpler to purchase grain with largest-scale batches.
On the one hand the beginning of 2015/16 MY was expected because it was not reasonable to wait for prices decline to the last year level. On the other hand the too long formation of start prices and the low temps of trade-purchasing activity noted that no one new how the price situation to develop. The only stable factor was that the key influence on the prices, Note that in July despite the harvesting campaign moving on the supplies number did not increase because most agrarians noting the exchange rate change did not wish to sell and increase sale prices. By the end of August the prices had declined.
Export market: devaluation influenced the records reach
Note that national currency devaluation holds the commodities imports and stimulates exports. According to the data of APK-Inform in 2014/15 MY the country exported nearly 10.9 mln tonnes of wheat as opposed to 9.3 mln tonnes in 2013/14 MY and 6.8 mln tonnes in 2012/13 MY.
In 2014/15 MY Ukrainian export-oriented companies were more competitive. The traders had opportunity to form the grain volumes and to increase demand prices they needed for work owing the foreign currency income exchanged for the national one. The exporters were ready to change prices a few times a day.
On the FOB bases the price situation was bearish in the second half of the previous season and in the beginning of the current one under the global market impact.
The exporters stated that in 2014/15 MY and 2015/16 MY the activity of forward contracts conclusion for grain was not high. Traders preferred to trade on SPOT for risks minimizing.
By analyzing the domestic and export Ukrainian wheat markets work it is possible to state that in the current MY the influence of the currency factor on the grain price situation not to weaken. If the national currency exchange rate to be at the level of 25 UAH/USD or even to remain within the range of 22-23 UAH/USD the agrarians and the export-oriented companies will be able to forecast work. And it is highly necessary for the Ukrainian agriculture which is the leader on the budget fulfilling with foreign currency income and the raw-material exports.
Alexandrina Ovdienko,
APK-Inform Agency
