Wheat export market of Kazakhstan in the beginning of 2015/16 MY - facts and prospects

Source

APK-Inform

21655

The beginning of 2015/16 MY at Kazakh wheat market faced low trade activity. Despite a forecast of high production, prices were rather unstable. An article reveals price trends of the first months and key obstacles market faced.

 

Domestic market of wheat: price trends

Last seasons wheat market of Kazakhstan saw low production volumes, limited supply of high-protein grain and high prices. Ahead of 2015/16 MY forecasts of wheat crop were rather optimistic due to favorable weather. According to preliminary estimates of APK-Inform, Kazakhstan may harvest 13.8 mln tonnes of wheat, against 12.9 mln tonnes in 2014/15 MY.

Milling wheat prices have been declining slightly at the beginning of season-2015/16 due to low grain quality and weak demand as consumers were waiting for new crop to enter the market. At the same time, market operators understood that new crop prices would be formed after National company Food contract corporation JSC to voice official price level.

Tenge devaluation influenced on development of Kazakhstan’s grain market. On the last ten-day period of August, 2015 official currency rate increased from 188 to 256 KZT/USD. Due to existing situation, market operators suspended trade activity both on domestic and export markets, and stopped signing new contracts waiting for stabilization of the currency.

“Sharp tenge devaluation made adjustments to market development. Initially we expected new crop milling wheat prices at 35-36 thsd KZT/t EXW. However, 30% devaluation made farmers to rise offer prices to 42-46 thsd KZT/t EXW. Complicated economic situation and late grain blotchy ripening delayed the start of trading season. However, despite this situation, grains and by-products exports was rather good in September – about 600 thsd tonnes”, – commented a market operator from Kostanay oblast.

Price situation started to change in early September when Food contract corporation voiced official 3 grade wheat price at 42 thsd KZT/t (incl. VAT). Consumers considered the given price as too high and stated bid price in a range of 42-45 thsd KZT/t EXW. However, the trade activity on wheat market still was minimal and majority of operators were waiting for harvesting campaign to come to end. As a result, milling wheat prices faced upward trend by late September. Processors were forced to rise bid prices to form necessary volumes of wheat for crushing. According to APK-Inform, the grain was mainly sold in a range of 43-45 thsd KZT/t EXW.

Key factors of price growth were:

- voicing of official grain prices by Food contract corporation that let to determine price minimum;

- shift in harvest campaign due to erratic and untimely planting campaign;

- lack of supply of new crop wheat.

During October, spread between minimum and maximum offer prices was rather significant and depended on wheat quality. Selling prices for wheat with 23-24% gluten content was fixed at 42-44 thsd KZT/t EXW, while offer price for high-quality grain (27-30% gluten content) were in a range of 46-48 thsd KZT/t EXW.

 

 

Export market of wheat: price trends

Price formation on milling wheat market in early 2015/16 mainly depended on demand form importers and currency volatility and marginally on domestic market development. At the beginning of the season trade activity lowered significantly due to poor demand from importers and high prices – 240-260 and 255-275 USD/t on DAP and FOB basis respectively. Wheat prices have been declining during mid-August - late September and stayed at 175-195 and 185-205 USD/t on DAP and FOB basis respectively. Price decline was caused by higher new crop wheat supply and low trade activity. Global market and higher demand caused price growth by early October, minimum offer prices reached 180-195 and 185-205 USD/t on DAP and FOB basis respectively.

Export market of wheat flour saw low purchasing activity at the beginning of the season. Since September, 1 grade flour offer price stayed at 270-300 USD/t DAP Saryagash. At the same time, individual exporters voiced selling prices at 320 USD/t DAP Saryagash with prices depended on delivery terms and quality of flour. By late October, flour offer prices declined due to low demand and reached 240-270 USD/t DAP. Traders informed that Afghanistan, Tadjikistan, Turkmenistan and other countries of Central Asia will be key destinations for Kazakh wheat flour in the nearest terms.

 

APK-Inform forecasts Kazakhstan to export 4.5 mln tonnes of wheat in 2015/16 MY (+36% to 2014/15 MY).

 

Expectations of market operators

Market operators suppose that it is too early to make long-term forecasts. However, we can determine key factors that will influence on market development:

- currency rate volatility;

- grain supply and quality;

- possible price adjustments by Food contract corporation;

- demand from importers;

- global grain market development.

“We expect milling wheat prices to stabilized in near term as upward trend needs strong demand, while currency devaluation in Uzbekistan (one of key importers) in early October will lead to lowering of demand.

We forecast milling wheat prices to reach 47-48 thsd KZT/t EXW by New Year holidays”, - comment a market operator from Akmola oblast.

 

Polina Kalayda, APK-Inform Agency

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