Results of the Russian wheat market in the first half of 2015/16 MY

Source

APK-Inform

31145

 

The first half of the current season for the Russian wheat market has already passed. Therefore, we have to sum up the intermediate results. We should note that the first half of 2015/16 MY was fairly predictable in such market segment, and was characterized with some rise of prices due to the low share of milling wheat in the general harvest volumes, the condition of winter wheat areas, the unstable political and economic situation in the country, etc. The price records of last season were not broken due to reduction of the purchasing activity of export-oriented companies, caused by imposition of the export duties.

 

Domestic market: rising prices and impact factors

Despite the high production volumes of wheat in 2015 in Russia, in the first half of the season the market almost did not face any price stability and seasonal decline of prices. In the reporting period, grain buyers had to raise the purchasing prices, in order to receive the necessary volumes of wheat. But agrarians did not hurry to supply the grain on the market, and there were a plenty of reasons for such market development.

 

Qualitative indicators of grains

It became obvious that the share of feed wheat significantly exceeds the share of milling grain in the general harvest in 2015. Therefore, the demand for wheat of flour milling conditions was quite high, and agricultural producers preferred selling rather small-scale lots of such grain, increasing their selling prices.

 

Purchasing interventions

The growth of grain purchasing prices by the intervention fund certainly assisted to reduction of the number of grain offers on the market. Many agricultural producers started actively selling wheat to the fund due to the acceptable level of prices. As a result, competition rates between potential buyers increased only.

 

Foreign exchange market

The national currency rates were rather volatile compared with USD. In the reporting period, the ruble continued actively losing its positions, and then got them back at lightning speed. Therefore, agrarians preferred taking wait-and-see attitude, which also provoked the further rise of prices.

 

Condition of winter wheat areas

The planting campaign of winter crops was held in unfavorable weather conditions - namely, in the dry soil and during October 2015 the weather was quite dry, the sprouts were irregular. In November, precipitations somewhat improved the situation. However, many agrarians did not give any certain answer about the conditions of winter wheat areas.

 

Development of the price situation

As of December 2015, the selling prices for 3-grade, 4-grade and feed wheat in the European part of Russia rose to 11`000-11`300 RUR/t; 10`000-10`500 RUR/t and 10`000-10`200 RUR/t EXW respectively. In the West Siberian region the prices grew to 11`200-11`500 RUR/t; 10`400-10`600 RUR/t and 9`300-9`600 RUR/t EXW.

 

Export market: rising prices and impact factors

From season to season, the competition rates between grain processing and export-oriented companies on the wheat market continued growing. At the same time, traders often have a number of advantages. In particular, in the period of RUR devaluation they were actively raising the bid prices in order to purchase the necessary volumes of wheat, and provoking all related markets for new price records. Therefore, in the first half of 2015/16 MY there was quite expected prices rising on the export market of wheat.

 

Export duties

Imposition of the "floating" export duties became one of the main factors affecting the operation of the export market of wheat. As a reminder, the Government continued regulating the work of domestic and export markets, and imposed the new mechanism of customs duties since July 1, 2015 - 50% of the customs value minus 5`500 RUR/t, but not less than 50 RUR/t. However, the effect of the new mechanism of duties somewhat complicated the work of exporters due to the lack of clear mechanisms for calculation of the duties, and led to the fact that traders suspended grain shipments, switching attention to delivery of other crops on foreign markets, which had no customs duties. However, since October 1, 2015, the Government revised the formula of the customs duties (50% of the customs value minus 6`500 RUR/t, but not less than 10 RUR/t), and such more precise rules of duties calculation, allowed traders to increase wheat shipments on foreign markets.

It should also be noted that in December 2015, the Ministry of Agriculture of the Russian Federation announced on intention to submit a proposal to the Government to revise or zero the export duties. Export-oriented companies noted that possible cancellation of the duties would strengthen the grain export supplies.

 

Worsening of the Russian-Turkish relations

A sharp change in the vector of economic and political relations between Russia and Turkey became another controversial point in the first half of 2015/16 MY for the wheat market. Due to quite significant statements of the governments from one or the other country, representatives of export-oriented companies often suspended signing of contracts until stabilization of the situation. It is worth noting that to date, the current conflict between two countries has not officially influenced the export grain market, which allowed to Russian traders to continue supplying wheat to Turkey.

 

Price trends of the market

As a reminder, in the beginning of the season the offer prices for milling wheat with 12.5% protein content varied within the ranges of 190-193 USD/t and 160-162 USD/t FOB (the Black Sea ports and Azov Sea ports, respectively). But as of January 22, 2016, the offer prices for 12.5% milling wheat reached 179-181 USD/t and 155-157 USD/t FOB (deep-sea ports and Azov Sea ports). According to the polling by APK-Inform experts, traders expected for further reduction of grain prices in the short-term outlook.

 

 

According to Rosstat, in 2015 the general harvest of wheat totaled over 61 mln tonnes, up 3% compared wirth the previous year, and down 4% compared with the record production level in 2008 (63.8 mln tonnes).

Generally, in the current season the total supply of wheat is estimated at 66.8 mln tonnes, which fully covers the domestic demand (35.7 mln tonnes - estimations of APK-Inform Agency).

The export potential of wheat in 2015/16 MY is estimated at 24 mln tonnes (up 8% compared with 2014/15 MY). As of the end of the first half of the season, the export potential is realized by 63% (15.2 mln tonnes of whea).

 

Alexandrina Ovdienko, Natalia Stupaeva, APK-Inform Agency

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