Start of 2017/18 MY for the Ukrainian wheat market - condition and prospects

Source

APK-Inform

1922

 

  • Market operators expect for a traditional reduction of wheat prices in the beginning of the season. But beginning of 2017/18 MY fell short of expectations of many buyers. Late start of the harvesting campaign and low trading activity rates of agricultural producers somewhat supported the prices, while increasing of competition rates between the processing and export-oriented companies turned up the pressure only.

 

Production and quality

During two recent seasons, Ukraine faced a downward trend in wheat planted areas. First of all, the situation developed due to adverse weather conditions during the planting campaign of winter wheat. If in the autumn 2015 the drought weather somewhat obstructed fully realization of the planting works, then in the autumn 2016 heavy rains slowed down the field works rates. According to estimations of APK-Inform Agency, in 2017/18 MY the planted areas under wheat decreased by 1.3%, while last season the figures reduced by 9.7%. The reporting fact, as well as decreasing of the yield figures by nearly 5% due to adverse weather conditions during grain maturity period, also influenced at reduction of the forecast of wheat production volumes to 24.3 mln tonnes, against 26 mln tonnes in the previous season.

At the same, adverse weather conditions did not significantly affect the qualitative indices of wheat of the harvest-2017. Market operators informed that the qualitative indices of milling and feed wheat completely met the State Standard requirements (GOST). However, in the southern and northern regions single grain processors reported about low gluten content figures in 2-grade wheat. While estimating the qualitative figures of new crop wheat, to date it is possible to conclude that the shares of milling and feed wheat are almost equal.

 

Wheat production in Ukraine

 

2015/16

2016/17

2017/18

Planted areas, `000 ha

6867

6201

6125

Yield, t/ha

3,88

4,21

4,00

Production, `000 tonnes

26532

26043

24276

Source hereinafter: APK-Inform Agency

 

Milling wheat market

In June 2017, most market participants focused on formation of the starting prices. In mid-June, grain processing companies announced prices for new crop 2- and 3-grade wheat at 4`500-4`700 UAH/t and 4400-4600 UAH/t CPT, respectively. But due to the late start of the harvesting campaign, only single consumers managed to purchase the first grain batches in early July at 4`600-4`900 UAH/t and 4`500-4`800 UAH/t CPT (2- and 3-grade wheat, respectively). Many grain processors expected that the price situation on the market would develop in the bearish trend during the harvesting campaign period. At the same time, agrarians supplied wheat on the market in low-active manner, and the high demand from export-oriented companies contributed to the price growth only. As a result, in the second half of July wheat prices started gradually increasing. So, at the end of July and beginning of August, the offer/bid prices for 2- and 3-grade wheat varied within 4`800-5`400 UAH/t and 4`700-5`300 UAH/t EXW, and 4`700-5`350 UAH/t and 4`600-5`250 UAH/t CPT, respectively.

 

Feed wheat market

In the first weeks of 2017/18 MY, the reporting market segment demonstrated low rates of trading and purchasing activity, and price stability. At the same time, grain prices were mainly declarative. Most grain processors made it difficult to announce their prices for feed wheat, and concentrating on maintenance and repair works, prepared granaries for new crop wheat, often continued working with previously formed volumes. They planned to resume grain purchases in the period of mass coming of new crop wheat on the market. And after coming of the first grain proposals, there was no significant increase in demand. Buyers formed their stocks of wheat if the need arises only. The prices for low-scale batches varied within 4`000-4`550 UAH/t CPT. Therefore, the interest of grain processors in feed wheat started gradually growing. The southern region demonstrated the most significant growth of demand for feed grain. The region significantly increased its competition rates between grain processing and export-oriented companies, which caused the corresponding growth of prices. In July, most other regions faced a price stability trend.

One of grain processors from Vinnytsia oblast commented the situation on the domestic wheat market:

"To date, our oblast faces some increase in the prices for milling wheat. The trend was caused by late beginning of the harvesting works, due to adverse weather conditions and high tariffs for grain transportation. Thus, bid prices for 2- and 3-grade wheat in Vinnytsia oblast reached 5`050 UAH/t and 4`900 UAH/t СРТ, respectively.

As for the qualitative indicators, it is worth noting that the grain supplied by agricultural producers, meets all GOST requirements, and there are no wheat diseases. But due to adverse weather conditions, we observe rather low natural weight figures, and the higher the gluten figures are, the lower the natural weight indices develop.

In my opinion, wheat prices will continue growing in the nearest future due to the high competition rates from companies-exporters. Repair services of machinery are very expensive, so agricultural producers prefer selling the raw materials to traders at higher prices compared with the domestic market. At the same time, oblast agrarians estimated the yield indices in the current year at nearly 3.5-6 t/ha, against 5-8 t/ha last year. Such reduction of yield figures will have a negative impact on formation of wheat batches and prices."

 

Expectations of market operators

Due to low yield figures and high competition rates between grain processors and export-oriented companies, market participants expect for further increasing of prices for 2- and 3-grade wheat. As for feed wheat, market operators expect that there will be no significant price changes in the nearest future. In August-September, the price situation will remain relatively stable due to the balance ratio between the growth of supply and high demand from both processors and export-oriented companies. At the same time, it is too early to make clear forecasts about development of the price situation, because agrarians still have to harvest the remaining grain areas.

 

Tatyana Eremenko, Alexandrina Ovdienko, APK-Inform Agency

 

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