During the change of seasons and in the beginning of several recent seasons, the price dynamics interrupts all templates and stereotypes of the grain market functioning in Ukraine and the world.
The main features and factors of the price formation trends at the start of 2018/19 MY on the Ukrainian grain market were the main topics of our interview with Roman Rusakov, Trader of OLAM INTERNAIONAL.
— From Your experience, what features of the grain season-2018/19 would You emphasize?
The end of 2017/18 MY and the start of 2018/19 MY have been marked by the political instability that hit primarily the corn and soybean markets. But the weather and the fundamental changes played not the least role that all together influenced the trade activity by the high rate of the up-trend dynamics market volatility which is unusual for this period of the season.
— In Your opinion, what are the local factors that will have the key impact on the price formation on the Ukrainian grain market in the new season?
As of the beginning of September, we operate with clear S&D balance sheets in terms of early and late crops – the potential Ukrainian export is calculated and the traders correlates it to the logistical capacities.
Of course, such factors as the global demand, the weather, domestic logistics, political situation at both the domestic and global markets will allow the traders to increase the volatility. Nevertheless, we “trade” the fundamental factors and then everything else.
— What global factors will have the key impact on the grain price formation in Ukraine in 2018/19 MY?
Based on the long-term perspective the trader evaluates the fundamental context first. It is important to remember that Ukraine also influence the function of the price formation despite rather low volumes of corn, wheat and barley presented on the global market.
In the near future, we are to monitor the harvesting in the southern hemisphere, the development of the political relations between the USA and the EU, the USA and China, the forex markets in the developing countries and of course the weather which will outflow Twitter, Facebook and will become the buzzword among farmers and the bankers.
We should keep in mind that next year we expect the strong balances dynamics to preserve which in turn will support the market transfer from “bearish” to “bullish” tone.
— Taking into account the global market conjuncture and the change of the trade flow due to the trade wars, how would You estimate the prospects of the Ukrainian grain this season? What market will become the most advantageous for Ukrainian grain and why?
Ukrainian market will perfectly handle the demand on wheat and barley because of the price advantage in III and IV quarter of the calendar year first of all, which will allow to finish the year with the low stocks despite the wheat quality issues and the weaker demand on the Ukrainian barley from China. Herewith, the corn market will face the main obstacles due to the record crop this season and the excellent condition of the corn fields in Ukraine in comparison with the Balkan countries. The competition with the Serbian and Romanian grain will unsettle the market participants and will allow them to remember the times when wheat was much more expensive than corn. Nevertheless, the condition of South American crops at the beginning of 2018/19 MY can easily change the traders’ expectations.
— For several recent years, the start of the seasons breaks all expectations, forecasts, and the traditional price dynamics. What are the reasons in Your opinion?
Today there are no secrets on the grain markets. If earlier it was important to know how the other country market operates, today it is more useful to know less due to the globalization. But seriously, the market always trades what it remembers… by building the patterns and logistics resulting in a common denominator we do not take inti account the globalization effect and the speed of the information flows. It can be said “what is known to two, is known to everybody”, thus the word of mouth works on the market better than on the retail chanis.
Moreover, taking into account the enhancing of the trade balances the markets have gone out of the bearish tone smoothly as both the funds and trading companies do not need the reminders of the need to increase the liquidity. The best example is the start of the new season for the early crops. The market behavior and its patterns will continue to change despite the seasonal models. Thus we again face a need to monitor the balances both the quarterly and annual, and of course the fundamental analysis in general.
The usual model of operation for the leading grain companies does not work anymore. Today, the factor of the counterparty risk is lower than for example 15 years ago. Thus, the effect of the seasonal models changes are to be repeated.
— How the Ukrainian trader can diversify the risks in terms of such unpredictable conditions?
First of all, we should believe in our analysis and remember that the permanence on the markets is absent. Thus, we should enter the positional trade with lower volumes but more frequent, and place greater emphasis on the risk-management.
— What should the market participants take into account first?
Ukraine is a young but perspective market. We continue to learn and develop, and such dynamic is supported by the knowledge that are introduced by the multinational companies via sharing the experience and the market view. Nevertheless, we should be more demanding to ourselves on each point of the trade activity. Today not only trader makes money. All of the company’s team – the accounting, the finance department, the logistic etc. – handles a great part of work thus have both the opportunity to earn and provide the effective results and loose. This is why it is very important to pay the utmost attention to the fulfillment of the obligations and to develop the necessary staff capacity on the agribusiness in order to provide the progress.
Interviewed by Anna Tanskaya, APK-Inform Agency
