Black Sea grains have a decisive influence upon the global market — Russian Grain Union

Source

APK-Inform

1662

 

 

 

The role of the Black Sea grains on the global market can hardly be overestimated, and in the beginning of 2018/19 MY the region created the most significant tension and uncertainty on the market, which contributed to rather high price volatility.

Therefore, APK-Inform journalists talked with the Vice-President at the Russian Grain Union (RGU), Alexander Korbut about the situation development on the Russian grain market, the main features of the beginning of the new season, forecasts of the production and exports of grains, as well as future prospects of the market.

 

 

— What features of the beginning of the season-2018/19 on the Russian grain market would You specify?

Uncertainty about the volumes of the general grain production became the key feature in the beginning of the new grain season in Russia. The trend created some tension on the market, and new information contributed to its further keeping and formed the relevant expectations. The ending stocks were rather large.

Expectations for decreasing of grain production and the similar nervous situation on the global and domestic markets became the major features of the season. Generally, the same situation was observed in Ukraine. In 2018/19 MY, both Russia and Ukraine expected for the lower grain production volumes compared with last season. In both countries, the officials were concerned that the harvest volumes of wheat will be insufficient to cover the domestic needs, and ensure the food security, so they permanently raised the issue of possibly export restrictions.

The reporting movements together with the objective factors observed on the global market, provoked the high volatility rates and the bullish trend.

According to our estimations, in the current year the general production of grains will total nearly 110-111. 5 mln tonnes, including nearly 70 mln tonnes of wheat, but the final figures depend on the results of the harvesting campaign in Siberia and the southern Urals, and the current weather situation in the regions is rather difficult.

 

— How can You comment on the increasing influence of Black Sea grains (in particular, in terms of the concerns regarding its quality in the beginning of 2018/19 MY, and possible limitations of the exports) on the global market?

To date, Black Sea grains have a decisive influence upon the global market. And the trend developed not only due to our contribution to the global production and exports, but also in terms of the presence of some uncertainty in the estimations and difficulties with forecasting of activities of the government. The reporting factor increases our influence on the situation on the global market. Generally, the situation in all other countries-producers is more or less predictable, but in the Black Sea region there are some problems with such forecasts. It is a standard transition period, due to the lack of standards and indicators, which allow estimating and forecasting the situation.

I believe that the contribution of the Black Sea region in work of the global market will be quite significant, at the same time the officials can impose some restrictions on the exports of wheat. Although, to date the authorities clearly declared that there will be no restrictions. To date, it is obvious that the global prices will continue growing, taking into account the reduction of stocks.

In addition, the devaluation of ruble became another significant factor for increasing of the unpredictability. In terms of the rising global prices, changes of the national currency rates caused the corresponding growth of domestic prices, thereby complicating the process of management decision making and developing some reflection of the government agencies.

 


— As for the qualitative indices of grains of the harvest-2018, there is a clear understanding that it will be worse than last year. In Your opinion, how much it will be worse, and how it will affect the prices?

According to the recent figures, worsening of the qualitative indices will be insignificant. Although, we still do not know how the harvesting campaign will develop in Siberia. Altai Krai already harvested 1 mln tonnes of wheat. In Novosibirsk oblast, spring wheat is still green in the fields, and the air temperature is not high enough. Generally, it is expected that the harvest of milling wheat in Russia will reduce by 2-3%. The level of sprouted grains varied within the range of 4-5%, which is not very critical. In any case, such grains can be used for feed purposes or in the production of alcohol.

I don't see anything problematic in the quality characteristics of wheat of the harvest-2018. But some market participants are more frightened with high grain prices. At the same time, the established price level is comparable with the similar indicators of 2016. Since 2016, the prices for all technical resources (fuels and lubricants, crop protection products, seed material, etc.) significantly increased. Also, the issue of profitability of agricultural producers is quite important. I am sure that if in 2018 Russia produces 110 mln tonnes of grains, it will be the result of not only the adverse weather conditions, but also the deficit of profits by agrarians, who were forced to save on seeds and crop protection chemicals. The demand for agricultural machinery in Russia fell by 25% only. As a result, the quantitative and qualitative figures of grains will decline.

I believe that the high prices of grains in the current season will support agrarians and the whole agricultural industry.

But if the government decides to regulate the domestic prices, then the officials really have such opportunities.

 

— Last year, Russian agrarians faced the problem of grain storing, mainly due to overloading of elevators with intervention grains. So, in some cases they were forced to sell grains at a sacrifice. In Your opinion, did the intervention fund run out of steam, or the mechanism is still effective?

The issue is not the effectiveness of the intervention processes. I believe that we ineffectively use the mechanism. To date, it mainly concerns not regulation of the prices, but mainly the method of compensation of the regional grain deficit. Local officials prefer to fulfill the lack of grain stocks not at the expense of purchases on the domestic market, but by providing of the intervention purchases.

The mechanism of interventions should be improved, and the result can be quite different.

 

- In conclusion, thank You for the informative talk, and would You share Your expectations for development of the situation on the grain market of Russia in 2018/19 MY?

In the short term, if we do not see the further significant devaluation of the ruble, the prices on the domestic grain market will stabilize, and their change will develop in accordance with the natural reduction of stocks. If the government stops permanently declaring about imposition of the customs duties and restrictions on the exports, the "rally" in terms of foreign shipments will slow down, and the situation will become more calm.

I do not see any factors about the imbalance of supply/demand rates in the grain segment in Russia. The domestic market has the sufficient volumes of production and carry-over stocks, while the domestic consumption rate will not significantly grow. I hope that the government will provide the rational policy with intervention grains, on the one hand, without damaging the market and providing support prices to agrarians, and on the other hand, regulating any possible imbalances between demand and supply rates.

 

 

Supply and demand balances of grains and pulses in Russia, mln tonnes

 

2016/17*

2017/18*

2018/19**

Supply

 

 

 

Beginning stocks

18.5

25.1

25.1

production

120.7

135.4

110.7

imports

0.9

0.7

0.9

TOTAL SUPPLU

140.0

161.3

136.7

Consumption

 

 

 

Domestic consumption

78.0

81.4

80.0

   for livestock and poultry feed

38.7

40.4

 

   for food purposes

23.1

23.5

 

   for industrial processing

5.7

6.0

 

   for seeds

9.3

9.4

 

   losses

1.2

2.0

 

Exports

36.9

54.7

39

TOTAL CONSUMPTION

114.9

135.8

119.0

   Ending stocks

25.1

25.1

17.7

* According to the official figures on Rosstat

** Forecast

 

Interviewed by Anna Tanskaya, APK-Inform Agency

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