Russian flour market: waiting for the miracle

Source

APK-Inform

2064

During the recent years, the flour market of Russia did not have the best times. The colossal grain production of the last MY, and the droughts in the current season certainly effected at the flour market work. What were the conditions of the seasons, the market worked in? The experts of APK-Inform Agency will analyze all key moments of flour producing industry of Russia.

Briefly about 2009/10 MY

2009/10 MY was rather difficult for the Russian flour producing industry. Almost the whole year, flour-producing enterprises worked with zero profitability, and in the certain range of cases, they had to work with losses. What did cause the situation appearance? We will start from the raw-material market. The colossal grain production, which Russian agrarians harvested at the territory of Russia (according to data of APK-Inform Agency, in 2009 grain production volumes totaled 97.1 mln tonnes), and also the carry-over stocks caused market oversupply with grains, which caused wheat sale prices decrease. Due to the fact, flour producers had to decrease flour sale prices. The situation of course caused reduction of flour selling rates, and also competition tightening between various flour mills. Due to the absence of reasons of the prices increase, buyers did not activate flour purchasing, and purchased flour in the case of necessity only. At the same time, the consumers used the desperate positions of flour producers, and insisted on the discounts provision during the contracts signing.

The long-term expected intervention grain purchasing, which the Government realized in order to stabilize the market situation, did not take the required effect. The situation on the market of grains and flour was not cardinally changed.

We should also note that small-scale mills, which strongly took their niche on flour producing market, essentially made the work of flour producing plants difficult. Due to the sufficient volumes of grains on the market at low prices, small-scale mills processed wheat and supplied low-quality flour on the market at the lower prices.

At the end of the MY, the situation became worse. Market participants informed about the product stocking in the warehouses, which forced the processors to decrease production volumes. At the same time, we should note that the certain range of flour producing plants due to the current flour low demand had to stop for unplanned repairs prosecution, in order to escape the warehouses oversupply.

First difficulties of 2010/11 MY

After the difficulties, which flour producers faced last MY, the current MY gave the hope to grain processors that the situation will essentially change in the better way. Yes, the situation changed, but not in the better way. Because flour mills work directly depends on grains availability and prices, market participant attention was compelled to the crop forecasts, in particular milling wheat. And so the nature brought the surprise to all market participants, and essentially corrected the future grain production volumes and quality forecasts. The unfavorable weather conditions, which were in the most of the country regions, made wheat processors to worry at the beginning of the harvesting campaign. The information, which was active in the mass-media about new crop quality/ volumes, advanced the agiotage increase regarding grain crop issues, and caused grain prices increase, which as a rule effects at flour products market.

During new crop wheat entering the market, flour producers had to increase own raw materials purchasing prices and tried to form grains stocks for the nearest future, because there were not many grains supplies. Grain holders used the winds about crop failure, and actively increased grain prices, limiting the supply volumes. Due to the situation on the grain market, the processors had to increase sale prices for the end products. Active flour prices increase certainly caused the growth of flour sales volumes, because buyers also increased own purchasing volumes, being feared of the further prices increase. At the same, we should note that the situation was mostly typical for the European part of the country and the Urals region.

However, wheat flour market prices increase did not last long, and at the beginning of September, flour prices started to decrease. The main reason was the small-scale reduction of wheat prices, due to milling wheat supplies increase on the domestic market, based on the grain export ban. On their turn, the buyers, which previously formed flour stocks for the nearest future, also started to decrease purchasing volumes. Due to the fact, flour producers had no another way out than to decrease sale prices for their products. Flour prices decrease based on the low buyers activity, which caused market oversupply with the end-products.

Separately, we should note that the export supplies ban became another one problem on the market. Export ban caused the situation, when flour volumes, planned by the enterprise for selling to importers from other countries, stayed in the country, which also caused additional flour supplies on the Russian market.

The reporting situation development led to the consequences that to date flour market participants from the European part of the country and the Urals region often inform about high completion from the side of flour, produced in the Western-Siberian (Altai Krai) and Southern regions, which comes on the market at lower prices. According to flour millers, selling of 1-grade flour is the most difficult situation on the market. Previously, exporters mainly sold the flour on foreign markets, but in the terms of the export ban, the flour volumes were accumulated at storages of the producers, because the market almost can not consume such essential flour volumes. As a reminder, the Southern and Western-Siberian regions are the main exporters of flour products.

At the same time, grain prices on the market did not start to decrease, at the same time, the number of offers of high-quality 3- and 4-grade milling wheat on the market essentially lowered. Grain owners, who do not want to sell grains at the low prices, restrain wheat selling.

Other difficulties of 2010/11 MY

In the current МY, except of the market difficulties, flour-milling enterprises also faced problems with administrative pressure. The sudden growth of prices for flour at the beginning of the marketing year caused the expected increase of bakery products. As far as you know, bread prices in the CIS countries are almost untouchable. Thus, the Government decided to solve the situation in own way, and find the guilty ones. And the answer was quickly found – flour millers unreasonably increased prices for own products, deiced the Government. The antimonopoly services started auditing flour-milling enterprises searching fro the reasons of such price increasing. At the same time, flour producers consider that the Government should have started the auditing process from suppliers of the raw material, which still do not want to sell large-scale wheat volumes.

At the same time, of course, after the New Year the official export grain ban continues working, but stops limiting flour exports, which would assist in the market work of flour traders.

Natalia Stupaeva,

Expert of Russian market of grain by-products of

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