The Russian market of feed wheat, or … government promises come true




During last time, the market situation has changed dramatically and so quickly that the participants in this market segment are currently not at risk to make any predictions about the future development of the situation. However, in order to understand how the market of feed grain could end the season, we will describe the current situation in the market during the second half of the marketing year and to discuss the possible perspectives of its development.

Market before interventions

Back in early 2011 on the market of feed wheat there was an increase in grain prices. Processors increased bid prices, hoping to attract the necessary volumes of grain. Besides, the number of offers on the market was low, which also supported prices till the end of MY. It should be noted that excessive demand for this grain was marked not only from the side of livestock production and feed mills, but also from the processors who made the grinding of grain. These circumstances led to the fact that most farmers have begun to restrain the sale of wheat to the market, waiting for further price increase.

At that stage government decided to intrude and release some grain from intervention stock. Next commodities were included in the list of intervention sales: wheat of all classes, rye and barley. It is noteworthy that the statement about intervention sales slowed price appreciation even before the start of auctions.

Market participants reacted in different way to such government interference. The range of operators thought that bids prices will decrease after the start of auctions. Others believed it was not enough to stop bullish trend as they did not believe that government really had needed grain stocks. As for the farmers, their reaction was really calm. Most of them continued selling of the grain at low quantities as they waited for price increase.

Market during the intervention

Despite the slight recovery, which was caused by the announcement on coming of the state grains on the market, many market operators have continued to operate as before, remembering the promises previously given by the government. Despite the fact that the beginning of the intervention trades was postponed, on February 4 the market received the first offers of the intervention grains. The effect was obvious: taking into account that the price of wheat, acting on the market at that time, were significantly higher compared to prices for intervention grains, the number of companies wishing to take part in the exchange trades became more and more every day.

Quite rapidly rising prices for feed wheat became almost completely stopped. However, the price fall in the first half of February 2011 was not really reached. The situation is explained by the fact that trades on the exchange were very active: each participant wishing to acquire the necessary volumes of grains, trying to get around an opponent, voiced higher bid prices. As a result, the price of intervention grains was also gradually increasing. Thus, the time has come when market participants began to fear that the purchase prices for grain intervention services would catch up with market prices. However, these concerns failed to grow in confidence as the Government, considering the mechanism of exchange trading as insufficiently effective, suspended the exchange trading. In respect of supplies of feed wheat, it was decided to replace the intervention trades with grain distribution thorough agricultural enterprises in the drought-affected regions.

From that moment the market price declines on the market began. Holders of wheat understood that in the terms of such actions of the Government, the majority of potential consumers of grains can provide themselves with the required volumes of raw material to work almost until the next harvest. It was time to start the spring field works, and farmers were forced to lower price. As a result, the number of offers on the grain market gradually increased, and prices were down. Agrarians massively increased the rates of sales, started preparations of grain storage for the further acceptance of new harvest grains. As a result, we can say that the Government completed the promise to influence the uncontrollable rise in prices. To date the prices for wheat continues to decrease every day, and it is hard to say how long it will last. It is also worth noting that many customers reported that after the supply of wheat on their enterprises, they plan to stop all purchasing activities prior to beginning of the the new MY.

Market after the intervention sales

Despite the fact that the market operators still refuse to make assumptions about the situation at the end of the current MY, many of them are inclined to believe that in the near future downward price trend will dominate. They do not pay much attention on the fact that long time left till the harvesting and that weather in summer can bring new "surprises." The main question is only how which will be the minimum price in this market, because right now in the Southern Region bid and offer prices for feed wheat are very close to the starting prices for this grain at the beginning of the season. However, some operators of the grain market do not exclude the possibility that prices could rise before the harvesting campaign as the number of offers will decrease then. APK-Inform continues to monitor the situation.

Irina Gritsay,
expert of the Russian market of feed grains
Information Agency "APK-Inform"