Ukrainian market of milling wheat, or who makes the rules?




In the current season the Ukrainian market of milling wheat experiences rather difficult times. While communicating with the market operators one begins to think that to date every segment on the market works on its own. At the same time, to date the market still realizes various trade deals, but the general work of the market shows the specific nervousness. That is why, APK-Inform Agency decided to indicate the main factors, assisting to forming of the current situation.

Not so much time remained till the end of the marketing year, and the situation on the Ukrainian grain market, especially on the market of wheat, is rather complicated. Export trading of wheat is limited, agrarians try to sell grains ay the highest possible prices, and grain processors are trying to form the required grain parties for milling with an eye on the cost of the finished product. It is the present state of the domestic wheat market. At the same time, it is impossible to say that the difficulty arose only at the end of the season: the marketing year began with several difficulties, but some trends have characterized the market during the whole period.

It is worth noting that the season began in the wake of certain concerns about the shortage of milling grains in the world. Weather conditions developed in such way that importers stopped considering Russia as the major supplier of grains from the CIS. Importers started to relying on supplies of Ukrainian wheat. Such start of the season contributed to the fact that grain prices started actively growing. Traders became the main legislators of the trend. However, the Government also started influencing the work on the market. The delay of vessels in the ports without any official declaration of the export ban was something really out-of-line. The market emotions ranged from shock state of the market operators to harsh criticism of the Government. It was only the beginning of the chain of obscure, disputed decisions of the Government regarding regulation of the wheat market.

However, the main trend of the season formed in the beginning of the marketing year - during the major part of the season, milling wheat prices on the domestic market continued growing in unison with world prices, and continued to increase even after Ukrainian export-oriented companies stopped active purchases of wheat and began lowering the prices.

We should mark that in the current season the Government actions led to the situation that the domestic market of milling wheat is a playing ground on one side of which are farmers, while the other – flour millers. If the segment of exporters on the market is de facto exists (limited number of companies), then mediatory companies are difficult to find. The new Tax Codex contributed to the fact that buyers mainly stopped using services of such companies. Market participants had different attitude to changes of the tax laws. At the same time, many flour millers noted that in previous years mainly trade-intermediary companies provided large-scale grain lots in the beginning of spring. In the current season, grain processors were forced to negotiate directly with agricultural producers. And flour millers were forced to solve issues with grain transportation.

Of course, all difficulties of the current season lead to growing of the emotional degrees on the market. Market operators perceive all statements of the Government with an unhealthy share of irony, considering that most of the draft laws and promises is simply filling of the information space.

It is worth noting that in the current year agrarians provided sowing works at their own expense, because the Government almost did not provide any support, according to market operators.

Thus, taking into account all these trends and factors, in late April of this year prices for milling wheat stayed unchanged. On the market only a few cases showed reduction in supply and demand prices. Agrarians often told that in the nearest future they do not plan to lower prices for milling wheat due to the fact that they fund the field work completely at own cost, and the fact that they expect prices to grow after the canceling of export restrictions from July 1, 2011.

If we talk about the bid prices, the cause of their decline was that grain processors tried to set new trends through temporarily stoppage of purchases. As a rule, without much success. Owners of milling wheat agreed to yield in price only in the case of the urgent need to replenish cash reserves.

The situation was complicated by the fact that apart from trade and purchasing policies of market operators, there are still some barriers from the Government. The idea is that, on the one hand, there is no financial assistance to farmers for field work, on the other hand, there is "closely monitoring" of the prices for flour.

Political manipulation on the market led to the fact that the market is disorganized, lacks a clear understanding of how to organize their work, in fact, there are double standards that make a very strong imbalance in the job. This season can be called as the time of behind the scenes games by the small group of people. The market works today through inertia way, the competition gradually becomes a monopoly.

The preceding paragraph is an aggregate opinion of several processors and traders of wheat. It was announced by them after the experts of APK-Inform Agency asked them to share their vision of the situation on the domestic market in the future.

Agrarians rely on the fact that they will be able to generate reasonable prices for new crop maize and wheat, realize the maximum price in the current season. The argument for the occurrence of such desires - "farmers do not receive financial support, we have one hope for their own forces". At the same time, farmers say that can not be assumed what will happen on the market, because today there are two risky moments that are almost impossible to miscalculation by ordinary market participants - weather and political factors.

The only thing we can say with a relatively high degree of certainty, so it is about mindset of most market operators to keep until the end of the season and hopes for improvement of the situation in the present season. However, it might justifiably be noted that clear prospects of the market in 2011/12 MY will be seen closer to the middle of summer. It will be really hot time in every sense. APK-Inform Agency decided to hold the traditional conference "Grain Forum-2011" on June 23-24, 2011, in Yalta. The event will examine key trends of the grain market of Ukraine and the world, such interchange of views will enable to navigate the intricacies of the market and enter into the new marketing year, having to answer the most pressing questions.

Olga Pryadko,

Head of the grain markets department of

APK-Inform Agency