According to latest FAO forecast, global wheat production can reach 749 mln tonnes in 2016, up 1.9% on year. Better prospects for Kazakhstan and Iran are the main drivers of surplus. However, despite large crop, prices on Kazakh milling wheat market were unstable since the beginning of the season. At the same time, the country exported rather large volumes during the first half of the MY.
Domestic market: wheat production and quality
Low wheat production and low share of high protein grain were the main problems of Kazakh market over the last seasons. According to APK-Inform, the country reaped 15.9 mln tonnes of wheat in 2016/17 MY, up 15.3% on year.
Adverse weather during harvesting campaign slowed down field works in several regions and negatively affected wheat quality in 2016/17 MY. Abundant rains in July and high temperatures in August promoted deceases that hurt wheat yield and quality, particularly protein, gluten content and natural weight.
Market operators informed that 70% of wheat is of 4-grade grain, while the quality of high-protein 3-grade wheat is rather low.
Kanat Akhmalischev, Commerce department manager at Food Contract Corporation
“Kazakhstan produced rather high grains crop this year that reached 21.5 mln tonnes in clean weight, up 2.9 mln tonnes on year. However, the share of high protein wheat declined due to unfavorable weather. Despite high production, prices are growing since the end of harvesting campaign. Price for wheat with 23% of gluten totaled 37 000 KZT/t as of after-harvest period and reached 49 000-53 000 KZT/t EXW for today. Premium for high-protein wheat is 30-40 USD/t over standard wheat.
Demand from traders on export market is high both for food (3-, 4-grades) and feed (5-grade) wheat. High demand supported prices somehow and let farmers to cover losses after quality deterioration.
Export pace is rather fast this season. Kazakhstan exported 611-691 thsd tonnes of wheat excluding flour during peak months October and November, up 50-100 thsd tonnes on year. Demand from traditional importers (Uzbekistan, Kyrgyzstan, Tajikistan, Afghanistan) is high.
After upward trend the prices stabilized in December. Further prices will depend on export demand, currency rate and influence of external factors such as wintering of wheat in Northern Hemisphere.
Surely, market will also depend on development of neighbor Russian market – how traders can ease high stocks on domestic market”.
Price trends
Trade activity was low in the beginning of the season and prices have been declining due to low quality and weak demand. By late August average offer prices for 3-grade wheat totaled 40 000-42 000 KZT/t EXW, prices for high-quality wheat (gluten 30, natural weight 790 g/l) made up 45 000-48 000 KZT/t EXW. Mainly operators were waiting for large volumes of new crop to enter the market that caused price decline.
Price situation changed in late September and prices started to grow due to lack of high-quality wheat and currency fluctuation. Many farmers preferred to keep the high-quality grain. Buyers were forced to increase purchasing prices to attract high supply. Demand prices for 3-grade wheat increased by average 8 000-10 000 KZT/t by late November and reached 49 000-60 000 KZT/t EXW depending on quality. Offer prices for high-protein wheat reached 63 000-67 000 KZT/t EXW, however such prices were single.
Prices stabilized somehow by the end of November due to higher supply from farmers and wheat flour market situation.
Export market
Kazakhstan exported more than 1.1 mln tonnes of wheat during July-October against 0.92 mln tonnes year ago, according to statistics office. APK-Inform forecasts the export at 5.5 mln tonnes in 2016/17 MY being the highest level in 4 years.
Domestic market development, demand from importers and currency fluctuation were the main price determining factors. Since late August offer prices have been declining a bit and have reached 160-168 USD/t DAP-Saryagash and 180-195 USD/t FOB-Aktau. However, the decline was declarative as there were no signed contracts.
Trade activity was low in September. Mainly operators were waiting for large volumes of new crop to enter the market and currency stabilization.
Since early October and until early November prices have been growing due to domestic market development. By the late November average offer prices for 3-grade wheat increased by average 10 USD/t and reached 175 USD/t DAP and 185 USD/t FOB.
Uzbekistan and Tajikistan were the leading importers of Kazakh wheat with the shares at 42% and 26% in 2015/16 MY. 8% of total wheat export went to China.
In the current season, Iran being the prospective market for Kazakh wheat decreased grain purchases due to lack of high-protein wheat supply.
Yevgeny Karabanov, Founder of the Group of companies “Severnoe zerno”
“Low quality of wheat is the main problem of 2016/17 MY. Mainly gluten content in wheat is low (17-22%), protein content is low too (11-13%) and natural weight is 690-735 g/l. More than 65% of wheat crop is of 4- and 5-grades. Traditionally Kazakhstan produces 3-grade wheat with gluten at 24-28% and protein at 13-15%. Quality of this year crop do not let us to hope for high export to the EU and China as well as Azerbaijan and Georgia. Moreover, Iran significantly reduce import due to high supply on domestic market. Specific demand for Kazakh flour from Afghanistan supported the market somehow and let sellers to market 4-grade wheat at 110-120 USD/t EXW. Moreover, Kazakhstan shipped wheat and flour to traditional buyers (Uzbekistan, Kyrgyzstan, Tajikistan). Thus, total exported volumes of grains and flour reached 3457.7 thsd tonnes in grain equivalent during July-November. The volume included:
- wheat – 1624 thsd tonnes;
- flour in grain equivalent – 1376.7 thsd tonnes;
- barley – 247 thsd tonnes;
- other grains (pulses, corn, rice, millet, oats etc.) – 22 thsd tonnes.
The country exported 188 thsd tonnes of oilseeds.
Export activity was complicated by currency fluctuation. Further wheat prices will depend on currency situation in Kazakhstan and countries-importers as well as demand for flour from Afghanistan. In case of currency stabilization we can see seasonal price growth in the spring”.
Forecasts and prospects
Mainly operators are not ready to provide long-term forecasts. In short term wheat prices will depend on currency rate, grain supply and quality and demand from importers.
Polina Kalayda, APK-Inform Agency
