Market of Russian wheat in the first half of 2017/18 MY – in hope of exports




In 2017/18 MY Russia has kept the tendency to establish the new records on wheat production. However, euphoria from the victories was short as practically all market participants at once have faced problems on storage, transportation, transfer and even realization of such large volumes. Besides, the prevailing supply of wheat has led to the fact that average prices on wheat fell by 1500-2000 RUR/t to the bottom level of 2014. In view of the above mentioned, one is led to ask a question: "A big crop – is it good or bad?"

In spite of the fact, that according to Rosstat the planted areas under wheat in 2017/18 MY increased by 0.2 mln ha only to 27.9 mln ha, the production volumes reached the maximum for the country 85.8 mln tonnes, thereby exceeding the year ago level by 17%, and up 39% compared with the indicator of 2015/16 MY.

Taking into account enough high passing stocks (15.8 mln tonnes), the total supply of Russian wheat in the current season is estimated at the highest level in history – 101.8 mln tonnes.


General market tendencies

The first half of 2017/18 was characterized with following factors exerted the key impact on pricing of the Russian wheat market:

Prevalent offer in view of reasonable demand. Agrarians actively offered the wheat not only for the purpose of attraction the current assets, but also because of difficulties with the storage resulted in readiness to concede the price significantly. In its turn, most of processors and cattle breeders, noting enough offers in the market, didn't show high interest in its purchases and formed the inventories as required. At the same time, in most cases millers preferred to buy 4-grade wheat as low profitability of flour production didn't give the chance to form milling parties only of 3-grade wheat (especially with high content of gluten).

"The offers for 3-grade wheat with high gluten were exist, but the price for 4-grade wheat was rather low therefore some farms decided to mix 3-grade wheat (with 25% and higher gluten content) with 4-grade grain, bringing it to 3-grade with gluten of 23%. Many had such a temptation as the difference in price between 3- and 4-grade wheat was essential. That is way, the number of offers for 3-grade wheat with high gluten were sharply reduced", - the market operator of Tula oblast commented on the current situation.

Capacity shortage and rise of prices for shortage services. According to market operators, current situation was caused by record volumes of 2017 wheat harvest and great demand on elevator storage services. Intervention purchases solved this problem, however in view of great amount of last seasons stocks, the realization of such volumes became the priority of the fund.

"Farmlands, which don't have own grain capacities had some difficulties as elevators were also in trouble, at the same time the considerable share was still occupied by wheat of 2016 harvest which wasn’t realized in time. Thus, agrarians were to sell wheat at minimum prices, or to store it in unsuitable conditions", - one of the market participants of the Novosibirsk oblast told.

The active export deliveries. Under the current circumstances, when the state did not use tools on settlement the price situation, the export could be the only way "to remove excesses" of wheat from the market. For this purpose in the autumn 2017, the discount of 10.3% for rail transportation in the export direction from the regions remote from seaports was entered. Let us mark that such a discount will work up to July 1, 2018.

The general wheat exports in July-November totaled 17.3 mln tonnes that is 29% above the same index of 2016/17 MY and is the record one for the specified period. The largest buyers of the Russian wheat in the current season are Egypt, Bangladesh, Turkey, Indonesia and Sudan, which totally got 47% of export share in the considered period.

Summing up the above results, let us note that stabilization of a price situation is observed thanks to active export and further increase of prices isn’t excluded, first of all in the Southern Federal District and more remote districts. At the same time, it is worth emphasizing that despite increase, the prices haven't reached the levels of the beginning of the season.


Price situation

Due to lack of enough offers for the new harvest of wheat the purchasing prices on the start of the season were mainly declarative. Thus, in July bid prices for 3- and 4-grade wheat in the European part decreased by nearly 200-400 RUR/t – to 8`500-10`500 RUR/t and 7`800-9`200 RUR/t CPT, respectively. At the same time, the prices on feed wheat remained invariable and varied within the range of 7`000-8`500 RUR/t of CPT.

Active reduction of prices began only in the beginning of August with mass receipt of offers and by the beginning of November, the purchasing prices in the Central and Volga Federal Districts were established within the ranges of 7`000-9`500, 5`000-7`200 and 4`000-6`800 RUR/t CPT on 3-, 4-grade and feed wheat respectively.

At the same time, the demand from export-oriented companies gave support to grain prices in the Southern Federal District, thus, the reduction of prices in this District wasn't so considerable. Consumers of the Southern District fixed bid prices for wheat of 3-, 4-grade and feed wheat within 8`200-10`200, 7`600-9`400 and 6`500-8`000 RUR/t respectively on CPT basis.

Let us note, that the activization of export deliveries in the middle of November from the Central and Volga Federal Districts in terms of higher interest from livestock enterprises promoted the increase in purchasing prices of wheat for 3-, 4-grade and also feed wheat at the range of 7`400-10`000, 5`500-8`600 and 4`600-7`600 RUR/t CPT by the end of January. At the same time, due to great demand of traders, the prices reached 8`800-10`600, 8`000-9`500 and 6`700-8`400 RUR/t on the same conditions respectively in the Southern Federal District, by the specified period of time.

Generally, in the first half of the current season the price situation in the Siberian and Ural Federal Districts developed the same way. It should be noted only, that the first offers of new harvest began to arrive only in the beginning of August 2017, a bit later than in the European part of the country. In process of increasing number of offers purchasing prices of 3-, 4-grade wheat began to decrease gradually, and in the third ten-day period of November they varied within the ranges of 5`800-8`000, 4`700-7`000 and 4`400-6`700 RUR/t CPT respectively. At the same time, the prices closer to maximum were announced, as a rule, in the Ural Federal District.

At the end of November – the start of December when many agrarians already sold the necessary volumes and the number of offers reduced, the gradual increase of prices was tended. Besides, in the second ten-day period of January 2018 the delivers of 4-grade wheat subsidized by the federal budget took place from Novosibirsk oblast to Novorossiysk which to be regularly realized along the route up to June 2018. According to information of Novosibirsk oblast, in spite of the fact, that intervention grain is taken out first of all, it supported the prices on the domestic market. Thus, by the end of January purchasing prices of 3- and 4-grade wheat as well as feed wheat in the specified Federal Districts increased to 6`300-8`400, 5`500-7`400 and 4`600-7`000 RUR/t CPT, respectively.


Expectations of market operators

Now most agricultural producers continue laying hopes for the preservation of stable rates of export in combination with expansion of export geography that can give support to grain prices in all regions.

In its turn, considering low demand for flour milling products and, as a result, low selling prices, processors report that along with keeping of the upward price tendency for milling wheat, the production will become less profitable. Therefore, when forming milling consignments of grain, they won't be able to compete with export-oriented companies. At this conjuncture, probably, it is time to Russia as one of the main countries-exporters to boost the exports of flour milling products to the higher levels.


Alina Timofeeva, Anna Tanskaya, APK-Inform Agency