For several recent seasons, Russia managed to keep its position of one of the leaders among countries-exporters of wheat in the world. The record grain harvest in the current MY, as well as good qualitative characteristics of Russian wheat, contributed to increasing of the exports and strengthened the status of Russia as the major exporter of the grain. Nevertheless, Russian traders still faced certain difficulties to achieve such high rates of grain shipments. The current article focuses on the dynamics of price formation, the key impact factors, and the further prospects of the industry.
Global market and the high competitiveness of Russian wheat
In the season-2017/18, Russia demonstrated the growth of wheat production to the maximum level – 85.9 mln tonnes (according to APK-Inform analysts), which significantly exceeded the record results of 2016/17 MY at 73.3 mln tonnes. Thus, despite a large-scale growth of competition rates on the global market, due to the excess supply of wheat in the world, in the current season Russia made an important influence on formation of the global price trends in the reporting market segment.
According to the USDA estimations, until the end of the current season the exports of wheat from Russia will reach 37.5 mln tonnes, up 9.7 mln tonnes compared with last MY. Generally, in July-January period the deliveries of Russian wheat on foreign markets totaled nearly 23.4 mln tonnes, up 32% compared with the same period of the season-2016/17.
It is worth noting the TOP-5 of the key importers of Russian wheat for 7 months of the season: Egypt with the purchased volumes at 4.7 mln tonnes, Turkey – nearly 3 mln tonnes, Bangladesh – 1.5 mln tonnes, Indonesia – 1.03 mln tonnes, and Sudan – 941 thsd tonnes.
Grain trader at Artis-Agro Export LLC, Daniil Tikhonov:
"During the whole season, we have observed a consistently high demand for Russian wheat, due to the lower competition rates from other countries-exporters. In particular, in the first half of the season wheat of Australian origin was quite expensive, therefore Russia shipped large-scale batches of the grain towards the Far East destination: Indonesia, the Philippines, etc.
Of course, by the end of the season the competitiveness of Russian wheat on the market somewhat decreased. Germany and France propose their wheat in parity with the Russian prices, and delivers the grain to North Africa, where we observed a decline of the Russia's competitive advantages."
Price dynamics and troubles with the logistics
In the current season, the export prices of wheat of Russian origin made a significant impact on pricing on both the domestic and global markets.
Since the beginning of the season (July 2017) the prices on FOB basis started gradually increasing, due to active demand rates from the key importers. At the same time, offer prices for milling wheat with protein 12.5% protein content varied within 196-200 USD/t FOB Black Sea ports with delivery in August - early September, and the prices in the Azov Sea ports varied within the range of 169-172 USD/t FOB with delivery in late July - August.
In August-December of 2017, the market segment of wheat faced a high volatility of prices, due to active competition rates on the global market.
In the second ten-day period of March 2018, the offer prices reached its peak level, and totaled 209-212 USD/t FOB with delivery in April-May in the ports of the Black Sea. At the same time, in the Azov Sea ports the prices varied within 178-182 USD/t FOB with delivery in April. Stable high demand for the grain of Russian origin from importers, and fears of the global analysts about adverse weather conditions in the wheat belt of the USA, gave support to the prices.
Taking into account the high rates of exports in the current season, it should be noted that representatives of export-oriented companies faced a number of logistical difficulties, which in some cases slowed down the shipments of wheat on the global market.
"All market participants are acquainted with a well-known fact that due to the high wheat production and record export potential in the current season in the Russian Federation, significant logistical difficulties started developing. Various bottlenecks in the logistics, such as limitations of the port facilities, rail infrastructure (in particular, the deficit of grain rail cars), as well as limitations of the linear elevators shipping, demonstrated that the whole infrastructure worked at the end of tether. Potentially, Russian exporters would be able to ship nearly 50 mln tonnes of wheat, but in fact they will manage to export not more than 36.5-38 mln tonnes of the grain.
Significant competition for the facilities for grain transshipment is one of the characteristic features of the current season", - said D.Tikhonov.
Forecasts and expectations
As for formation of the price situation in the market segment of wheat in the coming months, many market participants expected that high competition on the global market, and the growth of the number of wheat offers on the domestic market, will assist to strengthening of grain prices. At the same time, the active reduction of prices will slow down high demand for wheat of Russian origin.
"In terms of the average yield, the preliminary forecast of wheat production in Russia in 2018/19 MY varies within the range of 74-77 mln tonnes. But, the forecast is very approximate, since until July 2018 the conditions of crop formation can undergo a 180-degree turn. But taking into account the high carry-over stocks, in any case Russia will remain the major player on the export market of wheat", - said D.Tikhonov.
Polina Kalaida, APK-Inform Agency
