Kazakh wheat market — key trends of the last season and prospects for 2018/19 MY

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APK-Inform

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The season-2017/18 for the Kazakh market of wheat already completed, which allows making the preliminary summary of its development, and forming the first forecasts about the new season.

 

2017/18 MY: season results

For several recent seasons, low harvest volumes and a small share of high-quality milling grain in the general harvest structure were the major issues of the Kazakh market of wheat. At the same time, 2017/18 MY became rather promising for many market participants, and the quality of wheat crop was somewhat different from the two previous seasons. According to experts, the share of 3-grade wheat formed nearly 68% of the harvest structure, while its indicators of the natural weight, gluten, protein, as well as the falling number, remained high. According to the USDA figures, in 2017/18 MY wheat production in Kazakhstan totaled 14.8 mln tonnes, against 14.9 mln tonnes in the season-2016/17.

But in terms of a record wheat production in Russia, Kazakh grain trading companies faced some logistical difficulties, in particular a deficit of rail cars, as well as competition from the Russian grain, which came to the border regions of Kazakhstan at the lower prices. Such situation development caused lowering of wheat prices on both domestic and export markets.

 

 

 

"In the current season, the grain market of Kazakhstan was heavily dependent on the Russian market in price terms. When Russia faced any problems (weather, logistics, etc.), the Kazakh market immediately revived: the grain prices started growing, and the demand increased. If Russia had favorable situation, then a large number of Russian origin wheat started putting pressure on the domestic and export market of Kazakhstan, and market participants had to adapt and reduce their prices to be able to compete. It was the main lesson of 2017/18 MY. To date, it is quite difficult to make forecasts for a new season, because the market will mainly depend on the weather. To date, Kazakhstan faces the climate changes, and the market has to adapt to new conditions, and develop crop production, as well as develop new varieties," said a company representative from Akmola oblast.

In the reporting season, the prices were inextricably connected with the logistics and deficit of rail cars. At the same time, in the beginning of the season the market segment of wheat faced rather low trading-purchasing activity rates, and many market operators reduced their bid prices. Since October 2017, the price formation mainly depended on the lack of sufficient rolling stock of rail cars and low export rates. By late November 2017, the purchasing prices for 3-grade milling wheat varied within 36-46`000 KZT/t EXW, and the bid prices for 4-grade wheat formed the range of 34-36`000 KZT/t EXW, down nearly 3-6`000 KZT/t compared with August-September of 2017.

The price situation started changing late May and early June, while the offer/bid prices of wheat began gradually growing. Stoppage of the Russian grain supplies on the market and reduction of the number of wheat offers on the domestic market contributed to development of an upward price trend. Also, some volatility of KZT/USD exchange rates provided support to the prices. It should be noted that the average bid prices for 3-grade wheat varied within 42.5 -46`000 KZT/t EXW.

According to the USDA, in the season-2017/18 Kazakhstan exported nearly 8.5 mln tonnes of wheat (plus flour in grain equivalent). As for the geography of exports, Uzbekistan, Tajikistan, Afghanistan, China, Turkey, Italy, etc. traditionally became the major importers of Kazakh wheat.

"We expect that the exports of wheat in the reporting season will reach nearly 8.3-8.5 mln tonnes. At the same time, to date the prices for 3-grade started gradually increasing. The situation developed, due to ending of supplies of the Russian cheap grain to our border regions. Also, many market participants were concerned about adverse weather conditions in some grain-producing regions of the Russian Federation and Kazakhstan. Since the beginning of June, the prices for 3-grade wheat increased by nearly 1`000-2`000 KZT/t. In some cases, the prices for large-scale batches of high-protein grain reached 48-50`000 KZT/t.

Such extraordinary demand for 3-grade wheat at the end of the season can contribute to such developments that in a new 2018/19 MY exactly 3-grade wheat will become a favorite. Because in terms of difficult weather conditions, the harvested volumes of 3-grade grain will be quite small in both Russia (Tomsk, Novosibirsk, Omsk oblasts, Altai Krai), and northern oblasts of Kazakhstan. In the previous 3 seasons, 4-grade wheat was the most popular variety, then in the new season, the situation will undergo a 180-degree turn, and then 3-grade grain will be high-demand as a flour improver," said a grain processor from Pavlodar oblast.

 

2018/19 MY: forecasts and opinions of market participants

The USDA analysts forecasted that in 2018/19 MY wheat production in Kazakhstan will decrease by 5.4%, to 14 mln tonnes. In turn, the IGC declared the less optimistic forecast at 13.7 mln tonnes (down 7.4%). But grain market participants agree that it is too early to gove any single-value estimations of the future harvest in the country.

"Due to the late spring crops planting campaign, caused by the adverse weather conditions, to date the stage of plants development is 7-10 days behind the standard. Also, there are quite big problems with weed infestations. Moreover, wheat sprouts of the most recent planted areas already overtook in development of the first sprouts of the grain, because the first crops were planted in into the poorly heated soil. However, further development of the plants will depend on weather conditions in the summer. To date, most grain-producing regions of the country face the warm weather, with sufficient moisture content in the soil, which resulted in a large formation of weeds. Therefore, agrarians already started applying herbicides. According to our estimations, the level of insufficient planting of wheat totals 300-350 thsd ha compared with the plan," commented Yevgeny Karabanov, Founder of the Group of companies Northern Grain.

"Taking into account the fact that Kazakhstan remains a landlocked country, the traditional markets will be unchanged — Central Asia, including Uzbekistan, Tajikistan, Afghanistan. As for such major player as China, the situation remains highly volatile, especially in terms of the trade conflict between the USA and China. --- In a new season, Kazakhstan can offer large-scale volumes of wheat to Chinese consumers, because the main issue is quality," said a market participant of Kostanay oblast.

In conclusion, it should be noted that many market participants are afraid to make long-term forecasts for development of the price situation in a new season. It is obvious that in the short term price formation for wheat will depend on the foreign currency factor, number of grain offers and its qualitative characteristics, as well as the demand of major importers. To date, the market participants focused on the weather conditions, which will make its adjustments to the yield and production figures of in the current season.

 

Polina Kalaida, APK-Inform Agency

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