Vulnerabilities of the Kazakh wheat market: under the influence of logistics and high demand




The first half of 2018/19 MY for the wheat market segment in Kazakhstan already came to a close, and demonstrated rather active rates of export shipments, the bullish trends and various logistical challenges. The current article focused on the provisional results of the grain season in Kazakhstan and the further prospects.


Production & consumption

Despite some reduction of the planted ares under wheat in Kazakhstan in 2018/19 MY, as well as the impact of adverse weather conditions, in the current season Kazakh agrarians managed to harvest 15 mln tonnes of the grain (USDA estimations), against 14.8 mln tonnes in 2017/18 MY. At the same time, the adverse weather conditions in the country prevented from more significant increasing of the general wheat production. Thus, within frames of the planting campaign in the key regions-producers there were observed rather heavy precipitations, the high moisture level in the soil and low air temperatures, which led to the lag in grain planting in the optimum terms. In the vegetation period, the weather conditions in the country slightly improved and contributed to the optimum development of wheat crop areas. However, the renewed precipitations in late August 2018 slowed down the start of the mass harvesting campaign in the country, and adversely affected the quality characteristics of wheat. Many market operators reported about problems with grain quality, including the presence of Fusarium kernels and the low falling number of wheat.



As for the dynamics of wheat domestic consumption, for several recent seasons the figures remained quite stable and varied within 6.8-7 mln tonnes. In particular, in the current season the share of wheat used in the food industry will reach 77%, and for feed purposes — 6%. At the same time, the gradual increase in the livestock of farm animals in the country contributes to the growth of feed consumption of grain crops, which in 2016/17 MY totaled not more than 4.9%.


Logistics & price trends

As for the price situation, it should be noted that the current season demonstrated the dynamic upward trend in wheat prices. If in the beginning of 2018/19 MY, the delay in the grain harvesting campaign and activation of the demand rates from both domestic consumers and key importers somewhat supported the prices, but in the following months the logistics significantly influenced on the price formation.

Since October 2018, the country again faced the similar situation, which developed in 2017/18 MY, and market participants began massively reporting about the extreme deficit of rail cars. The active demand for agricultural crops of Kazakh origin from Iran, Afghanistan, Tajikistan, Uzbekistan and other countries of Central Asia, poor turnover time of rail cars, due to their untimely return, resulted in the traffic standstill and supported the prices on both the domestic market and the export destination. By the end of November 2018, the price of 3-grade wheat in the border crossing Saryagash varied within 185-190 USD/t (175-185 USD/t in late September 2018).

After the New Year holidays, and recovery of the trading activity rates, in terms of low demand for wheat from buyers, as well as some volatility of KZT/USD exchange rates, the grain prices reached their maximum figures. By late January 2019, the offer prices for 3-grade wheat varied within 200-210 USD/t DAP. At the same time, the offer prices for wheat with high-quality characteristics (gluten 28-30%) reached the level of 215-218 USD/t DAP. In turn, the bid prices for high-protein 3-grade wheat (gluten 28-30%) on the domestic market reached 67-69`000 KZT/t EXW. Also, the growth of railway tariffs and the gradual reduction of the grain ending stocks in the country provided its support to the prices.

By the end of January, the brisk growth of wheat prices on the export market stopped, mainly due to the slight stabilization of the logistics situation, and the low purchasing power of the traditional importers, including buyers from Central Asia, who considered the current prices as unacceptably high ones. In turn, the prices on the domestic market continued slightly increasing with the support of high demand rates from flour milling companies, and in terms of the limited number of offers of large-scale grain batches. It should be noted that the bid prices of 3-grade wheat varied within 62-70`000 KZT/t depending on qualitative characteristics.



The export rates became the specific feature of the current season. According to the updated estimations of IGC experts, in the current season the exports of wheat (grain + flour in grain equivalent) from Kazakhstan can reach 8.5 mln tonnes, against 8.4 mln tonnes in 2017/18 MY.

According to the Customs Control Committee at the Ministry of Finance of the Republic of Kazakhstan, in July-November of 2018 Uzbekistan traditionally became the leader among countries-importers of Kazakh wheat. Uzbekistan increased the volumes of grain purchases, and imported 845.9 thsd tonnes of wheat, against 681.6 thsd tonnes in the same period of 2017. Tajikistan took the second position, and imported 455.6 thsd tonnes of the grain, against 480.5 thsd tonnes. It should be noted that in the current season, China entered the TOP-3, and imported 261.5 thsd tonnes of Kazakh wheat in the reporting period, which significantly exceeded the last season figures for July-November — 61.5 thsd tonnes. China increased wheat supplies from Kazakhstan, due to the significant reduction of grain production in Australia, rather complex trading and economic relations between the USA and China, as well as the growing demand from Chinese grain processors, in terms of the current reduction of domestic grain production.



Turkmenistan and Azerbaijan took the remaining positions in the TOP-5 of major importers of the Kazakh grain — 211.1 thsd tonnes and 163.7 thsd tonnes, respectively.

It should be noted that in the first half of the season the logistics troubles made the far-reaching effects on the market, which is already traditional for Kazakhstan. In turn, in the second half of the season the foreign currency factor, demand rates from the key importers, as well as reduction of the domestic grain stocks in the country, will have its serious impact on the wheat market segment.


Polina Kalaida, APK-Inform Agency