2018/19 MY can be characterized by the reduction of the grain production in Russia. It should be noted that after the previous two seasons with the record production nobody expected for the third record crop in a row. Moreover, some market operators that faced the consequences of the record crop welcomed such an outcome. However, this season was both advantageous and unfriendly in terms of the prices reaching the historic high and the record deliveries of the grain during the first 4 months of the season. More details are available in our material devoted to the results of 2018/19 MY.
Production and distribution
The production of grains and pulses in 2018/19 MY totaled 113.3 mln tonnes, which is 16.4% lower compared to last year, but 1.6% higher than 5-year average. In terms of the slight decline of the sowing areas (by 2.9%) to 46.3 mln ha the decrease in production was caused by the yield lowering from 2.93 to 2.54 t/ha. Considering the high stocks, the total supply of the grains and pulses totaled 145.7 mln tonnes.
The main grain crops in the structure of the total production were wheat and barley with the shares totaling 63.7% and 15% respectively.
Wheat: production and exports
The production of wheat in the season totaled 72.1 mln tonnes which is 16.1% lower compared to 2017/18 MY which first of all was caused by the yield decline (from 3.12 to 2.72 t/ha). Herewith, the most severe production decline (by 33.2%) was observed in the Volga Federal District, due to the drought during the vegetation period.
The assessment of the domestic consumption of wheat was increased by 2.7% to 41 mln tonnes, however, this was mainly caused by the increase in feed use, whereas the industrial use did not change much. In July-May of 2018/19 MY the production of flour totaled 8.6 mln tonnes, which is 1.3% lower year-on-year. Herewith, the largest share of the product (nearly 30%) was produced in the Central Federal District. At the same time, the share of the wheat groats production in the structure of the groats industry increased and the wheat processing volumes increased by 7% compared to the previous season and totaled 291 thsd tonnes (in July-May). If in 2016/17 MY the share of this product totaled only 11% in the next two season it increased to 16% and 19% respectively.
If we look at the exports of wheat, during the first 4 months of 2018/19 MY the volumes of grain deliveries were significantly higher than previous year. In particular, in July-October of 2018 the export was 32.8% higher year-on-year, due to the information of the Ministry of Agriculture about the possible limitation of the export volumes or the increase of the export duty for the grain in the regions near the seaports. In July-May of 2018/19 MY, Russia exported 34.1 mln tonnes of wheat, which is lower than the forecasted figure (35.7 mln tonnes) and 11% lower year-on-year.
The unchanged TOP-3 importers of Russian wheat were Egypt, Turkey and Bangladesh the cumulative share of which totaled 41.4% of the total export. In 2018/19 MY Azerbaijan and Lebanon were not included in the TOP-10 importers of wheat and they declined the purchase of Russian grain by 48.5% and 12.6% respectively. Vietnam have lost one point in the ranking and lowered the import by 33.9% and most of the volumes were imported during the first 4 months of the season. At the same time, the Philippines and Latvia have become one of the TOP-10 importers of Russian wheat. Herewith, if Latvia increased the purchases by 3.9%, the Philippines boosted the import 2.5 times.
The rates of the by-products exports increased but were still rather low. Nevertheless, the potential of the export rise definitely remains. In particular, the export of wheat flour totaled 256.2 thsd tonnes (in July-May) which is only 2.9% of the total production, but twice higher year-on-year. The main buyers of the product were China (34.9% of the total export), Hong-Kong (19%), Belarus (8.6%), Armenia (7.6%) and Abkhazia (7.5%). It should be noted that Hong-Kong boosted the imports of wheat flour 60 times from 0.8 thsd tonnes in 2017/18 MY to 48.7 thsd tonnes in 2018/19 MY.
By the end of the reporting period, the volumes of wheat bran exports totaled 801.6 thsd tonnes which is only 3.4% higher year-on-year. Herewith, nearly 90% of the total volume were delivered to Turkey.
Barley: production and exports
In 2018/19 MY, the production of barley declined by 17.6% in a year to 17 mln tonnes despite the widening of the sowing areas. The barley production decline, as well as wheat, was caused by the yield reduction from 2.62 to 2.16 t/ha, due to the unfavorable weather conditions. Moreover, the biggest crop decline (by 28.5%) was also observed in the Volga District that has nearly 25% of the total production volume in Russia.
Nearly 55% of the barley production is used for feed whereas only 1.5% - for food and 8% - for industrial use. It is notable that the production decline did not affect significantly the volumes of the consumption for food because of its small share, whereas the feed consumption decreased by 5.5% year-on-year.
The volumes of barley exports for 11 months of 2018/19 MY totaled 4.3 mln tonnes which is 18% lower compared to 2017/18 MY herewith, the decline of the export was observe since the start of the season. Despite the reduction of the import in comparison with the previous season by 30.5%, Saudi Arabia was the main importer of the crop. Also, the export of Russian grain to Turkey doubled. At the same time, Jordan reduced more than twice the volumes if grain import.
In the beginning of the season, the prices did not decline significantly as before the start of the harvesting campaign-2018 most of the market participants understood that wheat and barley production decrease was inevitable. Also, this situation was stipulated by the low prices of grains in the previous season.
We can claim that when the domestic market received the offers of wheat and barley of the new crop the prices started to move higher and prevailed in the European part of Russia until March of 2019. As a result, the prices in some Districts reached the historic high. As of end of March, the bid prices of 3- and 4-grade wheat and feed wheat reached 11`600-16`300, 10`500-15`700 and 10`000-15`000 RUR/t CPT respectively, whereas the purchases of feed barley were mostly conducted at the prices within 10`200-14`300 RUR/t CPT. Since the beginning of April, some market participants started to lower the prices of these crops, because of the purchasing activity decline. Often the processing and livestock companies after forming the necessary stock of the grain considered lowering of the purchases and the prices. Herewith, the prices of barley were reducing faster than for wheat.
If we speak about the Ural and Siberian Federal Districts, there during the 2018/19 MY the price rise was lower but the procurement prices continued to increase until April-May reaching 10`700-14`000, 8`500-13`300 RUR/t CPT respectively for 3-, 4-grade and feed wheat and 8`600-12`000 RUR/t for feed barley on the same basis. The peculiarity of the price tendency of the region is the low spread between the prices of 4-grade and feed wheat, and also the prices of food wheat were often supported by the price conjuncture on the feed barley market. This situation was attributed to the high demand of the compound feed producers on the feed grains.
It should be noted that the interventions as a means of influencing the prices this season were not effective. Despite the regular intervention tenders the trade activity was low and the pressure on prices was mostly local. Even though the consumers that purchase the grain from the interventional fund had no complaints concerning the quality.
On the export market of wheat, the offer prices reached their peak in the first half of February when some exporters offered the grain with 12.5% protein content at 250 and 233 USD/t FOB at the ports of Black and Azov seas respectively. After this and until the end of the season the downward price trend prevailed and some price rise was slight and short.
The offer prices of feed barley were gradually increasing since the beginning of the season and reached their maximum in January. In the mid January, the offer prices of the crop in the Black and Azov seaports totaled 240 and 217 USD/t FOB respectively. From the end of January until June, the demand of the importers on the crop was lowering thus the prices declined too.
Forecasts and prospects
The harvesting campaign of 2018 in the Southern Federal District according to the farmers started very early, due to the drought and high temperatures during the vegetation of wheat and barley. Such agrometeorological conditions led to the fact that the agriproducers often register the low natural weight. Herewith, the gluten number and the protein content are still rather high.
In 2018/19 MY, it is expected that the production of the grains will increase to 124.6 mln tonnes including nearly 78.6 mln tonnes of wheat and 19.5 mln tonnes of barley. The increase of the production is possible as according to the operative data of the Ministry of Agriculture in several regions the yield of the crops is 6-8% higher year-on-year. For the moment, the harvesting campaign of the crops is still under close attention and not all of the market participants are optimistic over the forecasts, explaining their concerns by the lack of precipitation in several regions.
Such production figures can provide the export potential of wheat and barley in the new season at 39 and 5 mln tonnes respective. Herewith, the question remains whether Russia will be able to achieve the potential on a full scale, due to the increase of the global production of the crop and based on the concerns over the decline of the purchases by Saudi Arabia.
Alina Timofeyeva, APK-Inform Agency