Most agriproducers and exporters put high hopes on the new season following the record prices in the previous season and forecasted rise of the exports in the beginning of 2019/20 MY because of the increased production. But the high competition on the market and strengthening of the Russian ruble on the currency market made some adjustments. Read about the provisional results of the FH of 2019/20 MY in our article.
Before the beginning of 2019/20 MY, most market operators has not expected that the new season to bring new production records, but the production volumes would still surpass the previous ones. Although, in June-July the European part of Russia faced some drought processes, which made market operators nervous and lower the grains production forecasts, but they still were rather optimistic. According to APK-Inform Agency estimations, the production of grains and pulses in 2019/20 MY in Russia will total 122.6 mln tonnes, which is 8.3% higher year-on-year, and the second largest after the record in 2017/18 MY.
Wheat: production and exports
The general production of wheat in the current season is estimated at 75.3 mln tonnes, which is 4.4% higher y-o-y. Herewith, there is a slight increase in both planting areas and yield — to 28.1 mln ha (+3%) and 2.74 t/ha (+0.5%) respectively. The increase of the planted areas was recorded in all Federal Districts, excluding the Volga District, where the areas declined slightly. If we speak about the quality of wheat in the current season, it has appeared to be the best for the last 10 years, and there was 1-grade wheat harvested for the last 12 years. The share of the food wheat surpassed 70% in the structure of the harvest. Herewith, despite the decrease of the feed grain share, there is a tendency of the increase of the feed consumption of wheat and vise-versa the decrease of the feed consumption.
If we speak about the exports, within July-November there was 18.5 mln tonnes of wheat exported, which is 10.9% lower compared the same period last season. The largest decline of the export was towards Egypt. If for the 5 months last year Russia delivered 4 mln tonnes to Egypt, whereas this season Russia delivered only 3.2 mln tonnes. Thus, Egypt which was the leading importer of Russian wheat for a long time, this year became second after Turkey. The decrease of the export volumes to Egypt was due to the high competition from Ukrainian and European wheat. Some market participants suppose that the high quality of Russian wheat was the reason of the lower export. And indeed, this situation was favorable for the exporters. Some exporters face the situation when the quality parameters of wheat were lower than the import requirements, at the same time, they were not ready to pay the premium for quality.
At the same time Turkey increase the import of Russian wheat to the record numbers. In July-November of 2019 the country purchased 4,2 mln tonnes of Russian wheat, whereas in the previous season the import reached only 2,5 mln tonnes. The total import in the current season by Turkey is expected to total 7,8 mln tonnes according to the USDA, which means that in July-November Russia and Ukraine together delivered to Turkey 5 mln tonnes of wheat thus implementing 65% of country’s import capacity. Because of this in the second half of the season, the exports of wheat to Turkey will decline.
Also, there was a steep increase of the wheat deliveries to Azerbaijan, which in July-November totaled 862 thsd tonnes, which is 3.4 times higher y-o-y. This situation was due to the significant decline of the competition on this market, due to the drop of the trading activity of Kazakhstan.
Moreover, this season there was the deliveries of Russian wheat to the new market — for the fist time the grain was exported to Laos (5.2 thsd tonnes). We should also note that after a five-year break Russian again exported wheat to Madagascar (32.5 thsd tonnes).
Herewith, there were some changes of the deliveries of the wheat by-products. For the first 5 months of the season the export of wheat flour totaled 126 thsd tonnes, which is 27% higher y-o-y. Nearly half of the volume of flour was exported to China — 63.7 thsd tonnes compared to 31.5 thsd tonnes last season. Traditionally, the main importer of Russian flour this season was Turkey, which bought 227.5 thsd tonnes (-19.3% y-o-y).
Barley: production and exports
In the current season, the planted areas under barley total 8.8 mln ha, which is 5.7% higher year-on-year. The increase of the areas was due to the high cost of the grain last season. This factor together with the improvement of the barley yield (from 21.6 to 24.3 th/ha) led to the rise of the production by 21.5% to 20.7 mln tonnes, according to the APK-Inform Agency experts, the highest in 11 years. The food consumption of barley did not significantly change and remains rather insignificant, at the same time the feed consumption of the grain increased by 11% and total 10.5 mln tonnes.
Herewith, the increase of the barley production was observed not only in Russia, but all over the world, which led to the high competition of the global market, thus the experts were gradually declining the forecast of the export of barrel this season. In July-November of 2019, Russia exported 1.9 mln tones of barley, which is 32% lower y-o-y.
Saudi Arabia was the main buyer of barley (800 thsd tonnes, -30%). Also, the deliveries were declined by Iran (from 543 to 409 thsd tonnes), Jordan (from 334 too 123 thsd tonnes), Turkey (from 134 to 83 thsd tonnes), and others. At the same time, we should note that Libya during this period imported 227 thsd tonnes of Russian barley compared to 53 thsd tonnes last season, thus becoming the 3rd largest importer.
The decline of the offers of the grain at the beginning of the season was the obvious feature of the current season on the domestic market of both wheat and barley. According to the market participants this situation was stipulated by the increase of the storage capacities and the lower outstanding loans of the farmers after 2018/19 MY — the season the record prices.
Despite this fact, in the beginning of the season there was a traditional decline of the prices of wheat and barley under the forecasts of the increase of the production. The prices also were under significant pressure of the lower (compared to previous season) prices on the export market. herewith, since August in European part of the country and since September in Asian part the prices moved upward, which preserve on the market of wheat until now, whereas on the market of barley by winter the prices started to decline because of the sufficient stocks that formed because of the low demand from the overseas. It is noteworthy that in the Southern District, where 3-grade wheat prevailed in the production structure the bid prices of it in some case were similar to the prices of 4-grade wheat. We should note that this season the prices of the grain were rather high in the Ural and Siberian Districts. This situation was stipulated by the increase of the competition, due to the high purchasing activity of Kazakh importers.
By mid-2020 the bid prices of 3- and 4-grade wheat in the European part of Russia usually vary within 11`000-13`800 and 10`100-13`800 RUR/t CPT, and in the Ural and Siberian Districts — within 11`000-13`200 and 10`000-11`800 RUR/t on the same basis. The price for feed wheat and barley in the European part usually vary within 9`900-13`600 and 9`000-12`100 RUR/t CPT, at the same time in the Ural and Siberian Districts these prices range within 9`000-12`000 and 8`000-10`400 RUR/t on the same basis. Herewith, in the Ural District as last season the maximum bid prices of feed wheat slightly exceed the bid prices of 4-grade wheat. This situation was still stipulated by the high demand of the feed-milling plants for feed grains. Often, millers informed that this fact caused some difficulties during the purchase because they had no possibilities to rise the bid prices in order to preserve the stable selling off the flour and the production profitability.
Since the end of September on the export market of wheat the prices started gradually increasing, and accelerated highly in October. The prices were supported by strengthening of the RUR/USD parity, by the increase of the wheat prices on the global markets, due to the harvest delays in the USA and Canada due to the unfavorable weather conditions and lack of rains in Argentina and Australia. Duding November the prices on this market mostly did not move, but in December again starter to increase because of the lowering of the wheat and corn production forecasts in Argentina, further strengthening of the Russian currency and the rather stable demand of the key importers. Thus by mid-January the offer prices of wheat with 12.5% protein content in Black Sea and Azov Sea ports reached 220-225 and 201-205 USD/t FOB respectively.
Together with this on the market of feed barley during the described period the trading activity was rather low and the prices did not significantly change. The maximum offer prices of this grain were received in November — 187-192 USD/t FOB (Black Sea) and 165-169 USD/t FOB (Azov Sea). However, because of the rather high stocks of the grain on farms and low import demand the bid prices in December (deep water) declined slightly and by mid-January preserved within 186-190 USD/t FOB.
Market participants expectations
In autumn, the planted areas under grains rated the reworn number — 18.2 mln ha. According to the experts, the condition of winter grains is rather good. However, it should be mentioned that in the Southern and Central Districts the air temperature was higher than normal, at the same time the precipitation level was limited. Moreover, many experts expected for the significant drop of air temperature, which in terms of the nearly total absence of the snow cover can cause a significant damage to winter crops.
Speaking of the export market, the market participants opinions differ widely. Some of them are convinced that the upward price tendency will preserve on the wheat market as well the high export, due to the decrease of the export potential of the main competitors of Russia on the global market. This is why, some agriproducers still deem convenient to restrain the selling of the most of the stocks of the grain. At the same time, some market participants don’t share this optimism and believe that the highest export deliveries fell behind, mostly because of the decrease of the grain stocks in the south regions and its high cost in far from seaports regions. However, they, as their opponents, expect that the prices will develop upward. Herewith, the prices or trading activity on the market of barley are not going to significantly change.
Alina Timofeeva, APK-Inform Agency