Russia has almost completed the harvesting campaign of main grains. According to preliminary data, grain harvest in 2009 will become lower compared to the previous year, however grain volumes will still be rather high. At the same time, according to the experience of the previous year, high harvest are able to provide even more problems, compared to crop failure. Specialists of АPК-Inform Agency decided to summarize the current situation on the market of grains in Russia after the completion of the harvesting works, and what conditions will support the development of Russian market.
Domestic market of Russia
To date, the European part of Russia has completed the harvesting campaign of grains. Urals and Western Siberia regions also came near completion wheat harvesting campaign. From the beginning of the harvesting works, the market of grains faced the permanent reduction of milling and feed wheat prices. At the same time, during the mentioned period, the situation the world market of grains did not make sellers of Russian wheat to lower own sale prices in order to hold out competition on the world market of grains. However, the continuous fall of prices for milling wheat on the domestic market made the work of all market participants more difficult.
According to forecasts of specialists of АPК-Inform Agency, in 2009, grain harvest in Russia is expected at the level of 98.5 mln tonnes. In the current MY, the share of milling grains in almost all regions of the country became rather high, and totals nearly 50% from the general grain volumes, according to market participants. At the same time, the qualitative grain indices also show high results. Nevertheless, according to market participants, in several cases, wheat quality of the new crop left much to be desired. Generally, the European part of the country faced such announcements. According to market operators, the lack of possibilities of agricultural producers to purchase mineral fertilizers and plant protectors etc. in full measure caused problems with grain quality.
At the same time, rather essential volumes of carry-over stocks of grains of the last year harvest also exerted pressure on Russian market of milling wheat, assisting to the reduction of both sale and purchasing prices. According to experts, the essential volumes of grains, purchased during intervention tenders last year, also became one of the main reasons of the price fall. As it is known, Russia failed to sell grains of the harvest-2009 in good time, and to date, elevators are oversupplied with the products, which was purchased at rather high prices of the previous season. To date, Russia almost cannot sale the purchased grains due to the current level of grain prices on the domestic and world market.
The situation on the flour market also influences price determination on Russian market of milling wheat. To date, flour millers are the main buyers of grains on the market of milling wheat. Almost all regions of the country decrease sale prices for flour, due to the present difficulties with selling of finished goods. As a result, processors continue lowering milling wheat purchasing prices. At the same time, the decrease of flour prices does not assist to activation of demand interest, marked almost all flour millers.
Nevertheless, Russian market of milling wheat started stabilizing at the current stage, and traders lowered own cases of correction of purchasing and sale grain prices. Of course, low demand of potential buyers of milling wheat also caused the development of the situation. According to market operators, the majority of processors has already formed own base of raw materials, and does not show interest in large-scale grain purchases. At the same time, many flour millers prefer to purchase grains with the compulsory terms of delays in payment.
Logistics costs also take part in the process of milling wheat price formation. Due to rather high level of such costs, many buyers have to lower purchasing prices for grains. To date, grain buyers prefer to transport grains by automobile transport at the distances of under 2 thsd km, due to the possible reduction of logistics costs, and high tariffs of railway shipment.
Trading and purchasing companies also lowered business activity due to the low demand in grains. However, Russian agricultural producers received the most appreciable damage from the present situation on the domestic grain market. To date, many agricultural economies faced the extreme lowering of grain prices under the prime cost. Many Russian farmers, demanding in the urgent financing of own working capitals, have to rebate and offer small wheat lots for sale at buyers prices. At the same time, agrarians also prefer to wait with grain selling, expecting for establishment of more favorable market conditions and beginning of the intervention purchases.
Governmental grain interventions
Grain intervention process is one of the governmental instruments, used for regulation of the work of the market of grains. As a reminder, on March 30, 2009, the Ministry of Agriculture of Russia declared prices for grains during providing of the governmental purchasing interventions in 2009. In the Central, Southern, Volga, Northwestern Federal Districts, 3-grade wheat prices total 5500 RUR/t, 4-grade wheat - 4900 RUR/t, milling rye - 3900 RUR/t. In Urals, Siberian, Far Eastern Federal Districts and Orenburg oblast, 3-grade wheat prices total 6000 RUR/t, 4-grade wheat - 4800 RUR/t and milling rye - 3900 RUR/t. At the same time, the Ministry of Agriculture still has right to correct the price levels in cases of changes on the domestic and world markets. To date, the government chose 472 elevators for storing of purchased grains. At the same time, according to Е. Skrynnik, the Minister of Agriculture, elevator economies in the Southern Federal District became completely ready for providing of grain purchasing interventions of the harvest-2009, the Central Federal District faces the deficit of free elevator facilities. As a reminder, last year, the government purchased over 8 mln tonnes of grains for regulation of the market situation at the sum of 38.6 bln RUR, and the volume continues remaining at the state intervention fund.
Despite all expectations, the government did not start the purchasing interventions in August and September of 2009. At the end of September, the Ministry provided the information that intervention trading would start in October. At the same time, grain prices continued lowering.
The Ministry of Agriculture of the Russian Federation made delays of the beginning of the intervention due to several reasons: worsening of financial possibilities for grain purchases, unsolved problems of selling of previously purchased grains, high costs of grain storing, apprehensions that the beginning of interventions would cause the fall of export activity from Russia.
At the same time, on October 21, the government started accepting necessary documents from agricultural producers for future participation at governmental grain interventions of the harvest-2009. But according to Russian operators of the grain market, interventions will not bring essential improvement to the situation on the market. The estimated purchasing volumes to the governmental fund (nearly 2.5-3 mln tonnes) will not allow removing grain surpluses from the market. At the same time, the government still has problems with financing of the intervention, due to the necessity to spend finances for storing of previously purchased grains.
Export market of Russia
According to many experts of the industry, the market needs governmental support of grain exports. Despite rather high export potential, in July-August of 2009, supplies of Russian grains on the world market lowered compared to the same period of the previous year. During the first three months of 2009/10 agricultural year (from July 2009), Russia exported nearly 5.5 mln tonnes of grains as opposed to 6.3 mln tonnes during the same period of 2008. According to customs statistics data of the Russian Federation, in September, grains and leguminous plants exports totaled 2.3 mln tonnes, up 7% compared to the index of August 2009. Nevertheless, the index also lowered by 19% compared to September of the previous year.
Due to high harvest results at main countries-importers, buyers of wheat started reducing own purchasing volumes of grains. At the same time, countries-exporters continue keeping rather hard competition on the world market, and not all attempts of Russian exporters to widen the geography of foreign supplies caused any essential growth of shipment volumes.
The prices on the world market show more active bearish trends compared to the domestic Russian prices. To date, Russian agricultural producers reluctantly sale grains, due to rather "unfair" prices, according to them.
At the same time, countries-importers provide rather hard requirements to grain quality in the terms of abundance of grain offers. Such terms also restrict traders from using of all planned export potential.
Permanently growing transport costs also do not assist to activation of export shipment of Russian grains: transport tariffs and shipment services still show one of the highest levels of prices in the world.
To date, Russian market of grains shows the accumulation of both overproduction crisis and the world financial crisis. According to market participants, the government should provide efficient support to all segments of the grain market in order to solve the "dead-end" situation. Particularly, the government should free Russian market of wheat from grain surpluses, at the expense of the growth of export volumes and providing of intervention purchases.
Olga Gааr, expert of Russian market of milling grains of АPК-Inform Agency