Extension of the "grain agreement" for only 60 days destabilizes and unbalances the market – opinion




The extension of the "grain agreement" for only 60 days destabilizes and unbalances the market, and leaves no chance for grain prices to rise, posted Oleksandr Solovei, the CEO of Spike Brokers on his Facebook page.

As the expert recalled, until the last two stages, the "grain corridor" functioned within the framework of longer terms, namely 120 days. This, he believed, was the optimal minimum in order to be able to "relatively effectively conduct some commercial activity of grain export from Ukraine by sea."

If the corridor continues for only 2 months, O. Solovei believes that:

  • the whole process is destabilized. In the short term, it is impossible to plan a high-quality delivery of ships and synchronize the work with the timely accumulation of goods for shipment. In addition, the vessels themselves pass through the inspection with the participation of the aggressor for an average of 14 to 45 days;
  • the Ukrainian producer receives a lower price for his goods. Traders are forced to take additional risks, which are transformed into money and expenses. Low logistics efficiency and additional costs further reduce the price for the farmer. And so we get the next season as a season of low prices;
  • market imbalance is fueled by a psychological factor. It already includes patterns of player behavior, which is quite linear. Sellers are trying to sell as much as possible in the next 2 months. And this creates such a great pressure of supply on demand that it leaves no chance for the price to strengthen.

"As a result, we see that such short-term windows of action of the grain corridor do not ease the situation in agriculture, but significantly destabilize the market. Of course, you can say that it is good that there is at least this, but the minimum operation of the grain corridor to preserve the efficiency of trade relations should be from 3 to 6 months. And the best thing is to work freely in general, without Russia," the specialist noted.

"So, we are already in the "storm", which has the following features: low prices for the producer; still high logistics costs; the instability of logistics chains, in particular, the "grain corridor", – summarized O. Solovei.