Grain prices dropped to a record low level

Ukrainian farmers over the dark clouds

Photo: PHL

World prices of grain hit their minimum level over the past five years. This past weekend the U.S. Department of Agriculture (USDA) published its report in which it raised the global forecast of the wheat harvest this season by 3.6 mn t to 705.2 t. This is 9 mn t lower than last year’s record harvest. The USDA increased its forecast of grain output in Australia, the EU, Ukraine and the U.S. and somewhat lowered its forecast for Canada and Kazakhstan. “The USDA report showed figures that clearly nobody was expecting,” says Head of the Analytical Department of the Agricultural Exchange Anatoliy Stoyanov. On Monday the market immediately reacted with the fall in quotations. In a matter of one day futures contracts fell in value by 5.5% (to US $202) per tonne of grain and by 13.6% (to US $154) per tonne of corn. Yesterday the fall continued, though its rate decreased.

Transitional trend

The published report will aggravate the situation of Ukrainian agrarians. Stoyanov said expectations of a large grain harvest of more than 60 mn t have already allowed exporters to lower their purchase prices. Over the first two weeks of the fiscal year export prices of wheat and barley in ports fell by 10% to UAH 2,300-2,500/t.

So far the prices of corn on the domestic market remain at the same level as last year at UAH 2,100-2,200/t. “So far there is no new harvest,” explains Head of the Agro-Industrial Department of the DerzhZovnishInform Center,” Oleksandr Odosiy. The prices of grain, both exported and internal, will continue to fall, Stoyanov predicts. “Since the start of July, September wheat futures fell in price by 16.3%. This indicates the prices will continue to fall for at least two months over the period of active harvesting in the northern hemisphere,” he added.

September corn futures will fall by 15.8%, according to quotations of the SWOT analysis. However, market analysts are convinced that this is not the limit. The Ukrainian barley market could get serious support due to the high demand for it by Saudi Arabia, though this should not be expected earlier than the second half of August, Stoyanov believes.

Head of the Analytical Department at AAA consulting company Maria Kolesnyk predicts that prices of corn will be at a minimum in September and the prices grain will hit their minimum in July-August. “I think that, provided there are no additional factors, world prices of grain will fall by another US $10, but no more,” the expert presupposes. Kolesnyk is confident that the export prices this year will not beat the previous record. “In this period last year buyers paid UAH 1,700 per tonne of grade 3 wheat. This year they paid UAH 2,370 per tonne. For this reason, Ukrainian farmers have nothing to cry about,” says Kolesnyk.

Demand rules the price scale

The traditional hype of grain traders and farmers, who are ready to sell huge volumes of grain at lower prices, can already be observed on the market. Farmers fear last year’s scenario of a logistical collapse. “The capacities of port terminals in Ukraine are no more than 2.3 mn t. With a harvest of 60 mn tonnes exporting half of this volume is extremely problematic and the price of transshipment today is already US $20 per tonne,” says Head of Logistics Division at Hermes-Trading Vyacheslav Sorokun.

According to data of the Ministry of Infrastructure, the fleet of grain transporters in Ukraine is 12,750 railway cars strong, which guarantees transportation of 40 mn t of grain crops per year. But last year Ukraine’s rail transport delivered only 22.34 mn t of grain crops. “However, not all cars that transport grain are in working condition. According to our data, there are around 8,500 such cars,” says President of the Ukrainian Grain Association Volodymyr Klymenko.

The problem of logistics forced traders to lower the prices for grain in the peak period to the level of demand, selling grain crops at the prices proposed by buyers, Sorokun pointed out. Due to the logistics problem and price fluctuations last year farmers fell short of nearly UAH 20 mn.

According to Stoyanov’s estimates, over two weeks of the drop in grain prices farmers lost UAH 1.8 bn from the sale of wheat and more than UAH 1.2 bn from the sale of barley. In order to minimize profit losses Stoyanov recommends insuring risks by selling grain for slightly higher than the demand price. All the more, this year agricultural producers significantly increased their transshipment and elevator capacities.

According to the Ministry of Agrarian Policy and Food, as of July 14 agricultural enterprises reaped 12.143 mn t of grain from an area of 4.031 mn ha. Specifically, 4,318 mn t of barley was reaped from 1.559 mn ha of land and 7.638 mn t of winter wheat was harvested from 2.381 mn ha. Also, 13,000 t of rye was reaped from 6,000 ha and 6,000 t of oats from 4,000 ha.