Chasing Grains: Wheat Quality and Price Forecasts
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Wheat is one of the least profitable agricultural crops produced on a large scale in Ukraine. Estimates of profitability vary from 20 to 40% depending on many factors, including the region of cultivation. This year, the profitability of barley production will decrease to the levels of wheat profitability, following the decline in its prices in the current marketing year.
Prices
Ukraine is starting the new season with lower prices than in the previous season. However, the expected higher yield of wheat in 2019/20 should compensate for the decline in prices at the start of the harvesting campaign. Wheat of Ukrainian origin is still the cheapest in its segment, which contributes to its competitiveness in the global market. Our competitors' prices are also at lower levels compared to the previous year driven by expectations of a high yield in the Black Sea region.
It should be noted that prices could have been even lower, but the situation with rainfall in the U.S. Corn Belt supported the increase in corn prices, which in turn drove up the price for wheat. As for new crop forecasts and price levels, the former are changing in response to the seasonal weather. The market has already seen an increase in production forecasts.
Forecasts
Today, forecasts are being adjusted after the start of harvesting and the first yield indicators, as well as after the heat wave in Europe and drought in some areas of the Black Sea region. Despite the fact that this year's wheat harvest is expected to be record-breaking in Ukraine, we remain optimistic in terms of prices and hope to see their growth in the future. This is primarily based on the attractiveness of Ukrainian wheat prices with the possibility of further reduction of the spread between the prices of Ukrainian wheat and that originating from other countries.
Grain quality
When it comes to the quality of Ukrainian wheat, there is indeed a belief that Ukraine produces feed grain, including wheat. To some extent, this is conditioned by the opinion that the main markets for Ukraine are developing countries which are supposedly less demanding to the quality of products.
However, cases of wheat consignments being returned by Egypt to European suppliers show that this is not the main reason, and the control carried out by buyers is rather tight when it comes to food security. Well, one can't produce high-end spaghetti of our wheat, as our politicians like to say for some reason, complaining about the development of value-added production. But in its consumption segment, our wheat is of sufficient quality.
Challenges of 2019
The major challenges and surprises of the current season will be directly related to the expected bumper wheat harvest. It is no longer a surprise that it should be a record-breaking one, but it is still questionable whether it will exceed the 30 million ton level. The ratio between the share of food wheat and forage in the total production may also be a surprise, but here everything will depend on the weather. The challenges we face from season to season are invariable, and the principal one is how the Ukrainian transport system will manage a record high harvest.
Alexey Eremin, Agritel analyst
