Supercycle in grain market weighs on production costs: Neroba

The world grain market is entering a new phase of high prices. The 'supercycle' will be the trend of the new grain season. This cycle will be a new level of support for high prices accompanied by a wave of inflation, including product inflation, states Elena Neroba, Maxigrain business development manager, at Grain Storage Forum 2021 in Kyiv, writes.

"The market is saturated with the enormous amount of money supply that needs to be invested somewhere. Why not invest it in commodity trading?" suggests Elena Neroba.

She believes that a supercycle in the grain market makes it possible for Ukraine to receive a good margin this season. But in the future, the supercycle will result in higher production costs.

"There is no such thing as a high end product price without production costs going up. And while the cost of inputs is moving higher, we have the opportunity to contract at very high prices and get good margins for 1-2 years. But a good margin cannot last forever, there is some cyclicality. Ukraine will benefit from good commodity prices. However, we must understand that this good price will be followed by a rise in the cost of production if not this season then the next one," the expert warns.

Elena Neroba observes that the faster the world develops, the shorter the cycle becomes.

"Before it was 100 years, then the crisis started repeating itself every 10 years. Now the period is getting even shorter. China is actively buying grain to restock before the next five-year period begins. If China withdraws from the market and stops buying, prices will collapse," Elena Neroba forecasts.

As of May 24, Ukraine exported 40.89 mln t of staple grains in 2020/21, 24% down YoY.

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