Recently, the export price of high-quality Kazakh wheat hi pro for Central Asia was $310 per ton, but today it has dropped to $290 (DAP Saryagash). Consequently, internal prices have decreased from 135,000 to 125,000 tenge per ton. Let's delve into why this is happening and where the price might go next.
A few years ago, farmers understood the functioning principle of the grain market well: in autumn, during the harvest period, wheat prices were at their lowest due to an excess of supply. Farmers needed to sell a large volume of grain to meet current obligations, close loans by the end of the year, and make other payments. Afterward, farmers aimed to hold onto wheat until spring when prices inevitably rose. New active sales started during the preparation period for the planting campaign, as farmers needed money to purchase resources for field work.
However, in the past agricultural season, a new anomaly or operating principle emerged in the grain market. Maximum prices were recorded in September 2022, amid increased buyer activity. Prices steadily declined thereafter, reaching lows by spring 2023. A similar situation occurred in the current agricultural season: export prices for high-quality milling wheat hi pro reached $320 per ton in autumn, but have since dropped to $290.
It appears the market has indeed begun operating under new principles, and there are several reasons for this.
Firstly, farmers no longer need to necessarily settle their obligations before the new year. Changes in government programs have extended loan terms until March 1. Additionally, due to unfavorable weather conditions, farmers receive deferments on loan repayments. As a result, farmers who can store grain are now in no rush to sell it in autumn, preferring to hold onto it until spring.
Secondly, logistical constraints play a role. In autumn, during the initial contract signings for deliveries, no one expects issues with railway shipments. Problems arise later when the national railway company imposes restrictions on shipments, causing delays in grain delivery to buyers. This affects further negotiations, forcing Kazakh traders to make concessions and lower prices.
Thirdly, there is the factor of Russian wheat. Despite various restrictions, cheaper grain from Russia finds its way through Kazakhstan to Central Asia, also exerting pressure on prices. Kazakh flour millers actively use Russian wheat, leading them to refrain from purchasing more expensive Kazakh grain. As a result, it remains unsold if farmers refuse to lower prices.
Fourthly, the role of non-class wheat is significant, with its share in the 2023 harvest reaching up to 40%. Kazakh grain processors use it extensively to produce flour for Afghanistan, where buyers prioritize price over quality. Since the Afghan market is crucial for Kazakh flour, the potential for selling both quality grain and flour made from it has significantly decreased.
Fifthly, there is the overall negative trend in grain prices worldwide. In mid-March, the price of wheat on the US exchange fell to $195 per ton. Experts attribute this to large global reserves. Afterward, reports emerged from various parts of the world indicating that farmers are ready to reduce wheat plantings in the new season. In the US, a decrease in wheat acreage by 2.5 million hectares is expected, similar plans have been announced in the European Union. This has provided some support to the market; at the end of trading on Friday, March 29, the May futures on the US exchange closed at $5.615 per bushel ($206 per ton).
However, the situation remains unstable, and Kazakhstan faces numerous risks. One of them is associated with the European Union's plans to impose import duties on agricultural products from Russia. It is entirely possible that afterward, Russia will become even more active in entering the markets of Central Asia.
Additionally, in Russia, there are discussions about the possibility of reducing the size of the export duty on wheat, which is currently at around $30 per ton. If this happens, it will also lead to further price reductions.
Please find the original version of the artice below:
https://eldala.kz/novosti/ehlevatory/18831-pochemu-padayut-ceny-na-pshenicu
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