Russian corn market can break a record in the season-2016/17

Source

APK-Inform

3105

 

During several recent seasons, Russia demonstrated the stable growth of corn volumes production. It is caused both by the expansion of planted areas and fixed increase of grain’s yield. According to the Federal State Statistics Service (Rosstat), corn harvest in the current season reached a record. Summing up the results of the first half of 2016/17 MY, we also describe the prospects for the new one.

Corn is one of the most dynamically developing grain crops in Russia. During last five years, annually the planted areas under the grain increased with high rates and got the record level by the end of 2016 – 2.9 mln ha that is 4.5% above 2015 year, and up 41% above 2012.

Due to extension of the planted areas, as well as rising yield up to 5.51 t/ha (up 0.57 t/ha compared with 2015), corn harvest in 2016 reached unprecedented 15.3 mln tonnes that exceeded the year ago level by 16.2%.

Taking into account the volume of carry-out stocks, APK-Inform Agency estimated the general supply of corn in the current season at the level of 16.9 mln tonnes that covers completely not only domestic demand (usually consisting 8.6 mln tonnes), but allows to significantly increase export deliveries.

 

Corn production in Russia

 

2014/15

2015/16

2016/17

Planted areas, `000 ha

2687

2771

2895

Yield, t/ha

4,36

4,93

5,51

Production, `000 tonnes

11332

13173

15310

Source hereinafter: APK-Inform Agency

 

Domestic market

In terms of optimistical forecasts for the record harvest, 2016/17 MY started with the traditional prices reduction. Thus, in the period of September-October purchasing prices for corn in the European part decreased by nearly 3`000-4`000 RUR/t – to 8`500-10`000 RUR/t CPT. Along with it, due to adverse weather conditions during the harvesting campaign, the market often received corn with high humidity indices and weed content. Respectively pricing depended completely on the corn quality characteristics, which resulted spread marks between corn of low and high-quality quite often constituted 2`000-2`500 RUR/t. Herewith, almost all consumers on the domestic market (like processors/cattle breeders) were oriented to purchase the grain with ordinary quality characteristics on bottom price level.

However since the start of November, the supply volumes of corn, in particular with the qualitative indexes conforming to requirements of state standard specifications, significantly increased. In order to replenish the current assets urgently, agrarians realized their grain stocks rather actively and were ready to reduce the prices. In it’s turn, the demand was moderate and there was no strong competition between feed, livestock and export-oriented companies. Consumers created their raw materials reserves as required, considering to gradually reducing the bid prices. As of the end of December, purchasing prices for the crop in the European part were fixed within the range of 7`500-9`600 RUR/t CPT (down nearly 600-800 RUR/t compared with indicators of November of the same year). The price situation in the Ural Federal District developed similarly, and by the end of December the purchasing prices varied within 11`400-12`500 RUR/t CPT. No essential price changes were observed during January-February. Small batches of grain came to the market on earlier established selling prices. On the other hand, grain processers preferred to buy corn as required, leaving the bid prices invariable. At the same time, in the beginning of March many consumers suspended purchases of raw materials in view of enough stocks available for work in the short term. Therefore, corn prices began gradually falling. Since March the price decrease totaled nearly 400-500 RUR/t in the European part, and 800-900 RUR/t in the Ural Federal District.

"Now the market is crowded with offers for feed corn, that’s why the downward tendency of the prices remains. However, despite great supply, the quality of all the production isn’t good. The first problem is general appearance and color of the grain, in particular, a lot of darkened and burned grains (due to high temperature of drying). The second problem is excess of the state standard specifications parameters on weed impurity. Most likely, high-quality corn is realized actively for export, while the grain of bad quality is offered to us at lower price”, - a representative of Tula processing enterprise commented.

To date, bid prices on feed corn in the European part usually vary with the range of 7`000-9`200 RUR/t CPT. The purchasing prices for the Ural Federal District total 10`500-11`500 RUR/t CPT.

 

 

Export market

During several recent seasons, the dynamics of feed corn export shipments significantly increased. Rising production as well as enough offers and reasonable prices for Russian corn in the current season promoted building-up of exports. In October-March of 2016/17 MY, corn shipments from the Russian Federation reached 3.5 mln tonnes that is 20% higher than the same period of 2015/16 MY. In should be noted that according to forecasts of APK-Inform Agency, the exports of corn in the current season can break a record at 5.5 mln tonnes (up 17% compared with 2015/16 MY). However the complete realization of Russian export potential will depend on the competitiveness of Russian grain on the global market.

It should be noted about quite essential changes in the geography of deliveries of Russian corn. Thus, in October-March period Vietnam came on the top of grain export volumes – 683 thsd tonnes (20% of all exports for the season), while shipments to the same destinations weren't made two seasons earlier. Also, deliveries of Russian corn significantly grew to Iran – 640 thsd tonnes during October-March of 2016/17 MY, against 262 thsd tonnes for all previous season.

Regarding the pricing on FOB basis, it should be noted price rising since the beginning of October, due to corresponding conjuncture on the global market. However, since the second ten-day period of November the bid prices reduced and varied within 169-172 USD/t and 146-149 USD/t FOB with November-December delivery in the deep-sea ports and the Azov Sea ports, respectively. According to representatives of export-oriented companies, such situation developed due to high competition on the global platforms.

In December-January, there were no essential price changes and purchasing-trading rates were low, due to seasonal factor. The price situation began to change cardinally in February, and bid prices for the grain began to grow under pressure of the adjacent markets. As a result, by the end of month the prices rose by nearly 10 USD/t, and varied within the ranges of 178-180 USD/t and 158-161 USD/t FOB with March delivery in the Black Sea and Azov Sea ports, respectively.

For the time being the purchasing-trading activity in the corn sector is estimated as low, and bid prices for the grain in deep-sea ports gradually fell and vary within 167-170 USD/t FOB with delivery in April-May.

 

 

At the same time, the CPT port-basis was fixed with reduction of prices caused by low demand in the start of the season. Since the second ten-day period of November, the upward price trend was observed on the market due to unstable situation in the foreign exchange market. Bid prices for corn were fixed within 9`700-10`400 RUR/t and 8`700-9`200 RUR/t CPT-port in the Black and Azov Seas ports, respectively. Many traders pointed out on the low volatility of a rate promoted the further increase in prices in the current season. Herewith, throughout the last seasons devaluation of national currency was the factor stimulating the further exports.

At this stage, the purchasing prices lowered to 8400-8800 RUR/t CPT in the Azov Sea ports that is caused mainly, by the environment on the domestic market and reasonable demand from consumers.

 

 

"In the second half of the season, we expect for gradual reducing of export shipments. Foremost, it is connected with increased competition from Argentina, Brazil and Ukraine on the global market, which have an advantage in prices, as well as quality characteristics of the grain", - one trader of the Southern Federal District of the Russian Federation noted.

 

Market forecasts

According to market operators, in the second half of the season the segment of feed corn can show gradual reduction of prices. At the same time, the demand/offer ratio, quality characteristics of grain, as well as currency factor, will remain the key factors exerting impact on pricing. It should be noted that some participants of the market expect for reduction of bid/offer prices of on the domestic and export markets in the short term, due to low trade and purchasing activity and seasonal factor.

 

Vera Sosna, Polina Kalayda, APK-Inform Agency

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