Gold Reserve: Ukrainian and Russian companies are competing for grain markets

Reduction of grain export duties in Russia allowed Russian traders to increase sales. Now, Ukrainian and Russian companies are competing for grain markets.

Russia and Ukraine are competing with each other on the global grain market while the Russian Federation has reduced grain export duties. «In one of the latest tenders, the Egyptian state company GASC bought three ships of wheat from Russia, and only one from Ukraine,” Nikolay Gorbachev, Director of New World Grain Ukraine (SouffletGroup), gives a recent example.

Egypt is the world’s largest importer of soft wheat. In the current marketing year that started on July 1, 2015, the key suppliers of this crop to the Egyptian market will be Ukrainian and Russian companies. Because of the devaluation of their local currencies, they offer grain at a lower price than Europeans do (around $200 per ton instead of $204.5). «As a result, wheat exports from the EU may decrease by 1.5 million tons,” points out Andrée Defois, the president of Tallage (France). Ukraine and Russia also benefit from lower freight costs.

In February 2015, the Russian Federation imposed grain export duties. As a result, a deficit that emerged in the global market allowed Ukrainian companies to significantly boost revenues. «This year, there is a lot of bread grain. We are selling it now because we don’t expect price increase in stock exchanges,” says the owner of Vinnytsia Agro-Industrial Group Volodymyr Bartsos. For example, in 2014/2015 marketing year Ukraine exported the record 11.2 million tons of wheat, and Russia — 22.3 million tons. But our output yield of this crop is 24.1 million tons, and that of Russia — 59.2 million tons. Until May, the duty on wheat exports from Russia had been 15% of the customs value plus EUR 7.5, but not less than EUR 35 per ton. As a result, the price of Russian wheat was on the average 8% higher than that of the Ukrainian one during this period. But now Ukrainian companies have to compete with Russians for markets. Since July 1, Russia has reduced the export duty on the supply of wheat to 1,000 rubles per ton. Now it is 50% of the contract price for grain minus RUR 6,500, but not less than RUR 10 per ton. These are very small amounts compared to the duties imposed in February 2015. «But the price of Russian commodity is still on the average 6% higher than that of the Ukrainian one», mentions the analyst of grain markets for APK-Inform, Andrey Kupchenko. «In July-September, due to export duties, Russia shipped 7.9 million tons of wheat; 9.9 million tons were shipped over the same period of the previous year», says Elizaveta Malyshko, the analyst at UkrAgroConsult.

Now our traders are actively exploring new markets. With a view to pressing Russian companies in the world market, they are increasing the export pace. During three months of the current marketing year, they have already exported 20% more grain than last year. «In July-September, Ukraine doubled its supply to Israel compared to the same period last season. At the same time, the supply of Russian wheat to this country decreased by 38%,” says Andrey Kupchenko.

Now Ukrainian grain is being actively imported to Thailand, Indonesia, Bangladesh, the Philippines and Korea. Moreover, its export to the EU is growing as well. «In July-September, Ukrainian wheat export to Spain increased by 28%, and to Italy — 3.2 times», points out Kupchenko. But Oman, Lebanon and Libya prefer grain from Russia.

Ukrainian traders rush to sell as much grain as possible in the global market, fearing price decrease in the coming months. In October, the US Department of Agriculture raised its forecast for global wheat production by 0.2% — to 732,786 million tons. This is the third consecutive bumper harvest of this crop — global grain carryover stocks can reach 226 million tons.

Written by: Oksana Pirozhok

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