What is in this article?:
- Centrally managed wheat supply systems not friendly to market participants
- U.S. comparison
• In the wheat market, the true price is best determined by fair market practices, but several players have tried recently to be a low-cost alternative to the traditional five exporters.
New players — in any industry — commonly employ a lower price strategy to capture market share.
In the wheat market, the true price is best determined by fair market practices, but several players have tried recently to be a low-cost alternative to the traditional five exporters.
Despite artificially low prices that increase export demand, production problems and fluctuating competitor prices have come back to limit the market share of these newer suppliers. But there is good news for buyers: higher quality wheat supplies are now positioned to fill the demand left unmet by the low cost competitors.
Russia has emerged as a major wheat exporter in the past 10 years, but is still working to achieve consistent production and export capability.
Significant weather events in two of the last three years have seriously setback Russia’s supply reputation.
In 2010/11, Russian exports fell to 3.98 million metric tons (MMT) from a record 18.6 MMT the prior year due to a 33 percent production decline.
The country rebounded in 2011/12 with a new record of 21.6 MMT in exports and 14 percent world market share, fourth highest among major exporters.
Yet, with another year of poor weather causing production to drop, the U.S. Department of Agriculture (USDA) expects 2012/13 Russian exports will total just 10.5 MMT, a 51 percent drop and just 8 percent of world market share.
Russian exporters used below-market-value pricing that spurred most of export sales in the first five months of this marketing year. As export supply dwindled, rumors of a government imposed export limit or outright embargo caused both producers and exporters to panic.
An effort to rush wheat sales before the government could implement restrictions contributed to a fairly steep — and unnecessary — discounting of Russian wheat.
From mid-July to mid-October, Russian wheat ranged from $300 to $345 per metric ton (MT), some $15 to $45/MT lower than competitive wheat supplies on an FOB basis.
As domestic and exportable supplies tightened, Russian prices increased while competing wheat prices declined. Russian exports effectively dried up in the second half of the year and the agricultural analysis firm SovEcon recently pegged the FOB value of Russian wheat just above $350/MT.