The large volume of production and broken logistics have made Ukrainian grain an attractive target for politicians and businessmen. Most likely this year the grain market in Ukraine will show incredible performance. The main miracle will be the cost of grain. Speculation will give fantastic profits!
Ukrainian farmers have become the victims of the most monstrous marketing strategy that has ever been on the grain market. This strategy has three goals:
1. Production of an unreasonably large amount of grain;
2. Creating a situation where this grain cannot be sold on good terms;
3. Getting the maximum profit by buying grain for next to nothing and reselling it at a normal price.
Producing an unreasonably large volume of grain
Last year, war began in Ukraine. However, Ukrainian farmers continued to grow large volumes of grain as if there was no war. The only reason that made it possible to do this was the “grain deal”. The agreement with Russia and European countries was the main reason that allowed Ukrainians to sell huge quantity of grain in the 2022/2023 marketing year*. The export volume amounted to 48.99 million tons of grains and legumes.1
But most importantly, the experience of last year created the illusion that this can be done this year. Therefore, despite the war, Ukrainian farmers again planted a huge amount of wheat. Expecting a repeat of last year’s sales, Ukrainians collected almost 50 million tons of grain. This was done even though there were 9 million tons of grain in storage since last year. Domestic demand is only 18 million tons. As a result, 41 million tons of grain need to be exported.1 But…
Creating a situation where this grain cannot be sold under good conditions
The grain deal was terminated. In the last marketing year, this agreement allowed the export of 32.8 million tons of grain. But now it doesn’t work.1 A little earlier than the termination of the grain deal, European countries seriously complicated, if even made possible, the sale and transit of Ukrainian grain to Europe.2 Last year this made it possible to sell 16 million tons of grain. But now this is not possible.
As a result, Ukrainian farmers hold in their hands 41 million tons of grain that is almost impossible to sell.1 The time is approaching when the inventors of the marketing plan will receive huge profits. It’s unavoidable. Because Ukrainian farmers cannot wait for the situation to change.
Obtaining maximum profit by buying grain for next to nothing and reselling it at a normal price
Bad autumn weather is a testing time for Ukrainian farmers believing in the best. The thing is that in Ukraine there is a shortage of high-quality grain elevators. There are 1,200 elevators in the country. However, only 800 of them can guarantee high-quality grain storage. The capacity of these elevators is only 33.8 million tons!3 But 59 million tons of grain have accumulated in Ukraine. That is, bad weather can spoil almost 25 million tons of grain. Is it better to throw away spoiled grain or sell the grain for next to nothing? The answer is obvious. Ukrainian farmers will prefer to sell grain at the price offered by speculators.
This is the only opportunity to get some money. There is no alternative to this robbery! After all, grain processing capacity has not been developed in Ukraine. That is, Ukrainians will not be able to process the grown grain into starch, flour, syrups, etc.4 The harvested crop must only be sold.
It is impossible to predict the possible profit of speculators. But it is reliably known that Ukrainian farmers during the “grain agreement” sold wheat to Poland at a price of 167 euros per ton.5 Polish wheat cost 400 euros.6 It was so profitable to buy Ukrainian wheat that the Poles accumulated 4 million tons of Ukrainian wheat in warehouses.6 This is almost 12 per cent of the total wheat harvest in Poland!
It is not surprising that the price of grain in Poland fell from January to July 2023 to 200 euros per ton. That is, due to cheap Ukrainian imports, the cost of grain in Poland has decreased twice! But world prices did not change that much during this period. The average world price of wheat varied from January to May within 345-395 euros per ton.7 This is almost double the price at which the Poles bought Ukrainian grain.
In conditions when the “grain deal” does not work and alternative routes for exporting wheat are also closed, purchasing prices may decrease even further.
The cost of grain in Ukraine will depend on political decisions in the capitals of the USA, Europe and Russia. Most likely, politicians will make some decision that would allow tens of millions of tons of grain to be exported from Ukraine. However, this will be done just before the weather worsens, which would cause Ukrainian farmers to provide an even larger discount.
Australian Rural & Regional News tried to find out from market specialists how true is the assumption about a strong collapse in prices on the Ukrainian grain market.
All of them were asked only one question:
How much will the cost of Ukrainian grain decrease if problems with exports persist?
We are talking about a situation when the “grain deal” will not be extended, ports on the Danube will not work, and the EU will maintain restrictions on the import of Ukrainian grain.
These are the answers of professionals:
“There is no clear formula for how much the price can decrease. The situation with export restrictions that you are considering can be compared to the period of the beginning of a full-scale invasion. Risks of a shortage of supply from Ukraine then increased the world prices for basic grains by almost two times, relative to the price at the beginning of the season. At the same time, domestic prices in Ukraine decreased by 50 per cent. Now the global market has somewhat adjusted to the limited supplies from Ukraine and the growth will not be so significant. However, insufficient supply will still support prices. Problems with exports from Ukraine create more pressure on domestic demand prices than on prices on external bases. The limiting factors for a significant reduction in domestic prices are the high cost of production and the availability of storage facilities. Therefore, farmers will quickly switch to the mode of restraining sales. This should stabilise prices”
– Head of business-project department “APK-Inform” Agency Andrii Kupchenko.
“The EU Commission announced on Friday that the ban on imports of grains from Ukraine for the five neighboring countries would not be renewed (transit would still be allowed). This announcement is expected to make it easier for Ukraine to export these grains and paradoxically prevent a significant price discount. Indeed, via European borders, the risk premium is lower than by sea. However, Poland had already declared that if the Commission lifted the ban, it would implement its own ban (which goes against European rules). Bulgaria, on the other hand, had already announced that it would allow imports from Ukraine. Consequently, Ukrainian prices could halt their downward trend if exports to the EU do indeed resume”
– Project Manager / Commodity Market Analyst Stratégie grains Hélène Duflot.
“Indeed, grains and oilseeds export prices in Ukraine have been under pressure in recent weeks amid reduced export opportunities and progressing local harvests. While it’s reasonable to assume that prices may decline further should export bottlenecks persist, the question you asked is highly speculative and invites forecasts on future price dynamics which the International Grains Council does not do. Still, it is likely that any possible decline in delivered prices will be capped by potentially higher transportation costs via the remaining routes (rail and road via western borders in this case) due to increased traffic. It should also be noted that the situation with the storage capacity in Ukraine is estimated to be less tight compared to last season owing to smaller overall supplies, which should alleviate pressure on producer selling in the short term”
– said Senior Economist International Grains Council Alexander Karavaytsev.
As we see, experts allow prices to fall, but do not foresee a catastrophe. What the result will be will become clear closer to the New Year. But it is reliably known that the enemies and allies of Ukraine are preventing the export of Ukrainian grain. Such a unification of opposing forces only says about one thing. Big business has become stronger than politics. Transnational corporations will benefit under any conditions.
Therefore, what is happening around the Ukrainian grains can be characterised by the Ukrainian proverb “To whom is war, and to whom is mother.” For some people, war is war, for other people, war is their mother.
* The marketing year actually coincides with the validity of the “grain deal”
References
1. https://minfin.com.ua/currency/articles/zernoviy-koridor-chi-spravdi-ukrayina-zalezhna-vid-nogo-i-yaki-e-alternativi/
2. https://www.pravda.com.ua/rus/news/2023/08/31/7417916/
3. https://latifundist.com/novosti/46433-moshchnostej-hraneniya-v-ukraine-hvatit-tolko-dlya-poloviny-urozhaya-zernovyh–issledovanie
4. https://mind.ua/ru/publications/20256782-vyvezti-zerno-iz-ukrainy-vse-trudnee-vo-chto-ego-mozhno-pererabotat-vnutri-strany-gde-ispolzovat
5. https://www.dw.com/ru/noz-v-spinu-ukraina-v-soke-ot-zernovogo-zapreta-ot-sosedej-iz-es/a-65529230
6. https://meduza.io/feature/2023/07/21/posle-sryva-zernovoy-sdelki-osnovnoy-koridor-dlya-vyvoza-ukrainskogo-zerna-polsha-no-varshava-uzhe-ne-tak-loyalna-kievu-kak-v-nachale-voyny
7. https://www.indexmundi.com/commodities/?commodity=wheat
