Analysis Grains
Ukraine paves the way for minimum grain price
Plans to introduce minimum export prices for grain by Ukraine have been in the air. Yesterday, the country announced that it is now finalized and the new system can be implemented. Ukrainian exporters are deeply concerned about the potential impact of the introduction on the country's export position. In the EU, wheat exports are lagging behind last season while in the US, exports are performing better.
The September wheat contract on the Matif closed $1.50 higher at $204 per ton yesterday. In Chicago, wheat rose by 0.9% to $5.33 per bushel. Soybeans remained virtually unchanged, closing 1 cent higher at $9.57¼ per bushel. Corn took a step back, closing 0.9% lower at $3.75 per bushel.
Ukraine has approved the system of minimum prices for grains and several other agricultural products. The government announced this yesterday (Tuesday, August 20). The price mechanism that Ukraine aims to introduce will apply to wheat, corn, soybeans, and rapeseed, among others. Under the new rules, a minimum price will be calculated based on the average price calculated from customs data of the previous month with a 10% discount. By implementing a minimum price, the Ukrainian government aims to prevent exporters from artificially keeping grain prices low to evade taxes. Agricultural raw materials are Ukraine's main export product.
Farmers in trouble
The Ukrainian Grain Association is critical of the government's plans. By introducing minimum prices, up to half of Ukraine's grain exports are at stake, according to the association. A significant portion is traded through futures contracts. Minimum prices clash with that system and create additional market uncertainty. These futures contracts are used as collateral for loans, the Grain Association states. The disappearance of these contracts could prevent farmers from obtaining loans.
The exact date for the introduction of minimum prices is not yet known. According to some sources, the system could come into effect this month, but the government has not announced a date yet.
European exports falter
Until August 18, the EU exported 3.55 million tons of wheat. Last year, by August 20, the export figure was at 4.53 million tons. While wheat exports are struggling in the EU, grain exports in the US are performing better. According to the USDA, in the week ending August 15, 348,000 tons of wheat and 1,166,000 tons of corn were exported, compared to 311,000 and 511,000 tons, respectively, in the same week last year. Due to a favorable dollar exchange rate, US exporters are thriving, according to experts.
Jordan has withdrawn a tender for 120,000 tons of wheat. Some sources expect the country to open a new tender later today. The Egyptian Minister of Supply announced that Egypt's wheat stock covers six months of consumption. The country aims to increase the stock to cover nine months of consumption.
China is in the market for US soybeans. Compared to July last year, Chinese soybean exports have tripled, according to Chinese customs data. The total amount is 475,392 tons. The majority of China's soy demand is met by Brazil. In July, China imported 9.12 million tons of soybeans from Brazil. However, analysts see the increased demand from China for US soybeans as a positive sign. With a favorable growing season, America is heading towards a good harvest, and any additional demand to absorb that extra soy is welcome.
