Ukraine’s wheat prices plummet as demand vanishes

Ukrainian wheat prices have plummeted this week in local and export markets, despite tensions easing in the Black Sea region, with a revival in global demand for Ukrainian old-crop product remaining in question in the light of depleted milling wheat stocks and strong competition on the feed wheat market.

The Argus-assessed Ukraine spot fob wheat price for 11.5pc protein grade (UW1) has dropped by $12/t on the week to close 2 February at $311/t — its lowest since 20 October last year. Meanwhile, Ukraine’s spot cpt price for product (UW2) has fallen by $15/t week on week to close today at $288/t — its lowest since mid-September last year (see chart).

Unfavourable weather conditions in late January led to delayed ship arrivals and disrupted loading operations at Ukrainian ports, which resulted in large accumulations of port stocks and falling prices domestically.

Meanwhile, most buyers stepped away from the fob market amid fears that mountingj tensions between Russia and Ukraine may result in disruptions to Ukrainian shipments in the upcoming months, which has pressured export prices.

As a result, Ukrainian wheat trading companies started to reduce their bid prices on the local market, while producers began to sell off their existing stocks in an attempt to secure prices in a sharply falling market. Simultaneously, the fob market saw a decrease in offer prices, with sellers trying to lure buyers back.

But global importers have been unwilling to return to the Ukrainian market, even despite some easing of the tensions between Ukraine and Russia, with little activity seen only for March shipments. Egypt was the only exception, with the country’s state-owned grains buyer, GASC, purchasing 120,000t of Ukraine-origin product from trading company Nibulon for shipment on 5-26 March in its tender that closed 28 January.

But almost all of the trading liquidity in the local wheat market this week has occurred at Mykolayiv port, market participants said. Meanwhile, many trading firms at Odessa port have suspended their wheat purchases in light of a lull in global demand, with some importers heard to have switched to other wheat origins.

Another reason that global importers are showing no interest in Ukrainian wheat for shipment in April onwards is the already-depleted stocks of milling-grade product.

Some Ukrainian exporters are considering closing their wheat export programmes for this season out of concerns that they will be unable to secure sufficient volumes for export activity.

Ukrainian companies have already shipped about 11.5mn t of milling wheat since the start of the marketing year in July (see chart). This leaves only 2mn t of product available for exports for the remainder of the season without threatening national food security, with the full volume expected to be shipped over the next two months, according to Ukraine’s agriculture ministry.

Meanwhile, overall wheat exports from Ukraine have reached 17.08mn t so far this marketing season, with 8.2mn t of product that could be exported by the end of the season, given the official export forecast of 25.3mn t (see chart). This means Ukraine could still supply about 6.3mn t of feed wheat to global buyers this marketing season, but demand for the product is questionable in light of large supplies of feed wheat from other producing countries.

Global demand for Ukrainian feed wheat has been muted for a couple of months and is unlikely to return this marketing season, given firm competition from Australia, market participants said. This means the pace of wheat exports from Ukraine could significantly slow from April onwards, resulting in wheat exports being lower than initially projected in 2021-22 and larger feed wheat stocks at the start of the next marketing season.

Ukraine 11.5pc wheat prices $/t

Ukraine wheat exports in 2021-22 mn t

Ukraine milling and feed wheat exports in 2021-22 mn t

Argus Media

Tags: markets, Black Sea region, wheat, milling wheat, tensions, Ukraine, Russia, export, prices, weather