Latest developments in grain markets

“There will no deceleration at the import of wheat and corn during 2018/19 harvest period in Turkey; on the contrary, the import will surpass the last year’s level. The import is not expected in barley. The wheat production fell, and the harvest expectancy especially in Russia is seriously below the last year’s production; thus, we can see higher prices in bread wheat, and the flat trend experienced in the last couple of years is expected to turn into a bumpy trend.80402

 GÜLFEM EREN
Chairperson of HUBUDER

 Together with developments in the grain market as Turkey enters into new harvest period, it is useful to look into what would be the effect of devaluation experienced recently. When we examine the grain production in Turkey, it is predicted that the production would be at the same level of the last year since the late rain is believed to be positively affected the productivity although the wheat cultivation area is reduced seven percent for durum wheat, three percent for bread wheat, and four percent in total.

However, it turned out that the productivity is below than expected except the Central Anatolia, and it is predicted that the wheat production in the 2018/19 period will be below than the last year. In barley, because of increase in the planting by three percent, the production will be higher than the last year. Although it is early to predict, the corn production, which was 5.9 million tons officially, will fall a bit.

In order to limit the food inflation, the government prevented a price hike last year by allowing the Turkish Grain Board (TMO) to make the import of barley, wheat, and corn; however, while the interest rate rose excessively, merchants and industrialists, who stocked production, felt frustration as the sale price did not go high enough to match the interest rate.

Therefore, the relevant sector will not be eager to stock cereals in the new yield period, and it is expected that TMO will be forced to buy the large part of production. The fact that intervention purchasing prices rose twelve percent, that is higher than expected, due to the incoming election confirm such expectation on TMO.

However, the grain prices particularly durum wheat and barley in Turkey can compete against international prices due to the foreign exchange rate although no one knows whether this exchange rate is permanent. Thus, the Turkish Grain Board will not assume a bigger role as expected as the wheat and barley will met with high demand particularly by those who use these productions as raw material given that the exchange rate does not change.

When we look at the corn production, since the growth of feed sector reached ten percent annually and the production cannot meet the demand, it is considered to zero the customs tax to meet the market’s demand during May and June. But, this expectation was not materialized because of the early election. Instead, TMO launched a tender to import 200,000 ton of corns to meet the short term demand. Even if this import is carried out, the sector does not have stock, and the corn harvest starts later than others. Thus, the feed factories and integrated plants will buy coarse wheat.

As a consequence, even though TMO will buy the excess supply, the private sector will play a more active role than expected on the ground that the exchange rate stays at current level. The current picture will have positive effect on pasta and semolina exports as the price of durum wheat stays below than the international market. The devaluation will not contribute the flour export at the same level because the price of bread wheat in the local market is a bit higher than the international market based on US dollar.

If we look at the grain production in the world, the International Grain Council says that world wheat production of 758.2 million tons last year will be reduced to 742.3 million tons in 2018/19 season while 740.3 million tons of consumption will increase to 745.5 million tons. What we need to be aware of here is that Russia’s wheat production, which was 84.9 million tons last year, will decline to 74.5 million tons in 2018/19 season.

However, if we add the outstanding stocks, Russia, which has the first place in world wheat exports in 2017/18 season, is expected to export 37 million tons of wheat in the coming period while this figure was 39.2 million tons last season. When we look at the developments in the climate conditions, it is thought that wheat production in the world can be further reduced in the coming days.

The fact that Russia has the number one place at the wheat export and the price advantage will positively affect Turkey because of proximity. Russia has entered into new markets to in order to sell the outstanding stock, and thus the share of Turkey and Egypt, the traditional buyers of Russian wheat, decreased in percent; therefore, it is beneficial to note that the effect of import demand by Turkey is decreased on Russian wheat price.

The corn production around the world is projected to rise from 1,044.4 million tons in 2017/18 season to 1,054.9 million tons in 2018/19, and consumption will increase from 1,074.4 million tons to 1,097.9 million tons. It is estimated that production will fall in the US and EU while it will rise in Argentina, Brazil, Ukraine and China.

When we combine all data, the results are as follows:

 

  • There will no deceleration at the import of wheat and corn during 2018/19 harvest period in Turkey; on the contrary, the import will surpass the last year’s level.
  • The import is not expected in barley.
  • The wheat production fell, and the harvest expectancy especially in Russia is seriously below the last year’s production; thus, we can see higher prices in bread wheat, and the flat trend experienced in the last couple of years is expected to turn into a bumpy trend.

The sector, who contributed to the balance in the supply and demand through buying the part of production during the harvest to meet the demand later on, is discouraged to stock production as the merchants face with high interest rate, and merchants and industrialists cannot benefit from the interest rate incentive just like farmers.

It is important to protect the role of private sector in the market in order for the system to work effectively as the play field of private sector is reduced as a result of the government’s decision to amend the customs tax instead of allowing TMO to make import in a bid to intervene the prices to limit the food inflation.

 

We also suggest you to read our previous article titled "Four Horsemen of the Apocalypse and Death of Dumuzid".

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