Prices will follow a rather downward trend. Weather conditions are favorable worldwide, Jaime Nolan Miralles, analyst with financial services firm INTL FCStone, told ZF.
“Romania will do what it knows how to do best, that is export in the first two quarters of the new season (July-December 2014 i.e.).”
Romania will harvest 7.4 million tons of wheat, the same as last year, according to a report of the European Commission published two days ago. This means it will have 3.6 million tons available for export, 10% fewer than in the 2013/2014 season.
Most European countries, the US, Russia and Ukraine will have good harvests so the top four producers will have 10% higher wheat stocks at the end of the 2014/2015 season, which is putting pressure on prices.
The Russia-Ukraine situation will further compound the pressure on the Romanian wheat price.
News from Kiev shows farmers are affected by the depreciation of the Ukraine currency against the dollar, which means they will be looking for cash in July and August to pay the suppliers that sold them fertilizers and seeds in the spring.
The amount of wheat exported by Russia and Ukraine will dictate the price trend in the Black Sea area considering the two countries will put 22 million tons of wheat on the market, while Romania 5.5 times less.
Romania, Russia and Ukraine were the biggest suppliers of Egypt, world’s largest wheat importer, in the 2013/2014 season.
Last season, 86% of Romania’s wheat earmarked for export was sold in July-December, while France, for instance, sold 50% of its wheat in each half of the season. Prices were 20% higher in the spring than in the summer and fall of 2013.
This strategy is because the market liquidity is determined by multinational traders using Black Sea region to hedge against the international market risks, and because Romanian farmers sell quickly after harvesting to get cash to pay their debts.
Traders have already arranged forward contracts and the price of the new wheat in the Black Sea harbors stands at $270/ton (a little less than EUR200) for delivery in the first few weeks after harvesting. The price is slightly higher than at the beginning of the 2013/2014 season, but tends to go down in the summer.
Jordan, one of the markets for Romanian wheat in the last two seasons, ordered 100,000 tons for September at a $313 price C&F (cost & freight), according to Reuters. The wheat comes from Europe and sources say a trader in Romania will be delivering it.
The final export price for the Romanian wheat is indicative of the prices farmers will get. The difference between farm gate and export prices stands at about $53 to $55, and includes shipping, store and trader profit among others.
This means farmers get $258 to $260 per ton or RON800 to RON850 per ton depending on quality, quantity, farm position and logistics. At a yield of 5 tons per hectare, a farmer will collect RON4,000, which means 50% gross profit margin.
On the other hand, Romania’s President Traian Basescu on Thursday said that last year’s wheat price was a ‘disgrace’ and farmer associations should establish their own traders to end reliance on multinational traders.
“It’s not acceptable that we should depend on some people who have no interest in serving the Romanian agriculture. They look after their own interests, they pay you 0.65 lei per kilo, take it or leave it, you’ve got no storage space anyway, no transportation, no agricultural machinery, you’ve only got that land they despise,” President Basescu told a conference organized by LAPAR, the largest local farmer organization.
President Basescu said it is essential that farmers start their own traders to sell their harvest, especially grain, and added that his suggestion would be for farmers to establish two or three such farmer-owned companies.
“It’s unacceptable for a country that is fourth or fifth in Europe by agricultural potential to not have Romanian companies looking for markets and ensure sale of production at a good price,” Basescu said.
His statements came nine months after calling grain traders a ‘cartel’. The largest multinational grain traders on the local market are Cargill, Toepfer, Ameropa, Nidera, Glencore and Bunge.
(English version by Loredana Fratila-Cristescu)