Grain Export Restrictions in Ukraine – The Need for Transparent Measures

Here’s an extract from open letter sent yesterday to the Ukraine administration from Jorge Zukoski from the American Chamber of Commerce in Ukraine. I think he agrees with me but I suspect his open letter holds more clout than my open blog.

“Most trading companies in Ukraine are now refusing to undertake any wheat purchases, and it can be assumed that this is the intention behind all these new measures. By threatening companies or even individual persons within the companies, or by introducing nontransparent measures and arbitrary new procedures without proper justification, the wheat exports out of Ukraine have practically stopped.

These actions by government agencies will hurt the Ukrainian State in the form of lost taxes and problems with foreign credits, failures for Ukrainian companies seeking IPOs and foreign partnerships, lost revenues for Ukrainian farmers etc. It should not be forgotten that the growing role of Ukraine as Eurasia’s grain basket is bringing substantial benefits to this country and supporting its international and investment profile. Unjustified and restrictive actions by Government authorities will damage the reputation of Ukraine as a reliable international trading partner and as a country in which to invest. “

Mr Left Hand, meet Mr Right Hand

For whatever reason the government didn’t discuss export restrictions at this mornings cabinet meeting with suggestions that they will stick it on the agenda for next week (here).

Sounds fishier than Billingsgate to me!

The WTO is surprisingly silent in all of this. So much so I decided to contact them and ask what they are doing in all of this? I will let you know if they respond.

In the old times

Oleg Antanov, the famous and talented soviet era aircraft designer was wrestling with a power to weight ratio problem on one of his planes. To reduce weight he decided to replace the four stroke back up generator with a lighter two stroke version.

However the guys in charge thought this was a great leap too far and commanded that he replace it with a three stroke engine and if that proved successful he could then progress on to the two stroke version.

I’m not sure why I felt the need to recount that true story right now.

Ukraine sends Scotland an early Christmas present

My mate George Green who farms in sunny Scotland sent me this.

“I've been reading your blog on how markets work and have to agree. I feel I should send your (Ukrainian) government a bunch of flowers; your yields are down and they've kept your prices down so our average yields (winter barley all cut about 9t/ha) are being met with high prices, whoopieeeee! Maybe a box of chocolates?”

A case of single malt might be more appropriate perhaps from the Isle of Illegal Embargo, it’s just off the west coast I believe.

It rains mainly on the steppe

Raining with temperatures down to a chilly 25 degrees this morning, bliss.

This rain will do wonders to re-charge the groundwater, encourage volunteers to chit, improve seedbed quality and get newly drilled crops up and away.

Tomorrow they decide…

…whether to introduce a grain export quota of 2.5MMT for period until late 2010 to ensure food security of the country. I think we can take it as given.

So that will be low yields coupled with low prices for the second year running. Abso-feckin-lutely brilliant!

My guess is the quota will be lifted some time after the local elections in October.

Pop goes the maize

We are seing significant areas of maize cut and carted presumably for forage as there are no cobs. I guess the decision was made to shift it off the field and get the land in to production with winter wheat. Other stuff still in the fields has visibly shrivelled to nothing.

How markets work

A shortage along the lines of say a widely reported poor harvest in a far off drought stricken country pushes the price of wheat up in other countries as demand is perceived to outstrip supply. Fair enough.

The price then drops as it is forecast to rain in said far off country even though all the harvest has been collected and the rain will do nothing to change the supply. Beats me.

The power of t’internet

A poll on Kyiv Post had 436 visitors answer the following question that now Russia has banned grain exports after its crops were scorched by a heat wave and wildfires Ukraine should;

a) follow with similar measures to protect its food security. 80.96%

b) resist export restrictions. 4.36%

c) adopt a cautious approach, with targeted export quotas that do not violate WTO rules. 14.68%

That’s the problem with the internet; any loon can get on it and voice an opinion.

Perhaps if they asked the question “Ukraine should follow with similar measures to protect its food security with the knock on effect that small to medium scale farmers will be put out of business and Ukraine will once again be seen as an unreliable export partner reducing future export opportunities thereby exacerbating the plight of farm and ancillary businesses delaying future economic development and prosperity for all” they might not have got such a skewed response.

Weather update

It’s hot and it has been for the last two months.

I don’t mean to bang on about this but everyone in Ukraine is desperate for a drop in temperature so they can get some sleep at night.

How hot has it been? A quick look at the average temperature chart shows how far it has deviated from the norm.

What are the consequences of all this heat? About 1t/ha off the wheat yield (on top of 1t from the winter); maize shrivelling up in front of your eyes, there’s going to be a big hole there; sunflower still hanging on in; soya starting to look stressed.

Forecast is for some cooling and showers later in the week. Glory be!

Wheat prices

My mate sold a load of wheat last week for 1,500UAH (122GBP) and another mate sold some for 1,400UAH (114GBP). I did hear an unsubstantiated rumour of some going for 1,700UAH (138GBP).

Having said all that, right at this moment no one is buying any bread making grade wheat at all.

Buyers are unsure if they can export the stuff and are looking for a steer from the government (ha! see previous post) and I suspect some are waiting for a drop/collapse in the price. Which in my opinion isn’t likely to happen any time soon.

Start of the footie season

Nice and safe territory, no chance of upsetting any customs official/police/political leaders with this one.

Chelski get off to a rip roaring start sticking six past West Brom. Evertons new pink strip didn’t do them any favours with a goalkeeper error gifting Blackburn a win.

Another goalkeeping error this time at Anfield saw the Gunners grab a last minute draw against Liverpool.

“Customs brings action against grain traders” or “Unofficial grain embargo starts”

I can’t make my mind up but four grain trading companies are being investigated for trying to export grain out of Ukraine as lower grade wheat.

35,000MT has been found at fault with a further 95,000MT sitting in nine vessels awaiting results of examinations that will take three to four days.

I don’t think I will comment anymore on this, it’s getting a bit too heavy.

Old Greg

I see that the UK bakery chain Greggs is reporting a loss in profits because of the high wheat prices.

I reckon they are just using the current situation as a cover to poor performance. This rally has only been going on for five weeks, surely Greggs who have 1,400 outlets must have planned for this sort of thing and forward purchased basic ingredients for bakery stuff?

Give ‘em bread and circus

I keep hearing fairly substantial rumours that the government will be imposing export restrictions on wheat despite IMF/WTO rules.

There are local elections in October and I guess the government wants to score some cheap populist votes by keep bread prices down.

Scorchio

It's still cracking the flags with temperatures in the mid to high 30's and no sign of any respite anytime soon.

We start drilling oilseed rape next week.

Seedbeds will be bone dry but that doesn't worry me, I've grown loads of rape in these conditions, the seed just sits there until it does rain when it absolutely shoot out of the ground. The trick is not to be tempted to sow it deep in the vain hope of trying to find non existent moisture. Better to be too shallow and wait for rain than too deep and achieving patchy emergence.

I’m going for low seed rates this year and will be aiming for 50ppm from the start and will stop drilling by the 15th September regardless. Anything after this date always does pants.

Radioactivity

You’ve probably heard the news about tinder dry conditions in Russia and Ukraine and the resultant wild fires and as I look out my window it certainly looks hazy out there.

What you probably haven’t heard is that some of the fires are in the Chernobyl exclusion zone and that the smoke might be radioactive. Great!

Prices

Prices continue to remain buoyant although it looks like we might have reached the ceiling which will bring the local prices down a smidge.

No sign of an outright export ban yet and probably unlikely in light of the recent IMF loan. But that’s not to say local bureaucrats will make things easy for us.

Weather and harvest update

All our wheat is now in and the rest of Ukraine is nearly done.

Preliminary figures are suggesting a 25% drop in yields caused by a combination of higher than average levels of winterkill and very high temperatures over the last three weeks.

This hot weather - and believe me it’s a scorcher - is starting to knock maize with reports of crops suffering quite badly. Sunflowers are ripening faster than normal and this will also mean a yield reduction. Soya isn't too bad at the moment but could obviously do with a drink.

Weather forecasts are suggesting the hot spell will continue with some local showers to give brief relief.

If in doubt cover both sides

I stopped reading newspapers a few years back mainly because I decided that reading the opinion of the unelected about the unknown by the unknowledgeable was an increasingly pointless and fruitless exercise.

Two articles today in the otherwise excellent Agrimoney kind of illustrate this point of view;

Wheat rally cools as analysts flag huge stockpiles
Opinion: wheat's rally may yet have some puff left

What's it to be chaps?

More than one way to skin a cat

Officially the Ukraine national government is saying they will not put export restrictions in place; to comply with WTO rules they aren’t allowed to.

However regional government is tasked with ensuring food security and can put in other measures to make it difficult to sell and transport grain locally thereby restricting the export of grain by other means. Sneaky.

I am about sell some wheat today so I will see what restrictions have been put in place.

At the moment I have some interested buyers who are offering 1,550UAH/128GBP for milling grade but I am also hearing that there are some other quality criteria that might mean that our milling wheat is suddenly "no longer suitable for milling”.

I will let you know if this turns out to be the case.

Just say no kids

The vice PM, Viktor Slauta said that the government does not plan on limiting grain exports. Well done laddy; let’s hope he keeps to that plan.

Russia announced they are restricting grain exports and wish partners in crime Kazakhstan and Belarus to follow suit.

Mr Putin said "I think it is advisable to introduce a temporary ban on the export from Russia of grain and other agriculture products made from grain".

Like vodka you mean? Don’t expect a shortage of Stolichnaya anytime soon.

I'm brilliant me

There you go, I was right.

Wheat prices are closing the gap as I write.

Just been quoted 1,650UAH (132GBP) for one metric tonne of milling grade wheat.

Latest prices

Currently being quoted up to 1,550UAH per MT for milling wheat, that's about 124 Great British Pounds to you and me.

Latest London price is 174GBP so we should expect the local price to lift further as it usually lags by about 20% which would mean a local price of around 1,750UAH or 140GBP on those figures.

A rally or a realignement?

The current London feed wheat price is £150 per MT. Too much say traders; not enough say I.

If you look at the last twelve months the price does indeed look like a spike.

However if you take it in context with the last twenty years of prices which have shown a downward trend you could argue that this is a realignment rather than a spike.

If you take 1990 as a base price of £106 and add say 2% for inflation every year then by 2010 wheat would be £158.

Should we be paying more for our food?

Rain & temperature data update

A quick shufftie at the latest temperature and rain figures for central Ukraine show how hot and wet it has been.

Weather, harvest & planting update update

Yep, that's right, planting update! Oilseed rape planting will start from next week.

It's obviously very dry and seedbeds are difficult to achieve but to ensure the whole crop is planted before the latest safe sowing date which is the second week in September in Ukraine planting needs to start pretty much about now.

Still very hot and dry, combines working flat out.

Grape harvest set for a bumper cop

On the upside – there always is an upside you just have to look hard enough – all this hot weather in Ukraine has boosted grape quality.

The vice president of the Association of Grape Growers and Wine Makers of Ukraine, said "the hot, sunny summer is conducive to the formation of a large quantity of sugars in the grapes" and "in general, the quality of the grape harvest this year should be high.”

Ukraine may gather 300,000MT of grapes this year.

Cheers, hic…

Ukraine shoots itself in the foot yet again

Assuming the reason behind latest suggested export restrictions is to ensure the price of bread doesn’t rise and ignoring that it probably contravenes WTO rules not to mention IMF loan conditions you have to question the rationale behind this current piece of protectionist policy.

The most likely outcome will be that small Ukraine farm business failing to capitalise on the current market rally will once again have little working capital to invest in quality seed, fertilisers and sprays not to mention machinery come planting time.

The hand to mouth existence that typifies small Ukrainian farm business will continue on for yet another year.

Nice one lads!

Wheat prices

Last day of my hols, heading back to Ukraine in the morning.

I was on a Suffolk beach this week running along the sand and taking in the fresh air thinking "what is that large golf ball like construction off in the distance?"

Sizewell B nuclear reactor is what it was. I was hoping for the chance to de-radiate by getting out of Ukraine for a week.

I see wheat prices have gone through the roof. We are being quoted 1,400UAH (177USD/111GBP/134EUR) which is a tad off what markets are reporting so I think we will hold out for a little longer before we sell any significant quantities.

I have also heard that Ukraine will be setting export quotas for wheat from next week which is not so good.