Harvest in search of a buyer – Newspaper Kommersant No. 160 (7361) dated 09/01/2022
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A record harvest and inactive grain exports in 2022 have already led to a fall in domestic grain prices. In such an environment, farmers need adequate price indicators to quickly monitor the situation on the market. So, the Moscow Exchange launched trading in non-deliverable futures and options for wheat yesterday, but experts believe that the new indicator will not provide new data to the market, and doubt its representativeness: the only buyer of grain, to whose prices the base index is pegged, is the state exporter OZK-Trading , while there is no source of independent price information and a generally recognized grain quality system necessary for exchange trading in the Russian Federation.
A record grain harvest in the Russian Federation and not very active exports led to a drop in domestic grain prices. According to ProZerno, wheat exports in August 2022 from the Russian Federation outside the EAEU fell by 40% by August 2021, and at the end of August, prices on the domestic market fell to a minimum since the beginning of 2018 (see Kommersant from 30 August). This threatens to reduce the income of producers and the plans for the future sowing campaign – the cost of it, according to the head of the Russian Grain Union Arkady Zlochevsky, will increase by 40-50%.
Against the backdrop of overstocking of the market, farmers need to track the minimum price changes. The source of price data in such markets is traditionally stock trading. Attempts to organize grain auctions have been made for several years, but so far they have not brought much success. So, in December 2020, the Moscow Exchange launched a delivery futures for wheat, but it remains unpopular among farmers, now there are no open positions on it. Yesterday, Moscow Exchange launched a settled futures contract and margined options based on wheat prices. According to the Moscow Exchange, the main advantage of the new tool is the ability to earn money on changes in grain prices without being tied to supplies.
Experts, however, do not believe in the development of exchange trading in grain in the current configuration. On the first day, the volume of trading in the new instrument amounted to 3.5 million rubles, despite the fact that several large banks tried to enter it. Although the wheat index was approved by the Bank of Russia in June, Alexander Belozertsev, president of the Alexandra consulting company, draws attention to the fact that its formation takes place in the absence of competition – it is pegged to the prices of the auctions of the state exporter OZK Trading, which are held on the National Commodity Exchange (NTB ) once a day and intermittently, while the success of trading futures and options on the wheat index depends entirely on the quality of price data. Moreover, the prices of the state exporter are weakly tied to changes in the market situation, which is influenced not only by the ratio of supply and demand, but also by the cost of borrowed funds and the ruble exchange rate.
Andrey Sizov, director of Sovecon, in turn, agrees with this argument and, noting that the wheat index for delivery to Novorossiysk terminals was chosen correctly, states: without an independent market appraiser (like S&P Global or Platts) to increase transparency and trust, the instrument will not have a significant impact on the market. The problem, we note, is the lack of a system for confirming the quality of grain, which is critical for exchange trading.
Another problem is that the prices of the state grain trader do not reflect domestic prices in rubles, but are tied to the price of delivery to other countries for foreign currency, Arkady Zlochevsky, head of the RGU, complains. To hedge risks, farmers need price indices for each individual federal district (due to different prices), which will reflect domestic prices. However, in the current situation, this may be useful to the market: at record low purchase prices in the Central Federal District and Volga Federal District – 9-10 thousand rubles. per ton – yesterday the price of wheat at NTB with delivery to Novorossiysk amounted to 13.6 thousand rubles, and with an increase in the gap between export and domestic prices, the difference may well compensate for the cost of delivery to export ports.
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