Vice-President of Gazprombank Daria Snitko on the correction of wheat prices
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The decline in wheat prices on world markets has been going on for about a year, and the main reason is the high export supply of grain. These are the features of economic cycles.
When quotations for wheat updated historical highs, in many regions of the world, attracted by high prices, agricultural producers increased their acreage. In 2022, Russia received a record gross wheat harvest – more than 104 million tons, which, of course, affected the global balance and led to an increase in stocks. And today, an increase in the gross harvest of wheat, according to the first estimates, is already predicted in many regions of the world, including India, one of the three world producers, the EU countries and neighboring Kazakhstan.
Another question is how low the current level of quotations looks when compared with other historical periods. According to the Center for Price Indices of Gazprombank, which started calculating the price index for Russian wheat on the basis of FOB Novorossiysk, at the end of May the average price of Russian wheat was at the level of $240 per ton. In 2018, Russian wheat cost an average of $216 per ton, in 2019 – $213 per ton. And in the period from 2015 to 2020, prices for Russian milling wheat were constantly in the range of $200-250 per ton.
On the one hand, today’s correction of world prices is expected and the level corresponds to long-term trends. But, of course, since 2019, agricultural producers, both in Russia and in all other countries of the world, have significantly increased the cost of growing grain. In particular, even Rosstat data suggests that the cost of agriculture has increased by 15% on average since 2021 per unit of output.
In the context of such a price correction, it is normal to expect a reduction in planting of crops. This year, according to the Ministry of Agriculture, the area under wheat in Russia will not decrease. But last year’s harvest, which turned out to be a record due to the weather, will not be repeated. Most experts estimate the wheat harvest at 78-84 million tons, which is nevertheless higher than the long-term average. Definitely, in 2024 we can expect a decrease in areas, but most likely the main reduction will be in other countries – from the USA and Canada to Australia.
Past cycles of declining global food quotations continued for quite a long time. The price correction, which began in 2008 with the global financial crisis, lasted two years and was interrupted by a poor harvest in the Black Sea region in 2010. After 2012, when the reduction in the gross wheat harvest in Russia caused an increase in prices in the world, the correction continued for four years. It is likely that in the long term, wheat prices may fall below current levels, but remain above $200 per ton, unless global shocks occur, such as a massive drought in a particular region.
Of course, in proportion to the fall in prices, the export earnings of the Russian agro-industrial complex will decrease, which in 2022 reached a record $41.6 billion. But in any case, the profitability in the grain complex will decrease. And this will require an increase in the cultivation of other crops by agricultural producers, and the search for new export directions, and an increase in the share of processed products in exports, for example, flour and products of the starch industry.
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