Rain hits Ukrainian wheat quality

Kiev/Moscow | Reuters — Ukraine is set to produce more wheat for animal feed and less higher grade bread-making grain this year, as rain damage has shifted the global exporter’s quality balance, traders and analysts said.

The altered backdrop is seen heaping further pressure on global prices, while also signalling tougher competition with other European countries producing more feed wheat.

New-crop wheat futures in Paris hit a four-year low last week as traders priced in the prospect of a glut of cheaper animal-feed wheat from this summer’s harvest after several European countries saw repeated rain.

Rain is now having a direct impact on Ukraine, which competes with Russia and France, the European Union’s largest wheat exporter, to supply North Africa and the Middle East, analysts said.

“We expect the share of feed wheat to rise to around 35 per cent (of the total wheat harvest) this year from 25-30 per cent last year,” said Mykola Vernytsky, head of Ukraine’s ProAgro consultancy. “This will increase the competition on the feed wheat market.”

More supplies of cheap wheat of low quality could dent foreign currency earnings to the country, already hit by conflict with pro-Russian rebels.

Ukraine late last month said it could lose 500,000-550,000 tonnes of grain, out of a projected 60 million-tonne harvest, because of fighting in the country’s east.

The country’s major exports are grains, metals and chemicals. In 2013 total exports were worth US$63.3 billion, of which $6.4 billion came in from grains supplies.

However, lower supplies of expensive milling wheat from Ukraine are also likely to ease competition with Russia, where the quality of wheat is high this year.

So far, 77.5 per cent of Russian wheat has been of milling quality and 22.5 per cent of feed quality, Russia’s Veterinary and Phytosanitary Surveillance Service (VPSS) said.

Ukraine, targeting a large wheat harvest for the second year in a row, had cropped around 90 per cent of the sown area as of Aug. 1, with the harvest at 19.4 million tonnes.

Financing snags

Farmers have faced financial difficulties arising from turmoil within the country, which led to the ousting earlier this year of president Viktor Yanukovich.

Some producers used lower quality plant protection products and other chemicals, according to Vernytsky at ProAgro, while traders and analysts noted a greater development of pests this year than last that degraded grain quality.

Lower overall wheat quality could make exports of Ukrainian wheat to Egypt, the world’s largest wheat importer, more complicated, traders said. Egypt became the biggest consumer of Ukrainian wheat last season with the import of 2.6 million tonnes.

“It is still unclear whether Ukrainian milling wheat will meet the requirements of Egypt,” Vernytsky at ProAgro said.

Traders said that Egypt was likely to stay among top export destinations this season but the major share of supply could go to private buyers instead of state General Authority for Supply Commodities (GASC).

Ukraine, which harvested around 21 million tonnes of wheat in 2013, exported a total of nine million tonnes in 2013-14 and 85 per cent of exported grain was milling quality, according to the Agriculture Ministry data.

— Pavel Polityuk and Polina Devitt report for Reuters from Kiev and Moscow respectively. Additional reporting for Reuters by Sarah McFarlane in London and Natalia Zinets in Kiev.

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