Magazine: Which direction is the wheat market taking?

Unfortunately heavy rains hit the wheat in the fields at the worse time possible, just before harvest started, in many parts of the country. Wet weather seems to have done harm to wheat quality, but estimation is that the volume produced won’t be lower than last year at around 5 million tons. It is noteworthy that better quality wheat is harvested in the Transdanubian region than in the other half of the country. According to István Németh, grain market expert and managing director of Magro.hu, two years ago wheat was selling at HUF 60,000-70,000/ton but this year prices slipped below HUF 50,000/ton – in part because prices are reducing in the world market thanks to a record harvest on global level and also because a considerable quantities of cereal crops have been stockpiled earlier. Dr Zoltán Lakatos, president-CEO of Hajdú Gabona Zrt. told Trade magazin that in the last few years 65-70 percent of wheat harvested was of good milling quality but this year only 40 percent belongs to this category and the rest can only be used as animal feed. Mr Németh’s reckons that a new generation of farmers already has a global market attitude and opens towards several purchaser channels, trying to optimise selling. For instance in May-June Magro.hu received several orders from Europe, Africa and America. Mr Lakatos’ view is that market players will be forced to increase prices, partly because the sector is highly dependent on external financing and the domestic banking system wouldn’t tolerate it if farmers’ profit margin reduced further. It is good news that since the introduction of reverse taxation in 2012 companies committing VAT frauds have quit the wheat market. Ágota Kiss, head of Agricultural Services at SGS Hungária Kft. revealed to our magazine that their laboratory tests prove that the wheat harvested this year is of weaker quality than last year; what is more, the quality also varies greatly. The average gluten content of the whet SGS tested was 27-28 percent – last year it was 30.47 percent; protein content dropped from 11.8 percent to 11,09 percent. Ms Kiss opines that this year higher yield was achieved to the detriment of quality. She disapproves of the trend that farmers plant about 100 wheat varieties in Hungary while the European average is 10. Gabona Control (member of the Concordia group) also examined samples of this year’s wheat harvest and found that last year’s extra high falling number can be somewhat lower due to the rainy weather during harvest – we were informed by Andrea Major, the institute’s director. She also called attention to the fact that conclusive opinion on the quality of this year’s wheat can only be made early September. Quality control firms contacted by Trade magazin agreed that there are no food safety problems with this year’s harvest. The toxin level of samples tested is way below the authorised limit and just like in earlier years no fungal infection occurred. Zsófia Pótsa, general secretary of general secretary of the Hungarian Grain and Seed Association (MGTKSZ), told Trade magazine that this year there is a bigger difference between the prices of milling wheat and feed wheat – the price of the latter may stay lower for a while, reckons the general secretary. Chain debts cause big problems for the industry: the animal feed sector is practically livestock farming’s biggest lender due to the typically 90-day payment deadline. MGTKSZ’s estimation is that the feed industry keeps lending HUF 30-40 billion to livestock farmers because of this. Another problem is non-payment as 46 percent of crop and livestock farmers have already been in a situation at least once where the buyer didn’t pay for the goods delivered. Only the market leading feed manufacturers can cope with these negative trends, for instance Cargill Magyarország can do it because they have a diverse profile; at the same time animal farming enterprises such as the Bonafarm Group or Baromfi-Coop Kft. have their own feed mixing plants to offset negative effects.