Panic-stricken world grain market wreaks havoc on Lithuanian wheat sector

  • 2010-09-15
  • By Linas Jegelevicius

FARM TROUBLES: Romas Majauskas says farmers who sold forward contracts for wheat at low prices are now missing out on high market prices.

KLAIPEDA - The past summer’s scorching sun has brought much joy to heat-loving vacationers, but has caused much sorrow to wheat farmers. Bakers are hinting that they are going to increase bread prices, though they still bake it from last year’s harvest. Romas Majauskas, president of Lithuania’s Grain Growers Association, describes the current situation in the sector as “complicated. Lithuanian farmers have threshed wheat approximately 30-40 percent less this fall, and that is very alarming,” he asserts. According to him, the harvest is poor not only due to the past sweltering heat wave, but also due to an unusually cold past winter. “Many hectares were too frozen to support the vitality in wheat sprouts. So what happened, they just died,” Majauskas pointed out to The Baltic Times.

Contrary to the popular belief that heat is necessary for grain to ripen, according to Majauskas, the scorching sun has affected the crop in a devastating way. “The heat has hastened the process of crop maturity; therefore, we see a weird thing in most of the spikes, as they usually have two or three rows of normally developed grain. However, the one in the tip contains very tiny, undeveloped seeds,” the representative of the association remarked. He claims that the harvest has suffered most in the middle part of the country.

The Ministry of Agriculture forecasts that this year’s crop harvest will make up 3.3 million tons, which is a 15 percent drop from the previous year. However, Majauskas emphasizes, last year’s crop harvest of 3.8 million tons was a record-high for the last dozen or so years. Eurostat, the EU Statistics Department, puts the forecast for this year’s grain harvest at 293.5 million tons, which is a 2 percent fall compared with last year. The agonizing drought in Russia, experts agree, and the successive Russian government’s ban on local grain export, have shaken up the global market, sending ripples to Lithuanian as well. However, the misfortunes in Russia, a major Lithuanian wheat importer, seemingly will not affect Lithuanian wheat growers as much as was expected previously. “Due to the natural disasters, the wheat export prices have already risen strongly – from 380 - 460 litas (133.30 euros) per ton of extra class wheat in 2009, to over 700 litas this year. Before, the foreign grain market was very hard to penetrate. However, this year it is not the case – everyone is asking for grain,” Majauskas revealed.

Since, in previous years, the Lithuanian crop output usually surpassed the domestic demand, many local wheat growers seeking harvest sale guarantees have signed advance wheat sale agreements, under which they have obligated themselves to moderate their wheat sale prices. “With the wheat prices skyrocketing, they have been put in a very miserable situation, as they are forced to sell their harvest for as little as 250 litas per ton, though the market price hovers at 600 - 700 litas,” Majauskas maintained. However, he is convinced that the price will not go up any more. “While the wheat was out there, no one could tell how much grain will be poured in the grain storage. However, when the harvest started, everybody began to speak that it is not that bad as had been predicted. We all have to deal with the devastating consequences of the panic in the market, which has been triggered by bad reports from all over the world, particularly from Russia and Ukraine, two major wheat exporters. Currently, I am seeing that many wheat buyers are already trying to slash the prices, or waiting for them to fall a bit,” Majauskas acknowledged.

Mindaugas Gedvilas, director of Amilina, a modern wet wheat mill in Panevezys, in the north, maintains that the excessively high wheat prices are due to “the world-wide panic,” not to the regular market fluctuations. “However, the prices are already going down. Despite the negative forecasts, the local farmers cannot complain too much about this year’s loss, for a few reasons. First, last year, during sowing, the fertilizer prices were extremely low. Secondly, though this year fertility is considerably worse, it will be compensated by 16 percent larger cropland. Therefore, the general harvest output should be around 1.9 - 2 million tons, which is similar to last year. However, no doubt, the quality of the year’s harvest will be significantly worse. Consequently, the increase in wheat prices will cause an increase in bread product prices. That is unavoidable,” Gedvilas concluded.

Dainius Pilkauskas, Linas Agro Commerce director for the Baltic countries, admits that this year’s harvest was “poor.” He said that “We have seen a 20-35 percent fall in the harvest output this year and an average 60 percent grain price increase compared to 2009. Though the situation is considerably worse than last year, the problems are not ‘unsolvable,’ as some are trying to depict.” He maintains that “All farmers deal with certain setbacks during a natural disaster, therefore, to alleviate the aftermaths, insurance companies should stretch out a hand to farmers.”

“Unfortunately, insurance policies are not thoroughly worked out in our country. Only a few insurance companies provide insurance services for crop growers, and those that do charge a lot. There should be some state approach in tackling the problem,” Pilkauskas is convinced. However, he cannot justify those farmers who do not comply with the agreement conditions regarding the wheat sales. “It is absolutely unjustifiable in any sense,” asserts the Linas Agro Commerce director.

Majauskas admitted that he himself has endured a considerable loss this season due to the discussed agreement. “However, being smart, I agreed to sell only 30 percent of my wheat harvest by fixed prices. Regretfully, many inexperienced farmers have pledged to sell all their harvest at the low prices,” Majauskas noticed.
Talmantas, Lithuania’s Farmer Union chairman, defends the farmers who are refusing to keep to the notorious agreements. “Those farmers are doomed to bankruptcy, as they have experienced heavy loss from very low grain procurement prices. Besides, they are threatened with fines for undelivered production. Our Union addressed the government, asking it to proclaim the past drought and successive torrents as force majeure – something that has hindered the farmers from executing their obligations,” Talmantas told The Baltic Times. However, the government is likely not to give in to this reasoning.

Edmundas Samauskas, a farmer from the Varena region, in the south, switched from cattle farming to crop growing a few years ago. “I followed in the footsteps of many local farmers. It is much more difficult to breed cattle than cultivate crops,” he admitted to The Baltic Times. However, he confesses, this season has been “very bad” for him. “The wheat harvest this year was half of last year, though the crop procurement price has doubled. However, it will not do me any good, as I have signed an agreement pledging to sell wheat for as little as 280 litas per ton this year. To my knowledge, many local farmers, uncertain about the market price fluctuations, have these kinds of agreements,” Samauskas admitted. He has threshed 2-3 tons of wheat per hectare this fall, a staggering 75 percent fall in comparison to last year. The farmer laments not only over the disadvantageous agreement, but also over not having insured the crop. “Though few insurance companies provide this kind of insurance, those that do, rip [us] off,” the farmer revealed.

In the small region of Varena, he says, there are a dozen crop buyers offering their services. “Wheat growers do not count much on competition, as all of them offer the same prices. We did count a lot on a Polish wheat procurement company in the area, but it has brought only disappointment to us, as it set exactly the same prices as local wheat traders,” Samauskas pointed out. He went on, adding, “There is no big difference to which buyer to sell the production. However, most local wheat growers prefer selling their harvest to Lithuanian crop buyers, as they come to your farm to pick up it and do not charge additionally for it. Besides, in this case, we can redeem value added tax, which is something impossible in dealing with a foreign wheat trader.”

The farmer does not think what the nearest future holds for him and his 60-hectare wheat farm. “Nothing depends on my will or wish. Lithuania itself is too tiny to affect considerably the processes in the grain market. However, having in mind that we are part of the European Union, I hope that it will help us alleviate the would-be consequences of such disasters, like the ones we had last summer,” the wheat grower said.