STEADY HANDS: Ramunas Karbauskis keeps an eye on financial traders in following grain price movements.
KLAIPEDA - Lithuanian farmers harvest their crop by day and browse the Internet at night, trying to anticipate oil and fertilizer prices on the global markets. The fluctuations have lately been insignificant, though.
The farmers, wary of the havoc in the grain market last year due to the drought in Russia and the Russian government’s ban on grain exports, are not hurrying to sell their production, as they expect a hike in prices.
This is exactly what happened last year when, with the ban in Russia in effect, wheat purchase prices in Lithuania went spiraling up, from 350-400 litas per ton of extra class wheat before the ban, to over 700 litas (202 euros) with it in effect.
Over the first three weeks of August, grain buyers and grain-processing companies have already bought up a bit over 240,000 tons of grain and nearly 12,000 tons of rapeseed, 48.4 percent more, and 75 percent less, respectively, from last year.
“This year’s harvest is not the best, but it has definitely been better for wheat. Despite the adverse conditions last winter, when many crops froze, most of the wheat managed to survive the chilling temperatures. Rapeseed plants, alas, have been severely damaged,” Saulius Stirna, vice-chairman of Lithuania’s Farmer Association (LFA), said to The Baltic Times.
Zigmantas Aleksandravicius, a large crop farmer in Kupiskis region, says that the start of August was extremely favorable for grain ripening. “No rain, much dry sunlight and I have tons of extra class grain. My harvest time is over, as only the summer rapeseed is left on the fields,” he said rejoicing to a local newspaper.
According to Information Network of Lithuania’s Agriculture and Food, by Aug. 19, nearly 60 percent of all grain had been harvested. It is slightly less than last year. As for rapeseed crops, 11.4 percent of the harvest has been collected, a staggering 36 percent decline from last year.
Among other grain, rye harvesting sits on top, with 75.2 percent of the harvest already in grain storage. Barley follows it up with 60 percent of its harvest to have been stored already.
Generally, compared to 2010’s mid-July-late-August period, grain sales are higher by more than 48.4 percent this year. “The grain buying intensity could have been even better if not for the downpours pestering all farmers throughout all August,” notes Stirna.
When it comes to grain buying prices, they are promising - depending on the segment - 17-62 percent larger levels, making it around 700 litas per ton of I-class wheat, 613 litas for I-class barley and 491 litas for I-class oats.
The prices are significantly higher than those last year, which averaged 450 litas per ton of I-class wheat and 325 litas for barley.
“This year’s market trends, mostly depending on the stability of the world grain market and oil and fertilizer prices, seem to be in favor of the Lithuanian wheat exporters,” the LFA vice-chairman noted. He stresses, however, that the relevant good prospects for the exporters can be easily shaken up by a shake-up in Russia.
“The Lithuanian market may not respond so quickly to the other adverse factors as it does to the market changes in Russia. Russia edges us out on the lower price of grain; however, our wheat quality is considered to be better than Russia’s, that is where we prevail, in the high quality-oriented Egyptian or Saudi Arabian markets,” Stirna emphasized.
Grain cultivators, enjoying the relevantly good harvest this year, are sluggish in selling their yield, expecting higher grain prices. Meanwhile, the grain buyers are not in a hurry to buy up the crop, hoping the prices will go down.
“The cat-and-mouse game is a characteristic feature of this year, the result of the turmoil in the market last year. It is getting harder and harder to predict the most favorable prices. If several years ago harvests, nature conditions and, particularly, demand influenced purchase prices, today the speculation in the financial markets plays the crucial role,” the grain market expert maintains.
Only those farmers who are locked in on prices, set in advance agreements among grain buyers and cultivators, have no choice but to abide by the agreement obligations.
The lock-in prices still stir much dispute, and even confusion, among Lithuanian grain growers. The agreements, following the example of Western farmers, are meant to assure grain growers that their production will be bought up at agreed, fixed rates, regardless of any shake-ups in the market. The agreements may be attractive during calm grain-growing seasons; however, last year, with the doubling in price within a couple of months, the locked-in farmers bit their nails in frustration, missing out on the higher prices.
“With the wheat prices skyrocketing, the farmers were put in a very miserable situation, forced to sell their harvest for as little as 250 litas per ton, though the market price hovered at 700 litas,” Stirna maintained. Many just simply terminated the agreements, preferring to pay fines.
Because of that, this year has yielded nearly half of last year’s lock-in price agreements. “Last year, the prices in the advance agreements were unfavorable to the farmers. Therefore, many of them refused to follow them, selling their production at higher prices. The lock-in prices are a lot better this year, even surpassing the market prices,” Stirna noted.
Jonas Talmantas, the LFA chairman, calls this grain season “optimistic,” emphasizing the extreme good quality of grain and better prices than in the beginning of last year. “I expect the purchase prices to go up. However, the quality of yet-to-be-harvested grain can be worsened by torrential rains that soak the plants,” Talmantas cautioned. “If this happens, the grain will be good only for fodder, not for export,” he added.
Lithuanian grain buyers also rejoice over the grain quality. “This year the wheat harvest has been one of the best ever. Most farmers have already harvested their winter wheat, while summer wheat can still be out there. If the rains stop, their quality should be quite good,” Mindaugas Gedvilas, director of Amilina, said.
He also notices that farmers are not in a hurry to sell their yield this year. “Some uncertainty lingers. It is caused by the whopping grain price differences last year and considerable fluctuations, particularly in the extra wheat segment, this summer. Many farmers expect that the current prices will go up,” Gedvilas asserted to Valstietis, a farming newspaper.
Talmantas agrees: “In recent years, the farmers who kept their grain in barns till spring gained. This year, the crop growers tend to follow the same tactics, as many of them bring their yield to grain storage, instead of selling it. I am convinced that the purchase prices of very good quality grain will go up at least 100 litas per ton.”
Both leaders of the association concur that the prices this year will be defined not as much by objective reasons - weather conditions, the scope of yield and demand - as much as by various speculation in the financial markets.
Ramunas Karbauskis, Agro-Concern Group, one of the biggest of its kind in the country, emphasizes the importance of the stability of the financial markets. “The prices will be definitely determined by the situation in the financial markets. If the double-dip financial crisis expands throughout the world, it makes no sense to expect high prices in the grain market. If, joining the efforts, the world avoids a double-dip, the grain prices should stabilize, or even go up. Therefore, the farmers today hinge on not only the weather conditions, but also on the stability of the financial markets and speculation in it,” Karbauskis maintained.
It is estimated that 1.8 million tons of wheat will be threshed this year, nearly double the country’s needs, which are approximately 850,000 tons. Approximately 1 million tons of wheat will go for export markets.