Black Sea wheat – same product, two thirds the price

AUSTRALIA will have to contend with rival wheat producers that can provide much the same product but at two thirds the cost.

That was the stark message delivered by analysts specialising in the Black Sea region at last week's Australian Grains Industry Conference (AGIC).

UkrAgroConsult founder and director general Sergey Feofilov said the average cost of production for wheat in Ukraine was only around 65 per cent that in Australia, while in Russia that figure fell even further, to 60pc.

S&P Global Platts head of Asia-Pacific agriculture Andrei Agapi had further sobering news when he said that Asian importers were becoming increasingly comfortable with Black Sea grain, after previously having concerns about the supply chain and quality assurance.

Mr Feofilov said the next major step forward for cropping in the region was improving modern technology, such as machinery.

"Farm sector financing will be important, how can the modern technology be financed?" he questioned.

However, he said there were positives in terms of access to capital in the form of relative stability in both the Ukrainian and Russian governments and a lowering of interest rates, leading to more investment from growers.

Retail interest rates throughout the Black Sea region are much higher than in Australia, with Ukraine currently sitting at around 17 per cent.

Part of the big improvement in the Black Sea has been the transition from small scale peasant holdings to large corporate agriculture.

Mr Feofilov said in Russia now over a million hectares was cropped by large scale corporate farmers.

Seasonally, Mr Feofilov said the region's seemingly never-ending bull run was set to continue, with solid yields again likely this year, in spite of some potential issues with the Russian crop.

UkrAgroConsult said Ukraine was on track to produce a record 70 million tonnes of grain this year, including 24.7 million tonnes of wheat, around the long-term average production of Australia.

And the quality profile is improving.

"There is less feed wheat and more milling wheat," Mr Feofilov said.

This is bad news for Australia, with our leading customer for wheat exports, Indonesia, buying more wheat from the region.

"Black Sea dominance is coming, coming very much at the expense of Australia," Mr Agapi said.

"It comes very much at the expense of Australia."

He said Argentina was also eating into Australia's market share in Indonesia, but not to the same extent as Russia and Ukraine, as exports from Argentina were concentrated over a tight period.

With Black Sea wheat some $A24 a tonne below ASW quality wheat into Indonesia at present, Mr Agapi said the south-east Asian nation would continue to source the cheaper grain.

And Black Sea wheat is flowing even further afield, with the Philippines, another major buyer of Aussie wheat, also buying wheat from Russia and Ukraine last year in response to a lack of supply from Australia.

farmweekly.com.au