In recent days, the mass media have been publishing the opinion of some Kazakh flour millers about the need to impose a ban on the export of wheat and conduct an inventory of grain residues. Millers claim that their stocks of raw materials are running out, and they cannot buy wheat on the market at an acceptable price for millers.
It should be noted that prior to the introduction by the Government of the Russian Federation of a ban on the export of wheat to the EAEU countries (valid from March 15 to June 30, 2022), Kazakh millers actively imported Russian wheat, the price of which was lower than Kazakhstani. Imports of Russian wheat put pressure on domestic prices, reducing the income of Kazakh grain producers. During the season, the domestic price for Kazakh wheat was supported mainly due to the demand of grain traders. At first glance, this behavior of millers is quite market-oriented, and the desire to make money is also understandable. But, on the other hand, last season and for several months of the current season, our millers, actively importing Russian wheat, actually financed Russian grain production, providing their farmers with stable incomes. Despite this, some flour millers continue to accuse Kazakh wheat exporters of supporting the milling industry in Uzbekistan and Tajikistan. They propose to introduce a ban and export duties on wheat in Kazakhstan in order to export only flour and develop flour milling at the expense of Kazakh grain producers and exporters.
Also, the following theses of some flour millers, who are well versed in the market, but continue to promote them in the media, are distrustful:
FIRST THESIS. According to flour millers, if the price of wheat is 168 thousand tenge per ton (with delivery), the cost of a ton of flour will be 224 thousand tenge, and it will be sold on the domestic market for 235 thousand tenge.
When converting the cost of wheat into the cost of flour, millers adopted K = 0.75. For the sale of flour on the domestic market, the standard profit of millers in the amount of 4.9% was taken into account.
If we proceed from the calculation of flour millers, then when comparing the export price for wheat and the export price for flour, this K = 0.75 should remain.
But customs statistics show a different situation.
So, if in the 2020/21 season (July - June) the average export price for wheat was 220 US dollars, then taking into account K = 0.75 and a standard profit of 4.9%, the average export price for wheat flour should have been 305 USD. In fact, it amounted to 280 US dollars (-25 US dollars per ton).
In the 2021/22 season for the period July-January, the average export price for wheat was $259, taking into account K=0.75 and a standard profit of 4.9%, the average export price for wheat flour should be $362. In fact, it amounted to 325 US dollars (-37 US dollars per ton).
If we assume that the proceeds from the sale of bran cover the costs of millers for the production of flour, then it turns out that export operations bring Kazakh millers a net loss of 25-37 US dollars per ton.
For comparison, let's consider the efficiency of exports of Russian millers to Kazakhstan according to the customs statistics of the Russian Federation.
In the 2020/21 season (July-June), the average export price for Russian wheat to Kazakhstan amounted to $160, taking into account K=0.75 and a standard profit of 4.9%, the average export price for Russian wheat flour should be $223 .USA. In fact, it amounted to 345 US dollars (+122 US dollars per ton).
In the 2021/22 season for the period July-January, the average export price for Russian wheat to Kazakhstan amounted to $218, taking into account K=0.75 and a standard profit of 4.9%, the average export price for Russian wheat flour should be $305 .USA. In fact, it amounted to 384 US dollars (+79 US dollars per ton).
Thus, Russian millers, supplying flour to Kazakhstan, receive income from 79 to 122 US dollars per ton.
SECOND THESIS. Millers cannot buy wheat because it is not available. Stocks are running out, production is halting.
In the current season, a situation that is not typical for this period has developed, in which grain is mainly located in the warehouses of grain producers. Therefore, the stocks of grain traders and flour millers are significantly lower compared to the same period over the past 5 years. High prices at the start of the season allowed grain producers to pay off their creditors and keep some more grain volumes in the hope of selling it in the future at the highest possible price. The ban imposed by the Russian Government, as well as the announcement of the introduction of a quota for the export of wheat and flour in Kazakhstan, only instill confidence among grain producers in increasing the domestic price of wheat. In addition, the significant volatility of the exchange rate during the current month does not allow an equilibrium price to be established in the market.
Against the backdrop of a multiple increase in prices for resources before the sowing campaign, the desire of grain producers to partially compensate for it due to the high price of wheat is the same market behavior as the behavior of flour millers this season, who for a long time preferred Russian wheat to Kazakhstani.
Taking into account the introduction of export quotas, the stabilization of the domestic price of wheat will accelerate and the market will form a price that satisfies both sellers and buyers in the next 7-10 days.
THIRD THESIS. Millers conducted a survey of grain producers and question the data of national statistics on the availability of food wheat as of March 1, 2022.
The results of the survey conducted by the millers cannot be considered as the ultimate truth. The survey was conducted selectively, probably without any methodology and drawing up a protocol on the results of the survey. An alternative vision of millers about the remains of wheat as of March 1 has not been established.
The conclusions of the survey can be treated as the opinion of a single association, which may be erroneous. At the same time, flour millers' unjustified doubts are actively used to justify the introduction of a ban or duty. And the association most likely understands that in case of insolvency of their doubt, they will not bear any responsibility for the consequences of unreasonably imposed duties or a ban.
Based on the data of national statistics on the availability of food wheat as of March 1 in the amount of 5.9 million tons and export estimates for the period from March 1 to April 15 this year. wheat and flour in grain equivalent in the amount of 1.5 million tons, export quota for wheat and flour in the period from April 15 to June 15 in the amount of 1.4 million tons in grain equivalent, domestic consumption of milling wheat in April - September in 1 million tons and wheat stocks rolling over to the new season of 1 million tons, then from June 16 to August 31, 2022, the export potential of wheat and flour in grain equivalent may amount to an additional 1 million tons.
FOURTH THESIS. Millers are not competitive with traders using cash .
The activities of unscrupulous traders who create a competitive advantage for themselves by violating the law, including illegal import of grain, equally create difficulties for both millers and other grain traders. The current moratorium on inspections of small and medium-sized businesses creates favorable conditions for the development of the shadow grain market.
The proposals of the Kazakh Grain Union on the introduction of accounting for grain and products of its processing, aimed at combating the shadow turnover of grain, received support and will be considered by government agencies.