Many grain traders are in trouble because of the “futures” contracts they concluded a few months ago, when no one could have expected such market movements.
While cereal producers may suddenly consider this year extremely financially successful, some exporters from Serbia are already at a loss due to the record growth of prices on world stock exchanges.
As we find out, the health crisis brought the most surprises to corn exporters. According to the information from the association “Zita Srbije”, they will have the most damage due to the so-called futures contracts that they concluded a few months ago, when even the most influential analysts could not expect such movements on the market.
In the last report, the product exchange in Novi Sad recorded a record increase in the price of corn this season. Contracts were concluded in the range of 20 to 21 cents per kilogram without VAT. Compared to the previous week, corn was 9.55 percent more expensive, while compared to the same week in 2019, the price was higher by 36 percent.
At the beginning of this year, when no one could predict the economic consequences of Covid-19, the Ministry of Agriculture published a price forecast for the ten most important agricultural products in Serbia. The average estimated price for corn at that time was 16 cents per kilogram (plus, minus 10 percent), so it is clear how much the analysts’ expectations were exceeded and how much uncertainty the pandemic brought to the market.
– As for wheat, the situation is quite clear. There were not many forward contracts, very few, and that was realized. The problem arose with corn, because we have a lot of futures contracts at low prices – Vukosav Sakovic, director of the association “Zita Srbije”, says for Politika.
As he explains, those exporters sold the cereals in advance and agreed on the price with the delivery deadline in the determined period.
– If you agreed in May that you would deliver 1,000 tons of corn to a foreign buyer in October for 120 euros, that is a contract that is subject to international law. No one will be able to avoid fines there, although some now, when the prices are drastically higher, refuse to deliver the goods – says our interlocutor.
This situation, he adds, creates certain problems, especially for those companies that respect contracts. He says that “all this is a trade that carries certain risks due to wrong estimates” and asks what would have happened if the situation had been reversed and that corn had dropped to 100 euros per ton at this time.
Sakovic believes that, unfortunately, because of this, there will certainly be “many lawsuits, certain fractures, shortcomings and losses”.
According to him, the largest exporters of corn in the Black Sea region are Ukrainians, who export about 30 million tons, Romanians, between five and six million, while Serbia exports three million tons of this grain.
Although the crisis due to the pandemic and the accumulation of surpluses is evident, which affected the growth of prices, he points out that this situation on the corn market was primarily sponsored by Romanians. They allegedly tried to suspend corn deliveries at the expense of drought in part of their territory. As he says, of course, no one admits this to them, and it will be discussed in the international organization of grain traders.
– Romania does not currently supply corn, they have created a shortage on the market. Big buyers hurried to buy from us, the price jumped and sellers are reluctant to sell it and that is now a problem – emphasizes the director of the association “Zita Srbije”.
In the analysis of SIDEV from January this year, Serbia has significantly increased the production of corn in the last 15 years, and in 2018 it was the 16th world exporter. Analysts state that the global crisis in the prices of agricultural products essentially started with corn, so that the great demand for this product merged due to high oil prices, which created the demand for ethanol, with several consecutive worse production years. The average price of corn in 2019 was 128 euros per ton, and the last five 134 euros per ton, Politika reports.
