Report Highlights:

Soybean area is projected to grow. Sunflowerseed area will likely remain stable while rapeseed area will retract. Excess crush capacity will stimulate more crush for soybeans and rapeseed, and further boost exports of oil and meal for those crops from Ukraine.

Executive Summary:

Overall, the oilseed planted area in Ukraine in marketing year (MY) 2016/17 is forecast to increase due to the expansion of soybean plantings (up eight percent, reaching 2.3 million hectares (mln ha) compared to 2.1 mln ha in MY2015/16). The expected increase of soybean area is based on the stable profitability of this crop for farmers. For the purpose of this report, the term “profitability" means the ratio between variable costs and sales of producers for different crops reported by the State Statistic Service of Ukraine (SSSU).

It should be also noted that for crop rotation is not a significant limiting factor for soybean area, especially in contrast to sunflowers, for which area has remained relatively stable during the last five years. Under these circumstances for MY2016/17 sunflowerseed area is forecast to remain at the level of 5.2 mln ha, which is comparable to MY2015/16.

MY2016/17 rapeseed production area is forecast to slide down to 640 thousand ha, which is 6.5 percent below compared planted area for MY2015/16 due to high rates of expected winterkill. This crop continues to lose favor by the local farmers as its export as well as domestic price is still strongly tied to decreasing global oil prices.

According to official data, soybeans and sunflowerseed (SF) were the two major oilseed crops in Ukraine in 2014, which maintained relatively strong profitability. Sunflowerseed was the most profitable crop in 2015. It should be noted that the increased profitability for all major crops in 2014 and 2015 is largely attributed to significant devaluation of the national currency (refer to Macroeconomic Impact section for more details).

Profitability and Area Planted under Main Agricultural Crops in Ukraine (thousand hectares, %, Calendar Years)

1995

2000

2007

2008

2009

2010

2011

2012

2013

2014

2015

Grains& Pulses Area

14,152

13,646

15,115

15,636

15,837

15,090

15,724

15,449

16,210

14,800

14,728

Grains& Pulses Prof.

86%

65%

29%

16%

7%

14%

26%

15%

2%

26%

43%

Soybean Area

25

65

671

559

644

1,076

1,134

1,476

1,370

1,806

2,147

Soybean Prof.

-

-

-

1%

34%

16%

24%

23%

33%

35%

38%

Sunflower Area

2,020

2,943

3,604

4,306

4,232

4,572

4,739

5,194

5,051

5,257

4,965

Sunflower Seed Prof.

171%

52%

76%

18%

41%

65%

57%

46%

28%

37%

80%

Rapeseed Area

49

214

891

1,412

1,060

907

870

566

1,017

882

684

Rapeseed Prof.

-

-

-

51%

24%

27%

32%

21%

9%

29%

44%

Sugar Beets Area

1,475

856

610

380

322

501

532

458

280

331

239

Sugar Beets Prof.

31%

6%

-11%

7%

37%

17%

37%

16%

3%

18%

27%

It is anticipated that agricultural crop production in 2016 will be impacted by the following factors:

  • the national economy is still experiencing aftershocks of economic instability stemming back to the end of 2013;
  • local currency (Hryvna - UAH) continues its devaluation: almost 70% value was lost since beginning of 2015 and over 300 percent since beginning 2013 (refer to section Macroeconomic Impact);
  • continued political instability in the country;
  • further increase of UAH-denominated costs of agricultural inputs, including fuel, seed, fertilizer and pesticide chemicals-- a significant share of which are traditionally imported;
  • intermediary financing for agricultural production is only available for the short term (one to three months at exorbitantly high interest rates) and long-term credit resources are prohibitive in terms of costs to producers.

The above-mentioned factors are deterministic to Ukraine's farmers who must reduce production costs for the 2016 harvest. Producers are trying to adapt to this new business environment. Fertilizer and chemical applications to the 2016 crop can be expected on the level of 2015. Some producers report choosing non-branded products which are lower in price and quality. Also, since seed costs constitute for some crops over 30 percent of the input expenses, agricultural producers will be using lower cost seeds and give preference to domestically produced seeds over the imported ones. Under these conditions, average crop yields are not expected to reach record high levels and are expected to demonstrate significantly lower performance under the stressful weather conditions. However, the export oriented nature of agricultural commodity production in Ukraine, especially in the oilseeds and grains sectors, will allow local producers to benefit from the inflow of foreign currency as a result of sales to world markets.

According to industry insiders, total oilseed crush capacity in Ukraine at the beginning of 2016 reached 16.5 MMT. That could be expanded up to 17 MMT by the end of the year due to construction of new facilities, as well as modernization of existing ones that could allow a larger threshold and variety of oilseeds to be crushed at higher speeds, improved output quality, etc. In addition, a few new transshipment facilities are planned to enter into operation in Ukraine in the near term, which would create even stronger stimulus for farmers to opt for production of oilseeds, as competition between importers and/or crushers would translate into more competitive domestic prices.

Oilseed meal consumption has been gradually increasing in Ukraine in the last five years due to strong demand from expanding industrial poultry and animal production in the country. However due to continued economic recession inside the country, as well as the break of trade ties with traditional export markets for products of animal origin in ex-USSR countries, further growth of feed consumption in the country is slowing. This will likely stimulate larger volumes of oilseed meal exports out of the country.

Strong consumer demand in the European Union (EU) for Ukraine's oilseeds meal is expected to continue, while the Middle East is gaining importance as a significant export destination. Rapeseed and soybean oil exports from Ukraine are split between the EU and East and Southeast Asian countries, while sunflowerseed oil exports are distributed evenly between European, Asian and Middle East markets.

Since beginning of 2016 the New Tax Code came into force, which envisages reduced support for agricultural producers. This would impact farmers' profitability and force them to seek for additional measures intended to restore their profitability.

Macroeconomic Impact

Ukraine's present political and economic crisis has led to a significant devaluation in the local currency (Hryvna – UAH) and a number of trade-related problems associated with the devaluation's inflationary tail-end effect. The National Bank of Ukraine (NBU) for years sought monetary policies aimed at maintaining stable exchange rates. The target currency for this approach was the U.S. dollar, despite the fact that trade with U.S. was not significant compared to trade with the Russian Federation before 2013, or the current trade with the EU. The policy of a fixed exchange rate limits trade activity. Trade imbalances have depleted the country's foreign currency reserves, which may lead to periodic currency crises that outweigh the positive impact of a stable exchange rate. Significant political and economic shocks undermined UAH stability in 2014, resulting in an abrupt devaluation that is still continuing into the beginning of 2016.

Total currency devaluation in 2014 reached almost 100 percent-- undermining imports and boosting exports. Another surge came in February 2015, resulting in further devaluation of the national currency by another 45 percent by the end of 2015. This trend is expected to continue into 2016 under the assumption that there will be no radical changes in macroeconomic policy by the Government of Ukraine.

Although local farmers, as well as chemical and seed importers, have adjusted their business models to the constantly fluctuating exchange rates. Measures by the National Bank of Ukraine intended to restrict access to foreign currency required to import products could be still considered an impediment for optimum flow of imported inputs.

According to the available numbers the market has adjusted and input use for MY2016/17 is expected to stay roughly on the same level as the previous MY, but at a much lower level compared to MY2013/14. Import levels for sunflower and soybean seeds suggest that these crops are expected to remain the most profitable and reliable of all cash crops for farmers.

Oilseed, Sunflowerseed

Production:

Production of sunflowerseed in Ukraine in MY2016/17 is forecast to reach 11 MMT, just 1.5 a percent lower compared to the 11.2 MMT produced in MY2015/16.

This projection for production volume is based on the assumption that sunflower planted area in MY2016/17 will remain similar to that of the previous season. Sunflower areas in Ukraine remained relatively stable within the last five years, varying between slightly below 5 mln ha (2013) up to almost 5.3 mln ha (2014). It could be argued that production area for this crop has reached its optimum level, dictated by crop rotation patterns, and area will likely remain stable barring drastic changes in global demand for this crop from domestic processors as well as changes in demand for its derivative products.

FAS-Kyiv forecasts sunflowerseed yields in MY2016/17 will remain above the five-year average, but slightly below last year's official country yield of 2.17 MT/ha, as producers are not increasing their costs for imported agricultural inputs and would rely on low-cost imported sunflower seeds as they did last year. The forecasted yield is subject to further revisions depending on actual weather conditions during the growth period.

According to industry representatives, sunflowerseed production volumes could be increased only through use of more advanced hybrids and improved farming technologies, which might not be an option for farmers in times of economic instability, and subsequent cost-saving mechanisms in place for their businesses. At the same time, given the unstable economic situation, some producers will likely make decisions to expand production areas at the expense of grains, in addition to replacement of expected winterkill areas for other winter crops.

Seed imports during September 2016 – December 2016 for spring plantings remained significantly lower compared to the previous seasons, which might be the evidence that farmers are still in the process of making planting decisions based on crop price fluctuations. During this period, imports of U.S. sunflower seeds remained stable, which allowed them to regain control of over half of the market for imported seeds. At the same time, imports from Turkey shrunk by over 63 percent while total imports from the EU decreased by 60 percent. These numbers demonstrate only the initial positions of exporters on the Ukrainian market as major sunflowerseed imports usually take place between December-March.

During the past few seasons FAS-Kyiv has been adjusting sunflower production quantities reported annually by the State Statistics Service of Ukraine to produce estimates that, in USDA's view, better reflect the true situation of the industry in Ukraine. Ukraine's historic sunflower oil exports were one of the most significant pieces of data used to support these production estimate calculations. Other data like domestic sunflower oil consumption (which has been relatively steady year over year) as well as industry data and other sources, were used to estimate the most reasonable sunflower seed, oil and meal production estimates.

Consumption:

Almost all sunflowerseed produced in Ukraine is crushed domestically, which has been the case over the last decade since the export duties for sunflowerseed have been introduced in 1999. A small share of sunflowerseed is consumed raw for food and by the confectionary industry. Crush and consumption statistics for the last few seasons were revised by FAS-Kyiv to correspond with officially reported sunflower oil production and exports and to better reflect industry trends.

The sunflower seed crush for MY2016/17 is forecast to reach 10.8 MMT, which is comparable to the 11MMT estimated for MY2015/16. The only factor that might significantly lower the crush numbers for Ukraine is a significant decrease and/or total abolishment of the 10 percent export duty for sunflower seeds through suggested changes in legislation.

For MY2016/17 local consumption of sunflower is expected to follow the usual trend unless Ukraine changes its sunflowerseed export tariffs.

Trade:

Combination of export tariffs and excess domestic crushing capacity makes Ukraine a marginal sunflowerseed exporter. This is confirmed by decreased exports from 280 thousand MT of sunflower seed in MY2011/12 down to 45 thousand MT in MY2014/15. Based on this trend, sunflowerseed exports are forecast to remain around 50 thousand MT both for MY2016/17 and MY2015/16. This dynamics could be reversed only in case of significant lowering and/or abolishment of existing export duties (discussed in the Consumption Section above).

Sunflower seed exports were slightly above 45 thousand MT in MY2014/15, which is approximately 35 percent less compared to exports in the previous MY. The EU remained the largest export destination for sunflower seed, buying over 31 thousand MT, or around 70 percent of total exports from Ukraine in MY2014/15. Export volumes for September-December 2015 indicate that the EU bought 14.2 thousand MT, retaining its status as the popular destination for Ukrainian oilseeds.

Oilseed, Sunflowerseed

2014/2015

2015/2016

2016/2017

Market Begin Year

Sep 2014

Sep 2015

Sep 2016

Ukraine

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Planted

0

5257

0

5156

0

5200

Area Harvested

5300

5212

5235

5156

0

5200

Beginning Stocks

412

412

157

102

0

73

Production

10200

10200

11300

11165

0

11000

MY Imports

15

15

10

16

0

15

MY Imp. from U.S.

5

4

5

6

0

6

MY Imp. from EU

0

4

0

4

0

4

Total Supply

10627

10627

11467

11283

0

11088

MY Exports

45

45

70

50

0

50

MY Exp. to EU

40

31

20

25

0

30

Crush

10250

10320

11050

11000

0

10800

Food Use Dom. Cons.

50

50

50

50

0

50

Feed Waste Dom. Cons.

125

110

125

110

0

110

Total Dom. Cons.

10425

10480

11225

11160

0

10960

Ending Stocks

157

102

172

73

0

78

Total Distribution

10627

10627

11467

11283

0

11088

(1000 HA), (1000 MT)

Oilseed, Soybean

Production:

The soybean planted area in Ukraine in MY2016/17 is forecast to increase to 2.3 mln ha, about 7 percent higher compared to the 2.1 mln ha planted in MY2015/16. Production is projected to reach roughly 4.6 MMT in MY2016/17 under the assumption of expected yields at the average level for five previous years. This would result in a 17 percent increase compared to the 3.9 MMT produced in MY2015/16 when yields were lower-than-average due to unfavorable weather conditions. The following factors favor an expansion of soybean production in Ukraine:

  • Good returns on soybean production compared to returns from sunflowerseed production;
  • Strong demand from exporters as well as excess domestic crushing capacity that ensure sustainable farm-gate prices;
  • Low costs for Ukraine's soybean exports due to geographic proximity to its major consumers: the EU, Turkey and Egypt;
  • Favorable soil moisture and other climatic conditions for the production of soybeans in Ukraine (mainly north-central regions).

Soybean profit margins for agricultural producers in Ukraine in the last six years remained positive, and for the last three years they significantly surpassed that of rapeseed and grains. According to SSC data in 2014, soybeans have become the second most profitable crop after sunflowers and the same level of profitability might be expected for 2015. This makes the crop more attractive to local farmers since production costs and technology are not the most expensive compared to other crops (e.g. sunflower).

Production of Genetically Engineered (GE) crops in Ukraine is still not allowed since none have passed the official registration and approval process. However, industry rumors still indicate that Roundup Ready soybeans continue to be produced in the country. The share of this variety in the past was rumored to vary somewhere between 50 up to 80 percent of Ukraine's total soybean production. GE varieties might continue to be more attractive for agricultural producers for MY2016/17 as the costs of agrochemicals have increased (refer to section Macroeconomic Impact) and the premiums for supplying non-GE products are not very significant.

Consumption:

Soybean domestic consumption in MY2016/17 is forecast to reach 1.7MMT, a 6.7 percent increase compared to MY2015/16 estimates. A significant share of soybeans produced in Ukraine – over 20 percent – will likely be used by the domestic crushing industry. Part of this quantity ends up as soybean oil and meal for exports and the rest is consumed domestically as full-fat or regular soybean meal. Soybean consumption for feed and waste for MY2015/16 is expected to increase up to 730 thousand MT, and to another 740 thousand MT for MY2016/17, under the assumption that the increased production areas under this crop will require more seeds that are produced domestically.

Trade:

Over half of all soybeans produced in Ukraine are traditionally exported. In MY2016/17 exports are forecast to reach 2.9 MMT, a 26 percent increase compared to the 2.3 MMT estimated for MY2015/16.

Over MY2014/15, as well as the first half of MY2015/16, domestic farmers enjoyed relatively stable prices for soybeans with a few hikes associated solely with volatility of the national currency. Also, local prices were sometimes higher than export (FOB) prices. Such a trend might be the indication of tight competition between exporters and the local feed industry. To satisfy local feed demand, Ukraine imported small quantities of soybean meal in the summer of 2014, but that may not occur for MY2015/16. The domestic poultry industry, which is currently one of the main domestic feed consumers, is not expected to show significant growth in the coming year, thus FAS Kyiv took more conservative approach towards growth of domestic soybean crush compared to the official USDA numbers.

For MY2014/15 total soybean exports reached a new record – 2.4 MMT, 92 percent higher compared to the previous MY. Among the largest importers were Turkey, which purchased 920 thousand MT and the EU, which imported 527 thousand MT. For September-December 2015, soybean exports were mainly designated both to EU – 170 thousand MT and Middle East – over 645 thousand MT where the major buyer was Turkey, which imported over 460 thousand MT. Those dynamics suggest that for MY2015/16, the major markets for Ukrainian soybeans will likely remain unchanged compared to the previous MY.

Export volumes for MY2015/16 are estimated to reach lower levels – 2.3 MMT, which is a result of expected stable demand from crush while lower-than-expected yield kept volume of production comparable to the previous MY despite the expanded production areas under this crop. For MY2016/17 exports are forecasted to reach 2.9MMT based on an assumption of expanded areas of production and average growth of demand from crush.

Soybean imports were minimal and constituted mostly of planting seeds.

Oilseed, Soybean

2014/2015

2015/2016

2016/2017

Market Begin Year

Sep 2014

Sep 2015

Sep 2016

Ukraine

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Planted

1800

1806

2100

2147

0

2300

Area Harvested

1800

1793

2125

2123

0

2300

Beginning Stocks

265

265

176

152

0

143

Production

3900

3882

3925

3918

0

4600

MY Imports

4

4

0

4

0

4

MY Imp. from U.S.

0

0

0

0

0

0

MY Imp. from EU

0

0

0

0

0

0

Total Supply

4169

4151

4101

4074

0

4747

MY Exports

2422

2422

2200

2300

0

2900

MY Exp. to EU

850

527

800

900

0

900

Crush

870

876

950

900

0

1000

Food Use Dom. Cons.

1

1

1

1

0

1

Feed Waste Dom. Cons.

700

700

725

730

0

740

Total Dom. Cons.

1571

1577

1676

1631

0

1741

Ending Stocks

176

152

225

143

0

106

Total Distribution

4169

4151

4101

4074

0

4747

(1000 HA),(1000 MT)

Oilseed, Rapeseed

Production:

According to a report by the SSSU in 2016, farmers have already planted around 655 thousand ha of winter rapeseed. Traditionally, over 90 percent of all rapeseed sown in Ukraine is winter rape, thus these areas would form the foundations for future harvest. Given that autumn weather conditions featured low levels of soil moisture while winter conditions failed to produce sufficient levels of snow cover in some regions, expected winterkill could reach 20-30 percent depending on spring weather conditions. Based on this information, FAS Kyiv forecasts MY2017/16 production area for rapeseed shrink to 640 thousand ha -- over 6.5 percent below the area planted in MY2015/16, under the assumption that farmers will plant average amounts of spring rapeseed over the winterkill areas. However, it is possible that the winterkill areas under this crop could be replanted with crops like sunflower and soybeans that offer better profit margins for farmers.

Production of rapeseed based on the expected production area and average yields is forecast to reach slightly below 1.5 MMT for MY2016/17, which is around 15 percent lower compared to production volume in MY2015/16.

Consumption:

Domestic rapeseed crush (though still insignificant, but growing) is the only force competing with exports. Growth of overall oilseed crush capacity in Ukraine drives production and subsequent exports of rapeseed oil and meal. The rapeseed crush in MY2016/17 is forecast to reach 390 thousand MT, up by almost 11 percent compared to the estimated 350 thousand MT for MY2015/16.

Trade:

In MY2014/15, domestic rapeseed prices stabilized after a major drop in the second half of 2013 and early 2014, induced by collapsing world oil prices. This crop is extensively used for biofuel production, especially on the EU market.

In July-December 2015, Ukraine exported almost 1.3 MMT of rapeseed, 28 percent below the same period in 2014. This corresponds to the usual pattern when around 80 percent of sales occur in the first four to five months of the season.

The EU remains the largest customer for Ukraine's rapeseed, buying almost 1.3MMT in MY2014/15. It is expected to remain a top buyer in the new season as in July-December 2015 exports to this designation exceeded 1 MMT. In July- December 2015, rapeseed exports were also shipped to other traditional buyers: Pakistan – almost 136 thousand MT; United Arab Emirates – over 58 thousand MT; Bangladesh – almost 30 thousand MT.

For MY2016/17, rapeseed exports are forecast to reach only 1 MMT -- around 25 percent below the estimate for MY2015/16. This assessment is based on a combination of expected decrease in production volume together with a gradual increase of domestic crush.

Oilseed, Rapeseed

2014/2015

2015/2016

2016/2017

Market Begin Year

Jul 2014

Jul 2015

Jul 2016

Ukraine

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Planted

900

882

700

684

0

640

Area Harvested

880

865

675

671

0

640

Beginning Stocks

52

52

21

39

0

31

Production

2200

2239

1750

1741

0

1472

MY Imports

2

2

2

2

0

2

MY Imp. from U.S.

0

0

0

0

0

0

MY Imp. from EU

0

2

0

2

0

2

Total Supply

2254

2293

1773

1782

0

1505

MY Exports

1963

1963

1400

1400

0

1050

MY Exp. to EU

1500

1287

1100

1200

0

950

Crush

270

290

340

350

0

390

Food Use Dom. Cons.

0

0

0

0

0

0

Feed Waste Dom. Cons.

0

1

0

1

0

1

Total Dom. Cons.

270

291

340

351

0

391

Ending Stocks

21

39

33

31

0

64

Total Distribution

2254

2293

1773

1782

0

1505

(1000 HA),(1000 MT)

Oils

Production:

Production of sunflower oil has been increasing in Ukraine over the last decade fueled by growth in the production of sunflower seed from 3.5 MMT in 2000 to almost 5.2 MMT in MY2015/16. Ukraine has turned into the major world market supplier of sunflower oil and is set to remain in this position for the coming seasons. By the end of MY2015/16, sunflower oil production in the country is estimated to reach above 4.6 MMT -- 6 percent higher compared to MY2014/15 due to higher yields. And for the coming MY2016/17 sunflower oil production in Ukraine is forecast to slightly decrease to 4.5 MMT, under the assumption that there will be no significant changes in production areas, along with average level of yields expected.

Vegetable Oil Production, Consumption, and Trade in Ukraine, th MT

2005

2010

2011

2012

2013

2014

Production

1437

3101

3268

4067

3712

4926

incl. sunflower oil

1382

3030

3177

3939

3539

4661

- soybean oil

25

69

60

93

113

155

Imports

264

319

249

231

296

223

incl. palmoil

204

280

190

172

238

175

Exports

900

2850

2814

3742

3353

4578

incl. sunflower oil

852

2701

2683

3614

3209

4342

- soybean oil

8

46

38

58

82

122

Per Capita Consumption, kg/year

13.5

14.8

13.7

13.0

13.3

13.1

Source: State Statistics Service of Ukraine

Sunflower crush buildup in Ukraine has been driven by sunflower oil exports. This commodity has been providing Ukrainian producers unbeatable profits for almost a decade. With stable prices, sunflower seed and oil producers in Ukraine have made relatively good profits from these products compared to grains and sugar beet producers.

Total oilseed crush capacity in Ukraine at the beginning of 2016 reached 16.5 MMT. That could be expanded up to 17 MMT by the end of the year due to construction of new facilities (located in Odessa and Mykolaiv regions) as well as modernization of existing ones. This number could be between 1.1to 2.5MMT of increased crush capacity (estimates vary due the reasons discussed in the next paragraph) capable of processing soybeans, as well as 2MMT for rapeseed.

Sunflower oil production estimates were reviewed and changed for several preceding seasons. Undeclared sales of sunflower seed are said to exist in Ukraine, so underreporting of this oilseed and oil production is an issue every season. USDA relies mainly on official commodity export data, and on estimated domestic sunflower oil consumption, to revise its sunflower seed, oil, and meal production estimates.

Soybean oil production continues climbing in line with growing overall crop production -- peaked at 160 thousand MT in MY2014/15. For MY2016/17, it is forecast to reach 183 thousand MT -- over an 11-percent increase compared to the164 thousand MT estimated for MY2015/16. The rapid build-up of sunflower crushing facilities has caused underutilized capacities. Thus, the majority of newly-built processing facilities are capable of processing various oilseeds, including sunflower, soybean and rapeseed. This allows producers to switch between different crops depending on availability of the particular oilseed on the market. As a result, processors can keep their facilities running and decrease dependence on sunflower seed producers. The added flexibility has a positive impact on their profit margins.

The majority of soybean crushers worked with underutilized capacity due to lower demand on the domestic market for soybean meal, which is more expensive compared to sunflower meal. The potential growth of soybean crush is tightly interlinked with the processors' ability to sell soybean meal both to the domestic market and overseas consumers.

Rapeseed oil has become a new product of interest for Ukraine's crushers due to demand by the EU – for biofuel production; and Asian countries – for food. MY2014/15 rapeseed oil production reached 113 thousand MT, an 83-percent increase over volumes produced in MY2013/14. This is an indication that many large crushers in Ukraine are now able to process rapeseeds in their facilities, and thus included this product in their portfolio to ensure that capacities were not standing idle (usually soybean in the second part of the marketing year and rapeseed in summer). Rapeseed oil production in MY2016/17 is forecast to reach almost 152 thousand MT -- almost 11 percent higher compared to the 137 thousand MT estimated for MY2015/16.

Consumption:

Consumption of various vegetable oils in Ukraine has been quite constant over the years. The overall trend starting in 2010 is slightly downward. The slowly declining population is the main reason for the decreased use of oils in the food production industry. Another recent factor is the producers' inability to supply the Crimean Peninsula and zone of conflict in Donetsk and Lugansk regions.

This trend was especially visible for palm oil, which is used for production of vegetable oil and fats, and indirectly in the confectionary and food processing industries in Ukraine. The decreased consumption of these products by the domestic market, as well as the slash in exports to traditional markets in ex-USSR counties, and especially the Russian Federation, resulted in a major fall in domestic consumption of palm oil and triggered a subsequent cut of its imports to Ukraine.

Soybean and rapeseed oils have never been popular food products for Ukrainians, though sunflower oil traditionally is a staple food used in salads as well as for baking and frying purposes. Ukrainians are not used to consuming soybean or rapeseed oils for household food preparation. Thus, these oils are mostly destined for exports as value-added products, while soybean and rapeseed meal is fed to animals.

However, there is an observed increase in consumption of soybean and rapeseed in the last few years in the country, mainly coming from food processing and other industrial uses. This trend can be explained by the fact that these oils are now produced in Ukraine in larger quantities and have become available for domestic consumption at competitive prices.

Trade:

During September-December 2015 Ukraine exported about 1.45 MMT of sunflower oil -- almost 5 percent above the quantity exported for the same period of the previous year. In MY2014/15 Ukraine exported almost 3.9 MMT of sunflower oil.

Ukrainian sunflower oil is exported to over a hundred countries over the world. The EU, India, China, Egypt, Iran, and Turkey are the traditional top buyers, with India usually purchasing over 30 percent of annual sales from Ukraine. However, the share of China and other East and Southeast Asian countries has been on the rise in recent seasons and this trend is projected to stretch into the rest of MY2015/16.

Overall sunflower oil exports from Ukraine in MY2016/17 are forecast to reach 4 MMT, which is roughly on the level of 4.1 MMT estimated for MY2015/16, when exports are expected to peak, driven up by high sunflowerseed production.

In MY2014/15, Ukraine exported 136 thousand MT of soybean oil. China became the largest export destination and bought almost 56.6 thousand MT. Poland become the second leading destination, buying almost 43.4 thousand MT, while the EU as a whole bought almost 60 thousand tons. As of September-December 2015, the dynamics are changing and China has bought over 60 percent of total Ukrainian exports, amounting of 54 thousand MT, while the EU accounted only for 35 percent of total Ukrainian exports. During this period, African countries and Middle East were not importing significant volumes of Ukrainian product.

Ukraine is expected to continue exporting soybean oil to various destinations in the coming seasons, driven by growing soybean crush capacity as well as growing production areas under this crop-- stimulated by competitive prices offered to farmers by crushers that need to keep their capacities running. Under this assumption soybean oil exports are forecast to reach over 170 thousand MT in MY2016/17, which is over 13 percent higher compared to 150 thousand MT estimated for export in MY2015/16.

Ukraine's rapeseed oil exports grew significantly, from as little as 255 tons in MY2010/11 to over 111 thousand MT in MY2014/15. Almost 60 percent of this volume was exported to the EU, while the remaining 36 percent went to East and Southeast Asia -- mainly to China. Exports to the EU market are oriented more to biofuel production, while exports to Asian countries are intended to be used for human consumption. In July-December 2015 rapeseed oil export reached 126 thousand MT, 41 percent higher than the same period of 2014; and distribution of exports between the European and Asian markets remained roughly on the same level. For MY2016/17 Ukraine is forecast to export 145 thousand MT of rapeseed oil, 11 percent above the 130 thousand MT estimated for MY2015/16. This reflects the trend of increased use of rapeseed available on the market by crushers that need to keep their processing facilities working.

In MY2014/15, Ukraine has already imported 136 thousand MT of palm oil, 22 percent lower than the previous MY. This drop has been caused by a smaller market of processed products utilizing palm oil, as well as decreased volumes of exports of processed products containing palm oil to other countries like Moldova, Kazakhstan and Armenia. Imports of palm oil for MY2015/16 are expected to remain on the same level as in MY2014/15, under the assumption that the economic situation will not significantly deteriorate during 2016 and with a slight increase to 140 thousand MT for MY2016/17, due to expected gradual economic recovery pushing up demand for processed products.

Oil, Sunflowerseed

2014/2015

2015/2016

2016/2017

Market Begin Year

Sep 2014

Sep 2015

Sep 2016

Ukraine

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Crush

10250

10320

11050

11000

0

10800

Extr. Rate, 999.9999

0.422

0.42

0.422

0.42

0

0.42

Beginning Stocks

87

87

36

45

0

57

Production

4325

4334

4663

4620

0

4536

MY Imports

2

2

0

2

0

2

MY Imp. from U.S.

0

0

0

0

0

0

MY Imp. from EU

0

0

0

0

0

0

Total Supply

4414

4423

4699

4667

0

4595

MY Exports

3868

3868

4100

4100

0

4000

MY Exp. to EU

450

587

450

460

0

500

Industrial Dom. Cons.

30

30

30

30

0

30

Food Use Dom. Cons.

480

480

500

480

0

480

Feed Waste Dom. Cons.

0

0

0

0

0

0

Total Dom. Cons.

510

510

530

510

0

510

Ending Stocks

36

45

69

57

0

85

Total Distribution

4414

4423

4699

4667

0

4595

(1000 MT), (PERCENT)

Meal

Production:

Sunflowerseed meal will continue to be produced in large quantities in Ukraine as a byproduct of oil production. In addition, more soybean meal is expected to be produced due to an increase in soybean production in the country and in response to growth of overall crush capacity. Rapeseed meal production, though insignificant, is anticipated to grow in line with increased rapeseed oil production in Ukraine.

Consumption:

Oilseed meal in Ukraine is used for poultry and animal production and a large share of it also exported. Sunflower meal is a traditional feed component in Ukraine. Soybean meal has been gaining popularity in the country with the establishment of large industrial poultry production facilities.

Decreased poultry numbers in large industrial farms, as well as cost-cutting mechanisms in place for other animal producers in the face of a tighter economic situation in the country, has led to lower volumes of feed production and decreased domestic consumption of sunflower meal -- one of the most popular components in animal feed, as rapeseed is not actively used for feed manufacturing and soybeans are more expensive.

Soybean meal demand in the country is driven by large poultry production operations, which are currently decreasing production slightly due to the fall of domestic consumption (poultry numbers in agricultural enterprises dropped by around 8 percent by the end 2015 compared to the end of 2014). Livestock production in Ukraine is also substantial. In 2014, the State Statistical Committee reported about 7.4 million pigs and over 3.8 million head of cattle, including 2.3 million dairy cows (beef cow population is almost non-existent). The headcount for both swine and cattle decreased in 2014 compared to 2013. The ongoing political and economic crisis in Ukraine is expected to have an adverse impact on animal inventories as disposable incomes and animal protein consumption is decreasing.

Soybean meal made with MON 40-3-2 (Roundup Ready) soybeans are included in the Registry of Feed Sources, Deed Additives and Veterinary Drugs that Contain GMOs or Were Derived From GMOs (refer to the GOU Registry (in Ukrainian). According to the official document, this GE source of feed is temporarily allowed for use in Ukraine from July 23, 2013 until July 22, 2018.

Trade:

In MY2014/15 Ukraine supplied almost 3.4 MMT (over 62 percent) of its sunflower meal to the EU. The major share went to its traditional buyers – France (almost 642 thousand MT), Belarus (over 527 thousand MT), Poland (around 459 thousand MT) and Turkey (over 285 thousand MT). According to export data for September-December 2015, Ukraine exported over 1.3 MMT of sunflower meal, an 8 percent increase compared to the same period of 2014. The list of major importers is unchanged for the current season. Over this period, Ukrainian exports to Turkey grew by 14 percent and exports to France increased three times compared to September-December 2014.

For MY2015/16, sunflower meal exports from Ukraine are estimated to reach 3.9 MMT as domestic prices for this commodity have stabilized and exporters are continuing to actively supply this product to the EU market, as well growing exports to Middle East countries (mostly to Turkey and Israel). For MY2016/17, exports are forecast at 3.8 MMT, 2.6 percent below the estimate for MY2015/16 based on similar levels of sunflowerseed production for these MYs.

Ukraine's soybean meal exports are slowly growing in line with the expansion of domestic soybean crush volumes. Another factor behind the export growth is stabilization of demand by local poultry producers. That has led to significant decrease of soybean meal imports as well, because these shipments are brought into the country before the beginning of the marketing year when domestic stocks were depleted.

In MY2014/15, soybean meal exports reached 213 thousand MT. The majority of this volume was sold to the neighboring countries: Belarus, Turkey, Moldova, Georgia and Poland. In September-December 2015 these countries imported over 93 percent of the 96 thousand MT of total Ukrainian exports for this product. In comparison, these counties accounted for 91 percent of total imports in MY2014/15, which might be attributed to the change in dynamics of trade with the Russian Federation since the beginning of 2014. For MY2015/16, soybean meal exports are estimated to reach 250 thousand MT and forecast to grow by another 20 percent, up to 300 thousand MT for MY2016/17.

In MY2014/15 Ukraine exported over 133 thousand MT of rapeseed meal with 84 percent of exports traditionally designated to the EU. The rest was supplied to Israel, which was the second-largest destination importing over 18.4 thousand MT of this product. According to export data for September- December 2015, exports reached 151 thousand MT -- around 48 percent increase compared to the same period of 2014, while the EU and Israel remain two major export destinations. This trend is expected to extend through MY2015/16 with exports estimated to reach around 180 thousand MT. and by another 11 percent for MY2016/, forecast to reach up to 200 thousand MT.

Meal, Sunflowerseed

2014/2015

2015/2016

2016/2017

Market Begin Year

Sep 2014

Sep 2015

Sep 2016

Ukraine

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Crush

10250

10320

11050

11000

0

10800

Extr. Rate, 999.9999

0.418

0.414

0.4181

0.414

0

0.414

Beginning Stocks

405

405

576

563

0

517

Production

4285

4272

4620

4554

0

4471

MY Imports

0

0

0

0

0

0

MY Imp. from U.S.

0

0

0

0

0

0

MY Imp. from EU

0

0

0

0

0

0

Total Supply

4690

4677

5196

5117

0

4988

MY Exports

3394

3394

4100

3900

0

3800

MY Exp. to EU

2300

2121

2500

2500

0

2200

Industrial Dom. Cons.

0

0

0

0

0

0

Food Use Dom. Cons.

0

0

0

0

0

0

Feed Waste Dom. Cons.

720

720

700

700

0

700

Total Dom. Cons.

720

720

700

700

0

700

Ending Stocks

576

563

396

517

0

488

Total Distribution

4690

4677

5196

5117

0

4988

(1000 MT), (PERCENT)

Meal, Soybean

2014/2015

2015/2016

2016/2017

Market Begin Year

Sep 2014

Sep 2015

Sep 2016

Ukraine

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Crush

870

876

950

900

0

1000

Extr. Rate, 999.9999

0.7851

0.79

0.7842

0.79

0

0.784

Beginning Stocks

32

32

61

44

0

41

Production

683

692

745

711

0

784

MY Imports

2

2

0

1

0

2

MY Imp. from U.S.

0

0

0

0

0

0

MY Imp. from EU

0

0

0

0

0

0

Total Supply

717

726

806

756

0

827

MYExports

216

212

250

250

0

300

MY Exp. to EU

0

15

0

15

0

15

Industrial Dom. Cons.

0

0

0

0

0

0

Food Use Dom. Cons.

0

0

0

0

0

0

Feed Waste Dom. Cons.

440

470

470

465

0

470

Total Dom. Cons.

440

470

470

465

0

470

Ending Stocks

61

44

86

41

0

57

Total Distribution

717

726

806

756

0

827

(1000 MT),(PERCENT)

Policy:

Agricultural Policy in Ukraine with regard to oilseeds and oilseed products has not changed much over the last year. Some developments are being discussed at the time this report was written and others are pending implementation as follows.

The Government of Ukraine keeps in place its Resolution #164 that establishes guidelines for optimum crop rotations for various crops for different regions, including ones set for sunflowerseed (between 5 to 15 percent of total area) and rapeseed (between 3 to 10 percent of total area).

In January 2015, there was a draft law developed that intends to abolish the existing 16 percent export duty for sunflowerseed, beginning on the day the draft would be adopted. Agrarians in Ukraine have split in their opinion on the subject and some are lobbying the GoU to approve this law while others are opposed to it.

On one side, the development of a modern and extensive sunflower seed crushing industry have become possible in Ukraine in the late 90's – and early 2000's by introducing the export duty. Sunflower seed exports then became less attractive than sales in the domestic market. Sunflower seed crush increased significantly allowing domestic producers to benefit from sales of the value-added products. At present, some local businesses are interested in similar support for the domestic soybean crush development as a number of local oilseed crushers already have the capacity to process soybeans. However this initiative has become highly improbable since Ukraine signed the Deep and Comprehensive Trade Agreement with the EU.

According to UkrOilProm (oilseed crushers associations in Ukraine that represent over 90 percent of all oilseed processing plants in the country) total oilseed crush capacity in Ukraine at the beginning of 2016 reached 16.5 MMT. That could be expanded up to 17 MMT by the end of the year. This figure already exceeds the total sunflowerseed quantity typically produced in Ukraine. The majority of newly-built processing capacities are capable of processing various oilseeds including sunflower, soybean and rapeseed. This allows producers to switch between different crops depending on availability of particular oilseeds on the market. As a result, processors can keep their facilities running and decrease dependence on sunflower seed producers. That flexibility has a positive impact on their profit margins.

Since the beginning of 2016, the New Tax Code came into force. According to the amended rules for valued added tax (VAT) administration, agricultural producers involved in production of grains and oilseeds could accumulate only 15 percent of the positive balance between VAT payable and receivable on their accounts, while 85 percent of this sum should be paid back to the State Budget of Ukraine. It should be noted that in previous years agricultural producers were allowed to keep 100 percent of the abovementioned sum at their disposal. They are entitled to use these funds to cover their production costs, including purchase of inputs. This change would impact farmers' profitability and force them to apply additional cost-cutting measures intended to maintain their profitability.

Another draft law intends to introduce a complete ban of the usage of palm oil in production of foods. If passed, it could change the distribution of vegetable oil consumption on the domestic market and result in a complete shutdown of palm oil imports for food purposes to Ukraine. Under this scenario we could expect a slight decrease of total vegetable oil exports on the level 140 thousand MT to compensate for the palm oil imports.

Policy that remains in place in Ukraine is as follows.

Among the requirements that Ukraine accepted upon WTO accession in 2008 was a commitment to reduce export duties on oilseeds. Consequently, over the last several years, sunflowerseed export duties were cut down to their current level of ten percent. No additional reduction is required by the WTO.

Ukrainian legislation does not allow for the production of genetically engineered (GE) crops in the country. Also, the Ministry of Agricultural Policy and Food of Ukraine requires all planting seeds intended for import into the country to be tested for the presence of genetically modified organisms (GMO). In order to promote the country's image as a non-GE soybean supplier, the representative of the Ministry of Agricultural Policy and Food of Ukraine (MAPF) signed the Danube Soya Declaration in June 2015. This step did not have the immediate effect on the market, however it might be an indication that, in the long-term, Ukraine might follow the footsteps of the EU in a gradual opting out from production of biotech crops.

In April 2014, the EU enacted Regulation # 374/2014 providing unilateral reduction or elimination of Union customs duties on goods originating from Ukraine. In accordance with the Regulation, the import duties for a number of commodity positions have been decreased to zero, including: sunflowerseed oil (HS Code 1512), rapeseed oil (HS Code 1514) and soybean oil (HS 1507) from regular rates ranging between 3.2 - 9.6 percent. This measure should increase the competitiveness of Ukrainian oils on the EU Market.

Ukraine has been reinstated to the Generalized System of Preferences. This means that sunflowerseed meal originating from Ukraine has gained a competitive advantage in the U.S. market.

Ukraine streamlined its phytosanitary legislation through a set of norms intended to impose tighter deadlines for issuing quarantine certificates, ensuring public availability of information, introduction of risk assessment-based activities, and raising the level of responsibility for actions/inactivity by government officials. These amendments should potentially decrease logistics costs for a whole spectrum of products of plant origin exported from Ukraine.