Ukraine. Grain and Feed Update. Nov 2015 Nov. 2, 2015
The MY 2015/16 winter wheat crop is expected to reach 27.6 MMT, the largest crop since independence in 1990. Corn production is forecast to decrease to 22.7 MMT, over 20 percent below the previous MY. Barley production is expected to decrease to around 9 MMT, just 5 percent below the previous MY. Rye production is expected to fall to 365 thousand MT, over 23 percent decrease against the previous MY. Winter crops being planted for MY 2016/17 could be at risk due to unfavorable weather conditions and delayed planting.
Ukraine's 2015 harvest resulted in an estimated 26.8 million metric tons (MMT) of wheat, 8.5 MMT of barley, and 365 thousand MT of rye according to data by the Ministry of Agricultural Policy and Food (MAPF). (This data does not include information about crop harvested in Crimean Peninsula.) Compared with the 2014 crop, 2015 wheat production increased by 2.6 MMT, which makes it a record-breaking harvest, while both barley and rye production decreased by 571 thousand MT and 113 thousand MT respectively.
Ukraine's corn harvest is ongoing. According to the MAPF, as of October 20, 2015, Ukraine harvested approximately 13.5 MMT of corn from an estimated 63 percent of production area totaling 4.1 million hectares (M ha). Harvested corn area is 9 percent lower compared to the 2014 harvested area, and average yield is 2.7 percent lower. Low crop productivity could be attributed unfavorable late-summer and early-autumn drought conditions.
Based on decreased corn production areas and lower yields, FAS Kyiv has reduced its forecast for Ukraine's 2015 corn crop down to 22.8 MMT, which is 20 percent below 2014 production volume.
Ukrainian farmers are in the process of planting winter crops. As of October 20, 2015, winter wheat plantings totaled almost 5.1 M hectares, barley – 574 thousand hectares, and rye –140 thousand hectares, according to MAPF data. Low moisture content in the soil due to insufficient rains during the last few months caused farmers to fall behind optimum planting schedules. This has resulted in lower acreage planted under winter crops compared to the same date in 2014. Wheat and rye are down by around 13 percent, and barley is down by over 26 percent.
According to the reports by the Ukrainian Hydro Meteorological Center (UHMC), effective rains were seen only in Western and part of the Northern regions of Ukraine. The rest of the country remains affected by a continuous drought that has lasted up to 1.5-2.5 months in various regions. Topsoil was completely dry in Mykolaiv, Kherson, Zaporozhye, and in certain areas of Odessa, Donetsk, Kharkiv, Poltava and Kirovohrad regions.
This information is consistent with the MODIS Normalized Difference Vegetation Index (NDVI) anomaly image and could be considered an indicator of the unfavorable development conditions for winter crops. Comparison NDVI imagery for October 16-23, 2015 with the one for the same period of the previous year might lead to a conclusion that the current weather conditions are less favorable than last year in the steppe zone that is the major wheat producing area.
According to the opinion of UHMC's experts, producers have already missed optimum dates for planting winter crops even in the southern regions and some of them completely postponed planting. Such unfavorable weather conditions, unless soon mitigated by a warm autumn and winter with sufficient precipitation rates, could eventually lead to decreased crop output.
According to the estimates of MAPF, the planting of winter crops will continue until October 26-29, 2015. This gives farmers opportunities to extensively boost output, but greatly increases the risk for crop loss. If there is no significant change in climatic conditions, FAS Kyiv estimates lower wheat production for 2016. This assumption is based on the fact that usually around 95 percent of wheat output is comprised of winter wheat, which is currently at risk.
According to the data by the State Statistics Service of Ukraine (SSSU) in MY2014/15 wheat flour production in Ukraine decreased to 1.9 MMT and bread production fell down to 1.2 MMT; respectively by13.6 and 14.5 percent lower compared to the previous MY. Bread and subsequently flour production has been decreasing in Ukraine over the recent years along with the population decline and this process has been accelerated during the last few years due to temporally occupation territory of Crimean Peninsula and armed conflict in Donetsk and Lugansk areas.
For year 2014 SSSU reported decreased animal and poultry numbers, including: poultry and pigs populations slashed by around 7 percent, cattle – by 9 percent. According to its preliminary estimates these numbers could be down by the further 3-4 percent in 2015. Such trend would lead to decreased feed consumption by animal producers. Given the sharp fall of feed wheat prices in MY2014/15 and relatively stable higher corn prices for the same period (please see Trade section for more details) FAS Kyiv has sufficient grounds to believe that corn consumption for feed purposes will be decreased in MY2014/15 compared to the previous MY and this trend would follow into the MY2015/16.
According to the preliminary data reported by the MAPF, Ukraine exported approximately 5.5 MMT of wheat, 2.9 MMT of barley, and almost 1.5 MMT of corn from the beginning of July 2015, through October 1, 2015.
Official data from the State Fiscal Service of Ukraine indicates that in MY 2014/15 Ukraine exported:
- 4.5 MMT of barley (HS Code 1003); 80 percent increase compared to the previous MY;
- 10.9 MMT of wheat (HS Code 1001); a near 16 percent increase compared to the previous MY;
- Almost 22 thousand MT of rye (HS Code 1002); around a 57 percent reduction compared to the previous MY.
Corn exports (HS Code 1005) from October 2014 to July 2015 reached 19.2 MMT which is slightly below the pace of exports for the same period in the previous MY. Taking into account export data provided by MAPF, corn exports for MY2014/15 are estimated to be 19.6MMT, which are comparable MY2013/14 exports.
Significant devaluation of the national currency as well as a signed intergovernmental agreement with China allowed Ukraine to increase exports of grain processing products (mainly flour and uncooked pasta) to around 282 thousand MT in MY2014/15, 12 percent higher compared to the previous MY. Major volumes were designated to China, Israel, and North Korea. Moldova retained its status as a traditional customer, but its share shrunk from 23 percent of total Ukrainian exports in MY2012/13 to slightly above 11 percent in MY2014/15. According to industry insiders, shipments intended for China have actually been shipped to North Korea, making it a major destination for domestic processors.
The growth of flour exports might be a result of national processors' efforts to penetrate other destinations as their traditional markets among Customs Union member countries like Russia, Kazakhstan, Azerbaijan and Turkmenistan are gradually closing down for Ukrainian product.
Domestic wheat, corn and barley prices over the year followed the usual downward tendency with the new harvest. At the same time, producers are with dealing with significant price fluctuations induced by foreign currency exchange rate surges.
Wheat prices have dropped due to expectations of larger crops by other producers in the region (European Union and Russia) as well as a record-breaking harvest in Ukraine creating excessive domestic supply. The situation is forcing domestic farmers to refrain from selling large-scale batches of grain. Instead they prefer selling small batches intended to replenish their working capital and keep the major share of the stocks for sale when prices will grow again.
The estimates for milling wheat for MY2015/16 production volume vary from 50-53% (according to MAPF's estimates based on Ukrainian 1st-5th grade) to 40% (industry's estimate based on Ukrainian 1st-3rd grade). This suggests increased competition between wheat millers and traders for high-quality grain on the domestic market, which is impacting prices.
Corn prices stabilized after minor fluctuations in late August – early September 2015, caused by uncertainty regarding the future crop volume and quality. This encouraged active trade by commodity buyers who have indicated their willingness to purchase substandard corn that doesn't comply with the local quality standards, although at slightly discounted prices. In MY2015/16 domestic corn prices are likely remain stable or experience steady growth in long-term perspective following decreased worldwide corn production forecasted by FAS USDA.
Barley price after the harvest remains fairly stable, however at a somewhat low level, encouraging farmers to hold back their sales in expectation of better future prices.
According to the SSSU's data ending stocks for wheat were around 3.2 MMT for MY2014/15, 30 percent higher compared to the previous MY. This could be attributed to slightly higher crop as well as decreasing prices forcing farmers from active sales over the year.
For MY2014/15, ending corn stocks were almost 3.7 MMT, 25 percent below compared to the previous MY according to the SSSU's data. This may be attributed to relatively stable prices supported by steady exports.
MY2014/15 ending stocks both for barley were almost 1.5 MMT and rye were 86.2 thousand MT, both down by around 30 and 50 percent respectively compared to the previous MY according to the SSSU's data. Barley stocks have been depleted as the result stable prices supported by exports. Rye stocks were falling in line with ever-decreasing annual production volumes for this crop.
Production, Supply and Demand Data Statistics
MY2015/16 barley and rye production estimates are driven by higher crop productivity estimated by FAS Kyiv. As the result barley production is forecasted around 9 MMT and rye production is expected to reach 365 thousand MT, around 4 percent above the USDA official estimate for both of these crops.
MY2015/16 wheat production is forecast to increase to 27.6 MMT, about 2 percent above the USDA official estimate due to the larger production area estimated by FAS Kyiv.
MY2015/16 corn production is forecast to decrease to 22.8 MMT, about 9 percent below the USDA official estimate. FAS Kyiv forecast is based on lower crop productivity stemming from impact of unfavorable weather conditions and might be subject to further revision based on the actual climatic conditions at the time of harvest.
Please note that production, Supply and Demand Data Statistics for wheat and barley has been adjusted taking into account Crimean Peninsula estimates both in terms of areas and volumes of production.
MY 2015/16 corn exports are forecasted at the level of 14 MMT, which is over 17 percent below the USDA official estimate and goes in line with decreased production numbers expected by FAS Kyiv.
Conversely, MY 2015/16 wheat exports are forecast to increase to 16 MMT, which is a new record, over 6 above the USDA official estimate due to increased production forecasted by FAS Kyiv.
Taking into account Ukraine's substantial international trade in flour and wheat products, wheat export and import numbers have been adjusted by multiplying the product weight by 1.368 for relevant HS Codes (1101, 190219, 190230, 190240) in order to convert to wheat grain equivalents.
Decreasing population (please see Consumption section for more details) was the rationale behind FAS Kyiv decision to decrease FSI consumption for wheat down to 8 MMT in MY2015/16 or 11.1 percent below the USDA official estimate.
For MY2015/16 feed consumption of corn might be further doing down resulting from decreased animal numbers (please see Consumption section for more details). In case corn prices remain higher against wheat ones, thus would stimulate the cuts of corn use as feed component. Based in this assumption FAS Kyiv believes that in MY2015/16 forecasted feed and residual consumption for wheat will be at level 4MMT or 11 percent below the USDA official estimate. At the same time in MY2015/16 corn feed and residual consumption would be at level of 7.8MMT or 11 percent above the USDA official estimate; barley – 3.5 MMT or almost 17 percent above; and rye 45 thousand MT or 80 percent above.
Under assumptions the mentioned feed and food consumption patterns FAS Kyiv believes that in MY 2015/16 rye exports are forecasted to reach just 15 thousand MT and barley – 4.1 MMT, respectively 25 percent and almost 9 percent below the USDA official estimates.
Ending stocks for all crops are expected to be at the relatively low levels for MY 2015/16: wheat – at 4.8 MMT in MY 2015/16; corn – at 1.6 MMT; barley – at 870 thousand MT; rye – at 64 thousand MT. These assumptions are based on the scenario of a poor winter crop when farmers would be engaged in active sales to cover their costs, as discussed in Production section. A significant change in climatic and crop conditions may require that these estimates be revised.
The leadership of MAPF is committed to sign a new Memorandum of Understanding with major grain exporters for MY 2015/16 at the time of this report writing. It is anticipated that the new seasonal trade terms would be similar to the agreements reached in the preceding year, however the actual exportable amounts have not yet been fixed.
MAPF announced a simplification of national veterinary regulatory requirements by making a number of veterinary certificates (both for export and domestic designations) voluntary for feed grain shipments intended for further exports via sea ports. At the time of writing this report, the final text has not been made public. According to the draft resolution available to Post, the primary change will be that the grain shipper should provide a copy of a waybill that contains information about the grain's point of origin to the state veterinary authorities operating at a port terminal instead of presenting a veterinary certificate that already duplicates the information included in the waybill. It could potentially decrease the cost of grain transshipments. However, according to the initial estimates, its impact to the cost structure of grain shipments will be limited. Veterinary certificates will still be issued for the many small-scale feed grain batches shipped inside Ukraine with the purpose of forming large-scale commodity batches intended for further exports via ports.