Ukraine. Grain and Feed Annual. May 2014 May 4, 2014
Production of wheat, corn and rye in Ukraine in MY 2014/15 are forecast to decrease mainly due to lower projected yields. A dramatic increase in input costs for agricultural producers is expected to lead to lower input use, thus negatively affecting yields and output. Ending stocks for major grains are expected to remain at average levels while exports are projected to finish MY 2013/14 at record high levels for Ukrainian corn and wheat. Domestic consumption of feed grains in the new season may be conditioned by economic situation in the country and the opportunities for growth in industrial poultry and pork production.
A record corn crop and good wheat production in Ukraine in 2013 resulted in high stocks and large surplus of grains available for export. Ukraine is expected to harvest another good crop in MY 2014/15, led by corn and wheat..
Wheat production in MY 2014/15 is forecast at 20 Million Metric Tons (MMT), a decrease of about 13 percent based on slight decline in the winter crop area and average yields. Exports of wheat in the new season are anticipated to remain high, at about 9.5 MMT compared to expected 10 MMT in the current season.
Corn production in MY 2014/15 is forecast at 20 percent below the previous season mainly due to lower expected average yields. Lower input use and deficiency in subsurface moisture available at the start of corn planting in spring 2014 are the main factors behind this forecast decrease in production. Corn exports in the new season are expected at 17.5 MMT with less than 30 percent of the crop consumed domestically. Trade with the EU is expected to remain strong while East Asia destinations are anticipated to gain larger share compared to the previous season.
Barley production is expected to remain similar to the previous season with exports following the trend. The Middle East would remain the major buyer.
Rye production is projected to decline in MY 2014/15 leading to lower domestic consumption and exports.
The Ukrainian currency devaluation in the last months resulted in greater commodity price fluctuations in the domestic market and some reluctance to sell that was observed at the time of this reports writing.
An increase in input costs for agricultural producers that is already occurring is expected to translate into lower use or application of cheaper (which in most cases means less effective) fertilizer and especially plant protection means and seeds. In addition, relatively lower world agricultural commodity market prices in the current season cut down on Ukrainian producer profits that also stimulate them to reduce input expenses for the new harvest and to hold off on technology improvements that require large upfront expenditures.
Local currency devaluation in the last four months by about 40 percent affects input costs directly. According to producer reports, while in the past five years average increase in production costs for some was about ten percent annually (mainly improvements in technology and seed quality), the increase is reaching 20-30 percent this time around. By the end of the season, the costs of production may go up even further.
Ukraine is expected to remain loyal to its trade partners in the current and new trade seasons while the industry and the Government of Ukraine (GoU) try to find more new ways of make agricultural business more profitable and attractive to investment.
In 2014 wheat production is expected at about 20 MMT – a slight decrease from the previous harvest mainly due to a slight decrease in harvested area and expected yields somewhat below last season’s.
Winter wheat (as well as barley) planting in the fall 2013 was somewhat delayed by adverse weather conditions. However, extended and warm fall season allowed the plants to develop better thus going into winter dormancy in a generally strong condition (several tillers and strong roots). Over the winter season some regions in the country saw less snow cover while others experienced temperatures well below freezing point (-10 – -20 degrees C) for a number of weeks. According to the official Ukrainian Hydrometcenter reports, only about 6-10 percent of the winter crops were in bad condition with expected losses of 1-2 percent.
The spring season has arrived early but temperatures were picking up slowly in most of the country. Plants came out of winter dormancy adjusting well to the new growth season. Official field observations data shows that this season winter wheat plantings had a chance to develop more tillers in early spring. This so far is indicative of good prospective yields. Some reported shortage of precipitation over the winter season and dry early spring conditions added to the already low subsurface moisture levels.
According to Ukraine’s Hydrometcenter reports in late March 2014, central and southern regions (mostly Kherson, Mykolayiv, Zaporyzhia, and Odessa oblasts) experienced a deficit of 40-50 percent in soil moisture, while overall deficit in the country is estimated at 25-40 percent. At the time of this report writing, the soil as well as air moisture deficiency in the country is expected to have some negative effects on the development of early spring crops and may cut down winter crop yields as well. Thus, wheat production at this point is forecast to drop slightly in comparison with that of the previous season.
High wheat production in MY 2013/14 and a good share of milling wheat along with decreasing wheat prices stimulated continuous increase in wheat flour production for domestic consumption and for exports. The domestic market is well supplied by food grade wheat for the current season.
However, bread production has been decreasing in Ukraine over the recent years along with the population. In addition, a minor increase in consumer incomes stimulated one of the recent trends in society – switching away from purchasing ‘social’ types of bread in favor of premium bakery products and home bread making. While large, mostly state, bread making enterprises have been reducing production quantities, various private specialty bread producers have been opening up small stores and delivering to regular grocery stores in larger cities catering to the changing tastes of consumers where majority of income increases occurred.
Domestic use of wheat in the MY 2014/15 may change back to wider consumption of ‘social’ bread and products due to the current economic situation.
Wheat exports in Ukraine in MY 2013/14 have been exceeding that of the previous season because of an increase in wheat production of about 40 percent, year-on-year. In addition, more transparent and non-restrictive export regulations were stimulating the normal pace of trade this season. Total MY 2013/14 exports of wheat are expected to reach up to ten MMT. The majority of shipments as usual were executed at the start of the season.
The larger spread between domestic and fob (Black Sea Port) prices was mainly due to an increased delivery costs that resulted from railway and cargo certification cost increases because of changes in regulation. The railway delivery speed has somewhat improved in the current season and is expected to remain that way. In addition, some decrease in cargo certification cost may be expected in the current and upcoming season while the new government is working to improve regulation in agriculture.
In the most recent months there was a lack of feed wheat offers observed in the market, which is expected to remain at that due to low feed wheat stocks. In addition, milling wheat supplies for exports are tightening with the end of the season approaching. In addition, domestic milling wheat prices usually increase in the spring prior to Orthodox Easter celebrations. Thus, domestic prices are expected to keep increasing until the end of the current season. However, it is possible to assume the opposite as the lines for both domestic milling and feed wheat prices show a downward trend in the most recent months. Such effect is due to the difference in exchange rate between Ukrainian Hryvnia and US Dollar that has recently fluctuated a lot. In the view of the economic and political unrest in the country, in the last four months Hryvnia has lost about 40 percent of its value to the US Dollar. Domestic prices in the new season are expected to pick up to reflect the world market trends.
In the new season Ukraine is projected to export 9.5 MMT, slightly less than is expected in MY 2013/14, mainly due to lower projected production. In MY 2013/14 to date, Egypt remained the top buyer, just like in the previous two seasons. While in MY 2012/13 the most common wheat buyers for Ukraine were from the Mediterranean and the Middle East. It was feed wheat for the most part that was sold to these destinations then. In the current season the picture has changed. Over the first six months of the MY 2013/14 Ukraine sold more milling wheat and the buyers came from various destinations like South Africa, Thailand, Kenya, Bangladesh (once again among the top ten buyers), Israel, Indonesia, and even Japan.
Export destinations for MY 2014/15 would depend on the type of wheat sold. At this point it is too early to say whether Ukraine would produce more milling or more feed wheat in summer 2014 as this highly depends on the growing season conditions. Egypt is expected to rain at the top of the buyers list.
Imports of wheat in Ukraine are virtually non-existent and for the MY 2012/13 totaled a little over one thousand metric tons. The country produces enough wheat to satisfy its domestic consumption needs. The only imports that do come in are either high protein wheat varieties for production of premium pasta products or seeds of some special wheat varieties for breeding purposes in Ukraine.
In MY 2013/14 Ukraine’s monthly wheat stocks were higher than in previous season due to larger production in summer 2013. However, good exports pace at the start of the season quickly took care of the surplus. In March 2014 wheat stocks in Ukraine were at the usual level for this time of the year.
In the new marketing year (MY 2014/15), barley production is forecast to remain at the level of the current season. Even though production area is expected to be high, the yields at this point are not forecast to reach previous levels mainly due to the dry weather conditions this spring.
Spring barley planting is currently underway in Ukraine and the areas are forecast to exceed those of the previous season in total by about eight percent. Difficulties with financing and an increase in input costs are expected to prompt some producers to plant more spring barley as this is a lower cost of production crop. In addition, the market prices for barley in the current season were quite attractive that also to some extent would stimulate the producers to choose this crop.
In MY 2014/15 barley consumption in Ukraine is expected to remain at the level of the current season. Barley consumption in Ukraine in general has not changed much in the last few years. In the past when producers were low on cash they dedicating more areas to this low maintenance crop that none the less sold well to Middle East destinations and was used more by domestic animal producers. However, in recent years, producer preferences have shifted towards production of corn. This trend was mostly stimulated by the rapidly expanding industrial poultry production in Ukraine and some development in the industrial pork production in the country. These industries use more corn in animal feed thus leaving more barley for export market.
Barley exports in MY 2013/14 are expected to surpass the figures of the previous season by about ten percent mainly due to higher production in summer 2013. In the new season exports are so far anticipated to remain at the level of the current marketing year. However, if production in summer 2014 is different from that projected at the time of this report writing, exports may be expected to follow the trend.
Saudi Arabia remained the top buyer of Ukrainian barley in MY 2012/13 purchasing over 60 percent of the available export quantities. Its buyers are at the top of the list in the current season, with similar sales and Saudi Arabia is expected to remain the largest buyer in the near future as well. Among the other buyers are Iran, Libya (in MY 2013/14 has increased its barley purchases in Ukraine significantly compared to the previous season), Jordan, Israe,l and other nearby locations that enjoy the comparative advantage of the delivery costs from the Black Sea ports.
Barley stocks at the start of the season were not as high as in the previous season. However, a few months after the start of the MY 2013/14 when traders turned to the record corn crop, barley stocks have started accumulating at the levels similar to the previous season and are expected to decrease gradually to the usual levels by the end of the current marketing year. In the MY 2014/15 stocks are expected to follow similar trend, unless production of other factors change significantly from the anticipated conditions.
Corn production in Ukraine in MY 2014/15 is expected to remain high but is forecast at the time of this report writing to be about 25 MMT, roughly 20 percent below the previous harvest figure. While harvested area is expected to remain similar to the previous season the decrease in production in the new season is anticipated mainly because of projected lower yields to be lower than in the past season due to the following factors:
- Lower input use than in the past
- Cheaper/lower quality seeds used
- Dryer than usual weather at the start of corn planting and overall low subsurface moisture availability
The increase in input costs for agricultural producers that is already occurring is expected to translate into lower use or application of cheaper (which in most cases means less effective) fertilizer and especially plant protection means and seeds. In addition, relatively low world agricultural commodity market prices at the start of MY 2013/14 cut down on Ukrainian producers’ profits that also stimulate them to reduce input expenses for the new harvest and to hold off on technology improvements that require large upfront expenditures.
A good share of fertilizer components (for production of ready to use fertilizers in the local facilities) and plant protection products are imported to Ukraine from China, Russia, Belorussia, and other countries. In addition, energy costs in Ukraine have gone up this season that affects the local input production as well. Most large agricultural enterprises and those that usually plan in advance for the season have purchased or signed purchase contracts with locked-in price for fertilizer, fuel, and seeds that are needed for their spring planting before the major changes in the currency exchange rate started occurring in Ukraine. However, there are some who did not have enough financial reserves to set aside in advance that will now have to be very creative in allocating funds for their spring planting expenses.
Seed quality is another important fact in corn production. In the last five years Ukraine has expanded imports of good quality hybrid corn seeds from Hungary, Romania, the US, and other countries alike. At the same time local corn seed production capacity has been developing as well. According to seed sellers, at present over half of the market is imported corn hybrids. In view of the of the increasing input costs and devolving local currency producers may turn to using cheaper and lower quality corn seeds or switch to domestically produced and less expensive corn seeds. Thus, yields lower than in the previous season are expected.
The weather is always a risk factor in agriculture. Major corn planting in Ukraine usually starts in April. This year it is not an exception. As of late March 2014, local weather reports did not forecast significant rainfall in the nearest future. This may lead to weaker sprouting or may prompt corn sowing until later dates that may negatively affect the yields. In addition, if the currently low subsurface moisture is not replenished before the main corn growth stages begin, yields may not be able to reach the higher boundaries. However, the weather factor may also play out to benefit the new crop. At the time of this report writing, overall corn production forecasts are made by factoring in the average weather conditions for the growing and harvest times.
The increase in domestic consumption of corn is expected to continue for the remainder of the MY 2013/14. Mainly driven by the expanding poultry production that is forecast by FAS-Kyiv to grow by up to ten percent. Pork production has also been growing and is projected by FAS-Kyiv to increase by about four percent in 2014, depending on economic stability. Expansion of production facilities and such depends highly on imports of technology components. Consequently, animal feed consumption and especially corn (as the main feed ingredient in industrial poultry production) may fail to follow the upward trend it MY 2014/15.
Overall corn consumption in MY 2013/14 is estimated at a much higher rate that in the previous season mainly due to growing domestic consumption by animal industry and higher anticipated losses. The quality of corn produced in the fall 2013 suffered because of the continuous adverse weather conditions at the harvesting time. Large share of corn produced had to be dried for proper storage. Drying equipment in Ukraine varies greatly in quality and speed of operations and in some cases negatively affects crop quality as a result. Thus, greater crop losses are anticipated in the current season.
Record corn production in Ukraine in fall 2014 prompted record corn exports in MY 2013/14 that is forecast to reach 20.5 MMT. Even though world market price for feed corn has declined in the current season compared to the previous one, Ukrainian producers have been selling the crop at high rates trying to return the investment and secure the funds for the new season plating campaign.
Ukraine domestic corn price dropped significantly at the start of the harvest in fall 2013 rebounding slightly at the time of this report writing on the decline in the reported offers in the domestic market and an overall economic and political turmoil in the country. However, corn exports have been going still at good pace and are expected to continue without interruption in the coming months. Some producers indicate they want to hold the stocks for exports while domestic prices adjust to better reflect the world market prices and the currency exchange rate in Ukraine. Others are willing to sell anyway since they need cash for the ongoing spring planting campaign. So, some stocks are still available for export and the trade is willing to conduct sales.
In MY 2012/13 as well as in MY 2011/12 Spain and Egypt were the top corn destinations for Ukraine. The EU countries in general have been favoring Ukrainian feed corn in the last few years with East Asia coming into play more strongly in MY 2013/14.
Since signing the intergovernmental agreement between Ukraine and China in 2013 (among other things, it contains terms for delivery of up to four MMT corn a year to China starting in 2013), trade with this destination slowly picked up. The first large shipment (about 100,000 MT) of corn to China left ports in the Black Sea in November 2013.
According to official trade statistics, during the first three months of the current marketing year (October – December 2013), the top Ukrainian corn export destinations were Egypt, South Korea, Spain, Japan, Iran, the Netherlands, and Italy.
Exports of Ukrainian corn in the new season are anticipated to cover a variety of destinations once again in the upcoming marketing year. The EU, North Africa, Middle East, and East Asia are expected to remain the major buyers in the new season.
Record corn harvest in fall 2013 resulted in larger accumulated stocks at the start of the season. However, the market players worked hard to get the exports going at the highest rate ever. At the time of this report writing corn stocks are slightly higher than at the same time in the previous two seasons. However, recently trade has been reporting a reduction in availability of good quality corn for sale in the domestic market.
Once again rye production in Ukraine is forecast to decline, by about 35 percent year-on-year. Production area for summer harvest 2014 is projected to drop by almost 30 percent compared to the previous summer.
Rye is one of the minor cereal grains that Ukraine produces to cater to the traditional diet preferences of domestic consumers. Bread made with rye or a mixture of rye and wheat flours is a staple food in the country. The project level of rye production is sufficient enough to satisfy domestic demand.
Consumption of rye in MY 2014/15 is expected to decline slightly because of lower consumption for bread-making following the general decreasing population trend.
Exports of rye in MY 2013/14 are expected to stay similar to previous season. However, in MY 2014/15 export quantity would decline due to a forecast decrease in production and thus lower available surplus.
In the first six months of the MY 2013/14, the major buyer or Ukrainian rye was Israel. However, over the last several years there was no list of constant buyers for this product with sales being occasional small loads shopped to countries in the EU and some in Middle East. This pattern is expected to remain.
Ukraine has accumulated larger stocks of rye in the current season while domestic consumption has been decreasing and exports of rye are not as attractive business in Ukraine as that of other grains.
Over the last few season Ukraine’s policy in agriculture has seen quite a few changes. Firstly, no official trade restrictions were observed in the market. The Memorandum of Agreement between the GOU and the industry on trade balances continues to be signed every season. This has positively affected the trade in general and allowed producers to hold and sell stocks easily though the year. However, some technical difficulties with grain logistics and certification in Ukraine resulted in increased transportation etc. costs, thus reducing producer margins.
Value Added Tax (VAT) reimbursement on exports of grain is another point of interest that has been on agenda for the industry in Ukraine for quite some time now. Please monitor upcoming FAS-Kyiv reports for the latest data on the issue.
Since the major changes in the government started occurring in Ukraine in winter 2014, more changes in the agricultural sector are anticipated. Some may promote exports of grain and others may lead to restructuring of business practices in the country and subsequently result in different production and trade patterns in Ukraine in the long-run. It is too early to make predictions at this time.
Exports via Sea Ports
Over the 12 months in MY 2012/13 (July 2012 – June 2013) there were about 25.5 MMT of grains and oilseeds and products shipped from Ukrainian ports in the Black Sea and Azov Sea with grains alone totaling 19 MMT.
The major share of all grain exports was executed through the port of Mykolayiv, about 27 percent or 4.3 MMT followed by the port of Odessa (25 percent) and ports Ilyichivsk (16 percent) and Yuzhny (16 percent). The Port Sevastopol is located at Crime peninsula in the Black Sea and usually carried out a smaller share of grain exports as the transportation of cargo from the mainland to the peninsula is not as easy and convenient as it is with the other major agricultural commodity carrying ports in Ukraine. The ports of Mariupol and Berdyansk are located in the Azov Sea and accept only smaller size grain and oilseed carrying vessels (up to 5,000 MT) due to the sea floor depth natural limitations. Their share of exports is expected to remain low.
In MY 2013/14, between July 2013 and February 2014, Ukrainian ports shipped over 26 MMT of grains and oilseeds and products. This figure exceeds the total quantity carried by these ports in MY 2012/13. There were about 19 MMT of grains shipped since July 2013. So far in the current marketing year and once again the leader in shipment of grains is the port of Mykolayiv with a 30 percent share. The Port of Yuzhny has picked up the speed (21 percent) leaving Ilyichivsk (12 percent) behind for now.
According to trade reports, during several months over the last half year, Ukraine exported grains and oilseeds and products at a record high speed of up to five MMT a month cumulatively from its sea ports. In the past all its sea ports collectively shipped about three MMT a month. It is expected that the grain and oilseed transshipment capacity of the major ports in the Black Sea would be further increasing in the future while Ukraine is enhancing agricultural production and improving its grain logistics infrastructure