Report Highlights:

Weakening red meat prices resulted in somewhat lower production estimates for 2014 for both pork and beef. Ukraine will continue to import significant quantities of pork, while exports of beef and pork to traditional markets in Russia will remain rather risky and limited. EU suppliers will not be able to expand their market presence without an Association Agreement. Total red meat production is expected to be slightly above the 2013 number. All imports may be hurt by a weakening Ukrainian currency.

Executive Summary

The traditional fall price reduction caused by increased slaughter in households expanded into 2014. A gradual pork price decrease started in September 2013 and by February 2014 the price stabilized at 17.3 UAH/kg LWT. ($1.94 /kg) which is 15-17 percent below summer price. Although not drastic, this decrease is expected to impact production decisions and the industry’s 2014 performance.

The animal number forecast for 2014 remains somewhat above the 2013 number, but beef and pork end of the year numbers were decreased in comparison to earlier forecasts.

Ukraine’s macroeconomic performance remains extremely turbulent. With five consecutive quarters in recession the country is battling currency crisis when this report is drafted. The new “comfort level” at currency exchange is yet to be established, but it is clear that national currency devaluation will put additional burden on the importers.

Production 

Swine

Prices for pork will remain the major factor guiding industry performance in 2014. Ukraine’s domestic swine farm gate price is decreasing for the fifth consecutive month with some signs of stabilization in February 2014. This 15-17 percent decrease resulted in a growth slowdown in late 2013. In 2014 this trend is expected to continue despite a 2013 bumper grain crop that pushed down feed prices. The 2012/13 MY grain crop was the largest in the history of Ukraine with over 63 million tons. The price drop for all major feed crops (corn, barley and feed wheat) provided swine breeders with an abundant and cheap supply of inputs.

Swine ending inventories for 2013 were correctly estimated in the 2013 annual report and coincided with the official data. Minor changes were made in trade numbers to reflect new trade data. The 2014 ending inventories were reduced to reflect the recent price decline and smaller production incentives. However FAS/Kyiv believes that investments made into the industry earlier will, along with cheaper feeds, continue to boost production. Swine numbers are expected to be above the 2013 level. The slaughter number for 2014 was increased to reflect lower end of the year inventory. This forecast is based on current market price situation and does not envisage further pork price drops.

Similarly to the 2013 Annual Report, the new 2014 forecast envisages further production increases. Competition with pork imports is expected to be lower due to weak domestic currency that lost nine percent of its market value in January-February 2014.

Cattle

The animal number forecast for 2013 made in the Annual Livestock and Products Report was decreased insignificantly to match official statistics. The forecast for 2014 is reduced to reflect a new downward trend exhibited by the industry in late 2013 -2014. There is a chance that the cattle industry will resume the production decline after some stabilization in 2012-13.

Trade

After a record-high 2012, pork imports in 2013 remained below 2012 level mostly due to limitations imposed on major trading partners. Brazil’s share in trade dropped by almost 35 percent, while Germany and Poland each lost almost 40 percent of trade. These limitations allowed trade growth for non-traditional suppliers like U.S., which became the fourth largest supplier with almost eight percent of the Ukrainian pork market.

The situation is expected to continue in 2014, although many meat traders see good market prospects for the U.S only in the absence of massive imports of Brazilian pork, which is more price-competitive. 

A significant nine percent currency depreciation observed in January and February of 2014 may have a negative impact on trade. The National Bank of Ukraine imposed significant restrictions on currency exchange when this report was drafted, so it is nearly impossible to evaluate a balanced currency exchange rate and forecast long-term impact at this point.

The biggest red meat trade uncertainty of 2014 was resolved in the end of November of 2013. Ukraine did not sign an Association Agreement with the European Union which would have enabled a Deep and Comprehensive Free Trade Agreement (DCFTAUnder the DCFTA, Ukraine would have received 40,000 MT quota in the EU, while EU producers would receive a reciprocal 20,000 MT TRQ in Ukraine. For beef Ukraine would not establish a TRQ, while EU would provide a 12,000 MT TRQ. 

Ukrainian producers spent some resources over last years in preparation for the EU market exports; although none of Ukrainian producers would be able to utilize the TRQs immediately. Industry experts estimated time period needed for pork exports around 3-5 years and for beef exports – 10-15 years. Lack of EU market access did not influence the 2014 number or other PSD indicators