Ukrainian Governement Will Push Grains Out Of The Country Jan. 19, 2017

Highlights

Ukraine has concluded harvest of all grains as well as planting of winter crops. Some corn areas have been left unharvested, which makes the final corn number tentative at the level of 26 million metric tons.FAS Kyiv further downgraded food consumption for wheat as well as feed consumption for all grains based on the economic situation in the country.

Issues with grain logistics might have resulted in suboptimum export numbers for end of marketing year (MY) 2015/16 as well as for the beginning of MY2016/17. According to the revised information by the State Statistics Service of Ukraine (SSSU) in 2016 farmers harvested: 26.7 million metric tons (MMT) of wheat, 2 percent below the 2015 level; 9.7 MMT of barley, 13 percent above; and almost 404 thousand metric tons (MT) of rye, comparable to the 2015 level as of November 1, 2016. Grain production in the Crimean Peninsula is estimated at: 854 thousand MT of wheat and 528 thousand MT of barley. These numbers are estimated by FAS Kyiv as production volumes for MY2016/17. It should be noted that all production numbers discussed above are presented in bunker weight. Post estimates MY2016/17 wheat quality as: 52 percent milling quality (Ukrainian class 1-3) and 48 percent feed quality (Ukrainian class 4-6) based on SSSU's data as of November 2016. Corn has not been harvested completely. According to a report provided by the Ministry of Agricultural Policy and Food of Ukraine (MAPF), Ukrainian farmers have harvested 3.8 million ha, which translated into 24.2 MMT of grain as of December 2, 2016. The major impediment for corn harvest was intensive late autumn-early winter precipitation in the form of rain and/or snow. According MAPF's estimates around 420 thousand ha of corn was left unharvested (mainly in Poltava, Sumy, Chernihiv and Kharkiv regions) and could potentially add 2.7 MMT to production volume when/if harvested.

Currently, Ukrainian farmers have concluded planting winter grains. SSSU has released official winter grain area numbers as of December 23, 2016: wheat planted on 6.1 million hectares (ha), 2.2 percent above 2016 level; barley – 881.5 thousand ha, 10 percent below; rye – 169.3 thousand ha, 16 percent above. These numbers can be considered as final areas under winter crops in Ukraine taking into account low winterkill rates reported by farmers to date. However, these will be revised in spring 2017 to estimate the actual crop loss.

Trade

Ukraine exported 17 MMT of wheat; 16.6 MMT of corn; 4.4 MMT of barley and 19.7 thousand MT of rye for MY2015/16.

According to the MAPF report Ukraine exported 11.5 MMT of wheat; 7.1MMT of corn; and 4.3 MMT of barley for local MY2016/17 (July 2016-June 2017 for all mentioned crops) as of January 6, 2017.

For MY2015/16, 16.6 MMT of Ukrainian corn was exported, predominantly to a number of EU Member States, China, Egypt and Tunisia.The EU is the single largest traditional buyer, which bought almost 8.5 MMT of corn in MY2015/16, a 41-percent increase compared to the previous MY. Exports to this destination are supported by a 400 thousand MT Tariff Rate Quota for corn offered to Ukraine under the Deep and Comprehensive Free Trade Area as well as fast and inexpensive logistics through ports of Spain, Italy and Netherlands.

A boost in exports to the EU became possible as corn exports to China slumped to around 2.4 MMT in MY2015/16, a 45-percent decrease compared to the previous MY. The major driver behind it was a change in China's domestic policy. MY2015/16 corn exports to Egypt amounted 2.2 MMT, almost a 32-percent decrease compared to the previous MY.

One of the factors presumably limiting corn exports (as well as other grains) out of the country is inefficient operation of the national railway in the second half of 2016. According to industry sources, lack of investments in previous years resulted in shortages of grain hoppers circulating in the country. They also point out a lack of fuel procurement by the state controlled railway for diesel locomotives as the major factor preventing timely grains shipments to ports from a number of inland silos.

Ukraine is a net exporter of grains and does not import significant volumes of these commodities. The only exception is imports of corn seeds (HS Code 100510). For MY2015/16 Ukraine imported 28.6 thousand MT of corn seeds, which was identical to the previous MY. These seeds are predominantly used for domestic seed reproduction by large international seed suppliers.Post believes that Ukraine will remain an active exporter of grains for MY2016/17. Continued depreciation of the national currency will be the major factor pushing grains out of the country. This scenario remains feasible under the assumption that there will be no significant macroeconomic changes in the country that would reverse this trend in 2017.

Consumption

Post has further decreased wheat and rye food consumption for MY2016/17 based on decreasing volumes of bread production in the country.

These two crops are mainly intended for food consumption, namely milling and baking and thus an expected decrease of bread production for MY2016/17 would have a major impact on them.

Rye feed consumption has been decreased to a minimum both for MY2015/16 and MY2016/17 on the grounds that Ukraine started imports of this crop, which points to a deficit of this commodity on the domestic market. Since it is mainly intended for food purposes, it will be replaced as a feed ingredient by other grains widely available domestically. SSSU's reports lowered animal numbers in the country: 5.5 percent decrease in pig numbers and 4 percent for poultry for December-November 2016. The economic situation inside the country does not suggest increased consumption of products of animal origin in 2017. Moreover reports of the local Veterinary Service on outbreaks of African swine fever would likely lead to a further decrease of pig herds in 2017. Based in these assumptions, Post has decreased the country's total feed consumption by 2 percent for MY2016/17.

Stocks

Ending stocks for all grains at the beginning of MY2015/16 demonstrated traditional depreciation to minimal levels induced by active exports of corn, wheat and barley. Rye stocks hit new lows caused by decreasing production of this crop for two consecutive MYs in a row. Post believes that ending stocks for MY2016/17 will be tighter compared to the previous MY due to the high pace of grain exports.

Production, Supply and Distribution Data Statistics

Post's FSI Consumption estimates for wheat are lower than USDA's official data by 1.4 percent for MY2016/17. The rationale behind this reduction is decreased volumes of bread production in Ukraine.

Post's FSI Consumption estimates for rye are higher than USDA's official data by 5 percent for MY2015/16, and 14 percent for MY2016/17. This is based on stable demand for this crop for baking purposes.

Post's Feed and Residual estimates for wheat, barley and corn are follows:

1.wheat, 6.4 percent lower for MY2016/17;

2.corn, 13.4 percent lower for MY2015/16 and 1.4 percent lower for MY2016/17;

3.barley, 6.3 percent higher for MY2015/16 and 11.8 percent lower for MY2016/17;

4. rye, 10 times lower for MY2014/15 and 5 times lower for both MY2015/16 and MY2016/17.

Post's export estimates for wheat are higher than USDA's official data by 1.3 percent, and for barley – 10.7 percent higher for MY2016/17.

Estimated wheat flour, pasta and bakery exports/imports have been added to export volumes for wheat in wheat grain equivalent calculated by multiplying the product weight by 1.368. Grain production numbers reported by SSSU in bunker weight have been converted to estimated commodity (final) weight by subtracting 3 percent, and adding Crimean Peninsula's production numbers.