Ukraine's sale of grains continues as the risk of political interference, which had diminished perspectives for the next marketing year (MY) crop are finally quelled. Grain stocks in the last months of 2014 remained above 2013 due to a good crop and somewhat sluggish exports which expected to intensify in the remaining months of 2014/15 MY. Winter crops have been planted in favorable fall weather and remain in good condition as of early February. Ukraine's political developments had a limited impact on production and trade. However, producers suffer from increases to the costs of inputs as a result of a severely devaluated national currency.

Report Summary

The publication of official harvest data by the Statistics Service allowed for more precise PSD estimates for the remaining months of the 2014 calendar year. The largest increase was in the corn PSD table reflecting a high crop and significantly higher export expectations. Other exports were adjusted up to reflect the release of official production and trade data. Wheat export estimates were slightly lowered, while barley and rye export forecasts were adjusted up. Grain yield estimates for the Autonomous Republic of Crimea were included into the PSD production. Since grain exports from Crimea are not possible (at least not formally due to the threat of sanctions), carry over stock numbers significantly increased.

Production

The grains harvest in marketing year (MY) 2014/15 is complete and the following preliminary information has been published by the State Statistics Service.

Grains Production in MY 2014/15 as of January 16, 2015*

Crop

Production, 1000 MT

Area Harvested, 1000 ha

Yield, MT/ha

Wheat

24101.9

6007.6

4.01

Rye

478.1

185.1

2.58

Barley

9043.4

3002.4

3.01

Corn

28452.2

4621.1

6.16

Source: State Statistical Service of Ukraine

*Table does not include the data from the temporarily occupied territory of Crimea

All PSD tables were updated to be in line with official Ukrainian statistics. PSD tables do, however, include data from the territory of Crimea.

The production of major exportable crops (corn, wheat, and barley) is considerably higher than in 2013 despite it being from a lower harvested area: production efficiency continues to improve despite political and economic turbulence. Significant attention is paid to input quality and general profitability of each cash crop. Larger agricultural farms implement innovative management systems involving real-time decision making programs using information provided from global positioning systems (GPS) technologies – equipped trucks and machinery and unmanned surveillance drones.

The direct impact of military clashes in Eastern Ukraine on grains production is not expected to be significant. The Anti-Terrorist Operations (ATO) are conducted on the territories of Donetsk and Lugansk Oblasts. The vast majority of the territory is composed of urban agglomerations, coal mines, industrial districts and towns. Approximately one third of the area is not controlled by Ukrainian government authorities. The share of Donetsk and Lugansk oblasts in Ukraine's harvested area is close to seven percent. A larger part of this area remains controlled territory. There are reports that grains were harvested on the uncontrolled territory, but most of harvested grain remains stored locally.

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. The National Bank of Ukraine (NBU) for years maintained 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 if compared to trade with the Russian Federation or the European Union. The fixed exchange rate does not transfer the right market signals to importers and exporters resulting in international trade imbalances. Piling up, these imbalances may lead to periodical currency a crisis that outweighs the positive impact from a stable exchange rate. Significant political and economic shocks undermined UAH stability in 2014 resulting in abrupt devaluation.

Total currency devaluation in 2014 reached almost 100 percent, thus undermining imports and boosting exports. However, the positive gains made by exporters from the devaluation may be limited, as the devaluation also increased the value of essential agricultural inputs, most of which are imported, for the 2015/16 MY crop that could also influence production more significantly than in the previous MY.

Foreign currency exchange rate fluctuations led to a variety of problems for chemical and seed importers. Many of them report delays (over a month) when procuring currency, and these complicated purchasing procedures do not allow for any exchange rate planning by the trade. In many cases, importers lose money due to devaluation during the prolonged possession of the UAH. Input use for the MY2015/16 crop is expected to be lower than usual, but a significant drop is not expected. Grain sales remain the most profitable and reliable of all cash crops and export sales represent the largest influx of hard currency into the Ukrainian economy.

Select Agricultural Input Imports (January – November 2014)

HS Code

Description

Unit

Quantity

% Change

2014/2013

2012

2013

2014

3808

Insecticides, Rodenticides, Fungicides, Herbicides, Anti-sprouting products Etc., Packaged For Retail Sale Or As Preparations Or Articles

MT

81248

77769

65817

- 15.37

Mln. USD

674

670

554

-17.29

100510

Corn (Maize) Seed, Certified, Excluding Sweet Corn

MT

43117

43542

50075

+15.01

Mln. USD

186

232

295

+27.03

1206

Sunflower Seeds, Whether Or Not Broken

MT

15446

18115

13106

- 27.65

Mln. USD

158

197

143

- 27.52

Government Policies

Government and the trade signed MOU on grain exports

On January 27, 2015, the Minister of Agricultural Policy and Food, Oleksiy Pavlenko and representatives of non-government organizations of Ukraine's grain industry signed a Memorandum of Understanding (MOU) envisioning the free shipment of grains within defined voluntary quantitative restrictions for 2014/15 MY. The industry stated that the group had worked on supply and demand plans in an attempt to take into consideration existing contracts and future export opportunities. The group will be monitoring winter crop conditions and may review the MOU restrictions close to February 15.

The parties agreed that the MOU is rather a reflection of joint interests in a stable market rather than a result of hostile restrictions that might negatively impact the market. Minister Pavlenko stated that current weather condition and area seeded provide no reasons for concern. Winter grains for 2015/2016 MY occupy seven percent greater area. Approximately 97 percent of crops are in good and excellent condition if compared to last year. The parties publicly outlined the importance of USDA estimates and stated that such data was considered during the MOU negotiation process.

The following voluntary restrictions were adopted:

HS Code

Product Group

Total Voluntary Restrictions for 2014/15 MY

Voluntary Restrictions for January–June* of 2015*

1001

Wheat and Meslin including:

12.8 Mln MT

4.6 Mln MT

- I-V grades

7.1 Mln MT

1.2 Mln MT

- VI and no grade

5.7 Mln MT

3.4 Mln MT

1002

Rye

30,000 MT

19,000 MT

100400 90

Barley

4.2 Mln MT

0.6 Mln MT

1005 90

Corn

20.2 Mln MT

13.2 Mln MT

*The same MY is used for all grains

Market Deregulation

In an attempt to increase the influx of hard currency into the country and relax unnecessary market limitations, Ukrainian authorities have taken major steps aimed at market deregulation. First, the State Agricultural inspection service was eliminated completely in September 2014. Second, Ukraine abolished quality certification requirements for grains which allowed for logistics cost to decrease and expedited deliveries.

The State Phytosanitary Service responsible for grain quarantine certification is also being reformed. Previously Plant Protection and Quarantine (PPQ) authority was a part of the State Veterinary and Phytosanitary Service of Ukraine (SVPSU). As a part of an administrative reform, PPQ became a part of the State Food Safety and Consumer Protection Service. The creation of a new authority is not complete due to the controversial nature of some of its functions and some resistance from state employees and the business community. There is a possibility that the scope of the new authority will to be reviewed in the near future.

Some positive deregulation impacts include the cancellation of grain warehouse certification in spring 2014. The cancelation of related technical regulations also allowed for decreased storage and handling costs for elevator owners, millers, and grain traders.

Altogether these deregulations had a rather significant positive impact on trade allowing for better trade margins and better farm gate prices. They also significantly decreased corruption incentives along the grain export chain.

Trade

According to the Ministry of Agrarian Policy and Food data published February 5, 2015, combined grain exports in 2014/2015 marketing year reached 21.885 million tons. This includes:

  • Wheat – 8,691,000 tons (MT);
  • Corn – 9,152,000 MT;
  • Barley - 3,803,000 MT;
  • other grains – 239,000 MT.

Official trade data from Ukraine's Custom Service for CY 2014 is not yet available. Some preliminary data supports strong export demand and another strong year for corn exports.

The wheat and barley export slowdown in December was associated with an unclear GOU position on a grain export memorandum. Exports are expected to recover and reach the number shown in the PSD tables.

Trade volume in 2014/15 MY (from MY start to the end of December 2014) is expected to be close to the following numbers:

Product Group

1000 MT

Wheat and Products

8080

Corn

6020

Barley

3723

Rye

13

Source: FAS/Kyiv own Estimates

Exports continued through major Black Sea port with Yuznyj and Odesa responsible for 46 percent of all exports. Trade through smaller ports (Mykolaiv, Illichivsk, Kherson, Ochakiv and Berdiansk) also remains uninterrupted. Trade through the port of Mariupol is suffering from the close proximity of the military activity. Grains exports through this port remained under 2 percent of total trade however. Chances are that the port will have limited ability to serve as a commercial grain export port in the near future due to the recent escalation of violent shelling in the city.

Wheat Production, Supply and Distribution*, 1000 MT

2012/2013

2013/2014

2014/2015

Jul 2012

Jul 2013

Jul 2014

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Harvested

5,630

5,630

6,566

6,566

6,300

6,008

Beginning Stocks

5,363

5,363

2,579

2,579

3,670

3,670

Production

15,761

15,761

22,278

22,278

24,500

24,750

MY Imports

45

45

68

49

50

30

TY Imports

45

45

68

49

50

30

TY Imp. from U.S.

0

0

0

0

0

0

Total Supply

21,169

21,169

24,925

24,906

28,220

28,450

MY Exports

7,190

7,190

9,755

9,755

11,000

10,800

TY Exports

7,190

7,190

9,755

9,755

11,000

10,800

Feed and Residual

3,100

3,100

3,400

3,381

4,000

4,000

FSI Consumption

8,300

8,300

8,100

8,100

8,000

8,000

Total Consumption

11,400

11,400

11,500

11,481

12,000

12,000

Ending Stocks

2,579

2,579

3,670

3,670

5,220

5,650

Total Distribution

21,169

21,169

24,925

24,906

28,220

28,450

Barley Production, Supply and Distribution*, 1000 MT

2012/2013

2013/2014

2014/2015

Jul 2012

Jul 2013

Jul 2014

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Harvested

3,293

3,293

3,233

3,233

3,200

3,002

Beginning Stocks

1,172

1,172

873

873

883

883

Production

6,935

6,935

7,561

7,561

9,400

9,450

MY Imports

0

0

25

16

5

1

TY Imports

0

0

25

16

5

1

TY Imp. from U.S.

0

0

0

0

0

0

Total Supply

8,107

8,107

8,459

8,450

10,288

10,334

MY Exports

2,134

2,134

2,476

2,475

4,000

4,200

TY Exports

2,659

2,659

3,827

3,827

2,700

2,700

Feed and Residual

3,500

3,500

3,400

3,392

3,300

3,300

FSI Consumption

1,600

1,600

1,700

1,700

1,600

1,600

Total Consumption

5,100

5,100

5,100

5,092

4,900

4,900

Ending Stocks

873

873

883

883

1,388

1,234

Total Distribution

8,107

8,107

8,459

8,450

10,288

10,334

Corn Production, Supply and Distribution*, 1000 MT

2012/2013

2013/2014

2014/2015

Oct 2012

Oct 2013

Oct 2014

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Harvested

4,370

4,370

4,825

4,827

4,600

4,621

Beginning Stocks

1,051

1,051

1,191

1,191

2,237

2,237

Production

20,922

20,922

30,900

30,900

27,000

28,460

MY Imports

44

44

50

57

50

52

TY Imports

44

44

50

57

50

52

TY Imp. from U.S.

0

0

0

0

0

0

Total Supply

22,017

22,017

32,141

32,148

29,287

30,749

MY Exports

12,726

12,726

20,004

20,005

16,500

20,000

TY Exports

12,726

12,726

20,004

20,005

16,500

20,000

Feed and Residual

6,800

6,800

8,500

8,506

9,000

8,700

FSI Consumption

1,300

1,300

1,400

1,400

1,400

1,400

Total Consumption

8,100

8,100

9,900

9,906

10,400

10,100

Ending Stocks

1,191

1,191

2,237

2,237

2,387

641

Total Distribution

22,017

22,017

32,141

32,148

29,287

30,741

Source: FAS/Kyiv own Estimates *These are not USDA official numbers