Ukrainian export market of grains in 2016/17 MY - on course for another record

Source

APK-Inform

24056

 

Taking into account the difficult economic and political situation in Ukraine during recent years, the role of the export grain market as a reliable source for inflow of foreign exchange earnings to the country, has become even more significant. Despite some reduction of the general harvest, In 2015/16 MY Ukraine managed to supply the record volumes of grains on foreign markets, and the country plans to exceed the index in the current season. At the same time, the end of 2015/16 MY and beginning of the new season faced several factors, which somewhat complicated operation of export-oriented companies.

 

Results of 2015/16 MY, and prospects for 2016/17 MY

We should note that due to the general harvest volumes in 2015/16 MY (60.1 mln tonnes of grains and pulses) and carry-over stocks, Ukraine managed to increase the exports to 38.5 mln tonnes, and strengthen its positions on foreign markets. So, last season Ukraine supplied 16.9 mln tonnes of wheat, 16.7 mln tonnes of corn, and 4.4 mln tonnes of barley on foreign markets. Therefore, Ukraine took several leading positions in the global ratings of countries-exporters of grains: 5th position for wheat, 3rd position for barley, and 3rd position for corn.

At the same time, in 2016/17 MY the production of grains and pulses is estimated at 63.9 mln tonnes, an increase of 6.3% compared with the harvest-2015. In particular, wheat harvest in 2016 is estimated at 26.1 mln tonnes (down 1.6% compared with last season, due to some reduction of the planted areas), barley - 9.5 mln tonnes (up 15.2%), and corn -25.8 mln tonnes (up 10.4%).

In the current season, the export potential totals 38.1 mln tonnes, down 1.1% compared with the record high figures of 2015/16 MY. In particular, the export volumes of wheat are estimated at 14.6 mln tonnes (down 13.8% compared with 2015/16 MY), barley - 5 mln tonnes (up 13.3%), and corn - 17.7 mln tonnes (up 6%).

 

Rating of the global wheat exporters

Position

2014/15 MY

2015/16 MY

2016/17 MY*

Country

mln tonnes

Country

mln tonnes

Country

mln tonnes

1

EU-28

35,4

EU-28

34,7

Russia

30

2

Canada

24,2

Russia

25,5

EU-28

26

3

USA

23,5

Canada

22,1

USA

25,9

4

Russia

22,8

USA

21,1

Canada

21,5

5

Australia

16,6

Ukraine

17,4

Australia

19,5

6

Ukraine

11,3

Australia

16

Ukraine

15

* Forecast

Source hereinafter: USDA

Rating of the global corn exporters

Position

2014/15 MY

2015/16 MY

2016/17 MY*

Country

mln tonnes

Country

mln tonnes

Country

mln tonnes

1

USA

47,4

USA

48,6

USA

55,2

2

Brazil

34,5

Argentina

19,5

Brazil

24,5

3

Ukraine

19,7

Ukraine

16,4

Argentina

24

4

Argentina

18,9

Brazil

16

Ukraine

17

5

Russia

3,2

Russia

4,4

Russia

4,5

 

 

Rating of the global barley exporters

Position

2014/15 MY

2015/16 MY

2016/17 MY*

Country

mln tonnes

Country

mln tonnes

Country

mln tonnes

1

EU-28

9,5

EU-28

10,8

Australia

6,7

2

Russia

5,3

Australia

5,5

EU-28

6,5

3

Australia

5,2

Ukraine

4,4

Ukraine

5

4

Ukraine

4,5

Russia

4,2

Russia

4,4

5

Argentina

1,6

Argentina

2,9

Argentina

2,1

 

Taking into account the record high global production of grains in the current season, Ukraine will move down from the 5th to 6th position, and from the 3rd to 4th position respectively in the ratings of global exporters of wheat and corn. But despite the above-mentioned growth of barley exports, Ukraine will remain at its 3rd position in the rating. However, 2016/17 MY has just started, and the situation can still cardinally change.

 

Grain production as the key pricing factor

Most market participants agree that the high rate of global grain production in 2016 contributed to reduction of prices on global exchange markets to the minimum levels for 10-15 year, which resulted in the growth of competition rates, and decreasing of the demand of importers. At the same time, in the first months of the season Ukrainian exporters actively shipped barley and wheat. In August 2016, Ukraine exported 2.7 mln tonnes of wheat, which became the absolute record for the reporting month. Due to devaluation of the national currency, traders can offer the grain at competitive prices on foreign markets. At the same time, many representatives of Ukrainian export companies said that in terms of unstable foreign currency rates, it is rather difficult to forecast further development of the price situation and sign new forward contracts.

Also, in terms of the growth in global wheat carry-over stocks and reduction of corn stocks at the end of 2015/16 MY, the Ukrainian export market faced quite unusual spread between the grain types: food group on FOB and CPT-port basis became cheaper than feed group. So, feed corn prices were higher than the prices for milling wheat. As a reminder, in late June - early July the bid prices for corn varied within 170-180 USD/t CPT-port, against 151-158 USD/t and 147-155 USD/t CPT for 2-grade and 3-grade wheat, respectively. In addition, before beginning of the harvesting campaign most experts forecasted the traditional ratio of milling and feed wheat - 40:60, respectively. Therefore, traders concluded most forward contracts for the supply of feed wheat and corn. However, at the end of the harvesting campaign it became clear that the situation with distribution of milling and feed grain formed in diametrically opposite way. As a result, many export-oriented companies looking for large-scale batches of feed wheat, were ready to significantly increase the purchasing prices for realization of the previously signed contract obligations in time. Such situation contributed to the fact that the spread between milling and feed crops survived to the present day.

To date, traders do not have any difficulties in purchasing of feed wheat, but expect for some growth of prices in the short term. At the same time, the Mediterranean region increased the number of feed wheat offers, which somewhat complicated the work of Ukrainian exporters. As a reminder, previously Egypt preferred purchasing Ukrainian wheat, but in the current season the country is quite unpredictable as importer. For the first time in 10 years, India demonstrated its active interest in importing of Ukrainian wheat, which only in the first months of the current season purchased nearly 800 thsd tonnes of the grain.

 

Pain points

In the current season, export-oriented companies focused attention on rather significant rise in the costs for railway and truck shipment, as well as tightening of the weight control on public roads. Due to increasing of the load on railway transport and some changes in the Ministry of Infrastructure of Ukraine, in the current season there was some information about problems with availability of rolling stock and diesel fuel, which worsened the stable operation of trading companies and disrupted the delivery terms. In turn, the increase of tariffs for natural gas and electricity caused almost 50% growth of prices for grain storage and treatment services at elevators. The reporting factors greatly affected the price situation on the wheat market segment, and complicated operations for market participants. Resumption of problems with VAT refunds and increased competition rates among exporters became the other negative factor in 2016/17 MY.

Also the policy of sales restraining by agrarians played its rather important role in the beginning of the season, and many companies were forced to increase the bid prices for agricultural products in order to attract large-scale volumes of grains with high-quality characteristics.

 

Expectations of market operators

Most market participants said that in the nearest future the spread between milling and feed grain group would return to standard. In the nearest months, the bullish trend will dominate on the market, but the record grain production and moderate demand of importers will act as constraining factors. However, the expected devaluation rates of the national currency will somewhat support the export market segment in Ukraine.

 

Anna Tanskaya, APK-Inform Agency

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