Ukrainian market of sunflower seed and its by-products - long-standing prospects

Source

APK-Inform

25487

During several recent seasons, the Ukrainian market of sunflower seed and its by-products continues demonstrating high potential in almost all segments of development. As a result, we observe the record levels of sunflower seed production almost every year, as well as the processing and export volumes of oilseed by-products. According to experts, in the season-2016/17 Ukraine will continue breaking new records: only the production of sunflower seed will increase by 16% compared with 2015/16 MY, according to preliminary estimations.

 

Sunflower seed - highly liquid crop

For several running seasons, Ukraine continues increasing the yield indices of sunflower seed, and became the leader in the oilseed production not only in the Black Sea region, but also in the world. Thus, the growing demand of oilseed processing enterprises and acceptable prices promote agrarians to increase their planted areas.

At the same time, rather high demand for Ukrainian oilseed products on the foreign market is the main driver for growing of oilseed processing volumes, which contributes to the acceptable quality-to-price ratio.

The season-2015/16 for sunflower seed market reached new record figures. So, the harvest of sunflower seed totaled 12 mln tonnes (estimations of APK-Inform Agency), while the planted and harvested areas totaled 5.2 mln ha and 5.17 mln ha, respectively.

However, APK-Inform forecasts that in 2016/17 MY the production volumes of sunflower seed will break the last season record, and total 14 mln tonnes (up 16%). The planted and harvested areas will reach 6.1 mln ha and 6 mln ha, respectively.

At the same time, the Ministry of Agrarian Policy stresses that in 2016 Ukrainian agrarians planted sunflower seed throughout 5.53 mln ha.

Generally, various experts have different assessments concerning the oilseed harvest volumes in 2016, and the production range varies within 11-14.5 mln tonnes. Some oilseed processors announced its minimum estimations, referring to the poor quality of already harvested sunflower volumes in southern oblasts (in some cases, the low yield at 0.8-1.3 t/ha). In central oblasts, the quality of harvested sunflower seed was higher: the yield at 2-2.8 t/ha, oil content - 44-49%.

 

However, market operators often note that agrarians often undercut their reports on the planted areas, harvest volumes and yield indices, as a consequence, the real production volumes of sunflower seed may exceed the official estimations. The September forecast of USDA analysts totaled 13.5 mln tonnes.

The Deputy Commercial Director on purchasing at Pology Oil Extraction Plant PJSC, Andrei Bolgov: "In my opinion, in 2016 the harvest of sunflower seed in Ukraine will be definitely higher compared with 2015. The issue is mainly caused by increasing of the oilseed planted areas by almost 20%, as well as favorable weather conditions. The drought struck southern oblasts only, but in other oblasts the weather was favorable. Generally, in Ukraine the yield indices will be higher than last year, and the qualitative parameters of sunflower seed are much better, in particular the oil content, etc. At the same time, there is a good potential for further growth of the harvest volumes. The ways to increase it - application of advanced technologies for sunflower seed growing."

The major factors contributing to the growth of sunflower seed harvest in the current MY:

- the weather conditions in the autumn and winter of 2015 provided mainly negative impact on winter crops areas, as a result agrarians replanted them with the most profitable crop – sunflower seed;

- high demand on the domestic market of oilseed raw materials (due to increasing of oilseed processing capacities, which contribute to development of favorable prices for agrarians on the market);

- high profitability compared with other oilseeds and grains.

Thus, sunflower seed for agricultural producers is highly liquid crop with good profitability, which varies within 60-85% depending on the season, according to various experts.

 

Sunflower seed processing and exports

The constant increasing of oilseed processing capacities is one of the major characteristics of the market segment. Investment attractiveness of the fat-and-oil industry, high trading activity on foreign markets, assisting to inflow of foreign currency earnings to the country, the existing market potential, as well as other economic components, contributed to the fact that since 2012 the production capacities increased in over 1.5 times. The forecast of APK-Inform Agency for 2016/17 MY stresses the processing capacities at 18.5 mln tonnes of sunflower seed per year.

 

The major projects, realized in 2015/16 MY: launching of the plant of Bunge in Mykolaiv oblast, with the capacities of 2400 tonnes/day; the company ViOil increased the capacities of Vinnitsa plant to 2`850 tonnes/day, Svetlovodsk oil-extraction plant - to 1500 tonnes/day, Bessarabia - to 1000 tonnes/day; modernization of the plants ADM Illichevsk and Delta Wilmar CIS; at the end of the season-2015/16 Nasha oliya put into operation the oil extraction plant with the capacities of 500 tonnes/day; the company Ukroliya modernized its plant capacities to 600 tonnes/day.

To date, there are also several projects for construction of new plants, and modernization of the existing facilities. The company Nizhyn fat plant (Chernihiv oblast) plans to build the first line of the multi-crop oil-extraction plant until the end of 2016 for processing of 1`000 tonnes of sunflower per day. The current capacities of the company total 500 tonnes/day only. The company Vozrozhdeniye (Kirovohrad oblast) plans to reach the capacities of 1`100 tonnes/day in 2017.

Thus, APK-Inform Agency estimates the processing capacities in the season-2016/17 at 13.6 mln tonnes of sunflower seed (up 16.6% compared with 2015/16 MY).

Due to the growth of production capacities, competition rates on the oilseed raw materials market continue tightening, and the issue of sunflower deficit at the enterprises is quite relevant.

Also, we should note the possible growth of sunflower seed export volumes in the season-2016/17 to 100 thsd tonnes (up 20% compared with 2015/16 MY). The demand for Ukrainian sunflower is still high, but in terms of the current export duties the shipment volumes will remain relatively small.

 

Price trends

Despite the relatively high volatility of foreign currency rates in 2015/16 MY, the range of USD/UAH fluctuations remained rather moderate in comparison with 2014/15 MY, which significantly reduced the impact on oilseeds market. Thus, the situation on the export market of sunflower oil and seasonal stocks of raw materials provided the major influence on the price formation of the sunflower seed market.

In the beginning of 2015/16 MY, many oilseed processors managed to form the required stocks of raw materials for several months due to sufficient number of offers on the market. Thus, stable price situation developed until the middle of November 2015.

December-February period faced a rise of prices due to the growth of USD/UAH exchange rates, as well as seasonal factors. In August, the prices started significantly reducing. After the start of the harvesting campaign, the bid prices for new crop sunflower seed decreased by nearly 2`000 UAH/t - to 8`300-8`500 UAH/t EXW. However, by the end of August the prices somewhat grew due to high demand and the bullish trends on the export market of sunflower oil. Also, the CPT prices increased due to the high cost of logistics - 380-410 USD/t СРТ.

At the same time, in September foreign exchange bid prices fell to 370-380 USD/t CPT. The UAH bid prices fell to 9`500-9`700 UAH/t EXW.

 

Sunflower oil: following past practices

Ukraine still continues keeping the leading positions on the global market in production and exports of sunflower oil. According to preliminary estimations of APK-Inform Agency, in the season-2016/17 Ukraine will increase sunflower oil production to 5.7 mln tonnes (up 15.2%), and the exports - 5.2 mln tonnes (up 15.6%).

At the same time, rather high demand for the Ukrainian product causes such significant growth of sunflower oil shipments on foreign markets. Thus, the attractive prices for several running seasons, as well as thin spread between prices for sunflower, soybean and palm oils, put Ukrainian sunflower oil in a more advantageous position compared with other vegetable oils.

In the season-2015/16, the market faced active shipments Ukrainian sunflower oil, which developed even in the off-season period, which is not typical. In particular, Ukraine increased the export volumes to the EU-28 (up 2.5 times), due to the duty-free agreement. At the same time, Ukraine still shipped the major volumes to Asian countries.

At the same time, the domestic consumption in Ukraine remained almost unchanged. But in 2016/17 MY, the figure will reach nearly 470 thsd tonnes.

 

As for the price dynamics, the Ukrainian export market of sunflower oil was still affected by the situation on the global market of vegetable oils and petroleum products.

In September 2015, Ukrainian sunflower oil faced the strongest decline of prices in 2015/16 MY. Thus, the bid prices decreased to 725 USD/t FOB in terms of increasing of the world production of oilseeds, beginning of sunflower harvesting campaign in the countries of the Black Sea region, etc.

The maximum rates of bid prices for sunflower oil of Ukrainian origin formed in October-November period of 2015 (820-840 USD/t FOB), due to the high demand and some restoration of prices on the global market of petroleum products, as well as in May-June of 2016 (805-810 USD/t FOB) in terms of seasonal decreasing of the number of proposals.

 

Last season, the domestic market of sunflower oil demonstrated high volatility of prices, because the price dynamics was mainly determined by the situation on the export market. Trade activity rates were assessed as high, due to reasonable prices and increased export demand.

In September 2015, the market formed the minimum purchasing prices for sunflower oil – 17`500-17`600 UAH/t EXW, and the maximum bid prices developed in February 2016 - 23000 USD/t EXW.

Since the beginning of the season-2016/17, increased customer activity rates and unsaturation of the market with new offers provided support to the prices. Only in late September the domestic prices started its seasonal reduction. At the same time, the export market of sunflower oil showed slight increasing of the prices.

 

 

Ukraine: companies-exporters of sunflower oil in 2015/16 MY

Company name

`000 tonnes

share

1

Kernel-Trade LLC

984,17

21,87%

2

Cargill AT LLC

376,51

8,37%

3

PJSC Myronivsky Plant for Manufacturing Groats and Feeds

323,53

7,19%

4

Suntrade

190,53

4,23%

5

Delta Wilmar CIS Ltd

134,81

3,00%

6

Optimus Plus LLC

94,96

2,11%

7

Allseeds Black Sea LLC

91,53

2,03%

8

Pology Oil Extraction Plant PJSC

82,64

1,84%

9

D&I Evolution TOV

78,03

1,73%

10

Agrointer LLC

75,77

1,68%

11

Glencore Grain Ukraine

72,63

1,61%

 

Others

1 995

44,33%

 

TOTAL

4 499,93

100,00%

According to the customs statistics figures

 

Sunflower meal (cake)

The season for the Ukrainian market of sunflower meal/cake started with news about putting of several oblasts in quarantine due to the spread of African swine fewer. Many market operators thought that such actions were triggered with the aim of artificially lowering of the prices for sunflower meal/cake. Also, several companies-producers, which previously exported the product to Belarus from the damaged oblasts, had to change the geography of sales. According to the statistics figures, Belarus is one of the main countries-importers of Ukrainian meal/cake.

According to APK-Inform forecasts, in 2016/17 MY the production of sunflower meal/cake in Ukraine will reach 5.44 mln tonnes, against 4.66 mln tonnes last season. The exports will rise to 4.5 mln tonnes, against 3.7 mln tonnes in the season-2015/16.

At the same time, the domestic consumption will remain almost unchanged, and APK-Inform analysts estimated the index at 1 mln tonnes.

 

The domestic market of sunflower meal and cake was characterized with relative stability of prices during almost the whole season-2015/16. Price fluctuations were observed in the beginning of last marketing year only due to foreign market conditions (expectations for the growth of global production of oilseed meals), as well as traditional winter period.

But in May 2016, the domestic prices of sunflower meal/cake significantly increased. So, the seasonal decrease in supply of rapeseed on the global market provided a significant support to the export prices for Ukrainian sunflower meal. In June-July period, the DAP bid prices reached 270-300 USD/t, FOB prices - 250-260 USD/t.

Also, the selling prices on the domestic market increased, and in the summer they reached 6`900-7`300 UAH/t EXW for sunflower meal, and nearly 6`500 UAH/t EXW for sunflower cake.

It is worth noting that in late September the prices fell to the last season levels – 5`100-5`400 UAH/t EXW for sunflower meal, and 4`500-5`000 UAH/t EXW for sunflower cake. Market operators noted the further development of the bearish trend.

In late September, on the export market of sunflower meal the bid prices fell to 175-180 USD/t DAP-Poland and 200-225 USD/t DAP-Belarus. The FOB prices varied within 180-190 USD/t.

 

Forecasts

Despite the unstable economic and political situation in the country, the fat-and-oil industry continues actively developing, and increases its production capacities, and export volumes of major oilseeds. At the same time, further tightening of competition rates on the domestic market has a corresponding impact on the price situation and contributes to expansion of the planted areas, especially for sunflower seed. But market operators noted that there will be no significant increase of the planted areas under sunflower in several nearest years, due failures with crop rotation observance.

In the short term, the high demand for sunflower seed will neutralize the seasonal fall of prices at the end of the harvesting campaign. At the same time, agrarians noted that in terms of bearish price movements, they will pause the sales and sell the oilseed in terms of more favorable pricing environment. Thus, the oilseed is the main asset of agrarians due to its high liquidity and potential price increasing.

As for the prices for sunflower oil, the growing interest in the oilseed by-product on foreign markets (due to favorable price and quality ratio) will help to increase the export volumes. Therefore, such situation will slightly support the domestic prices in October. Then, until the end of the first half of the season-2016/17 the market will mainly face the bearish trend.

  Svetlana Gnoevets, APK-Inform Agency

 

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