In the first month of the new season, the Ukrainian market of corn faced rather mixed situation. On the one hand, the grain segment has the surplus of supply on the global market, but on the other hand, some backlog of the harvesting campaign rates and limitation of active sales by agrarians, can cause a lack of supply and strengthening to the prices on the domestic market.
Global impact
According to the November USDA forecasts, in 2016/17 MY the global production of corn will reach a record level of 1.03 bln tonnes, an increase of 7% compared with 2015/16 MY, and up 2% compared with the previous record in 2014/15 MY at 1.01 bln tonnes. At the same time, the forecast of global corn imports in 2016/17 MY reduced by 3%, and totaled 134.1 mln tonnes, against 138.8 mln tonnes last season. Also, the following countries from the list of countries which form the TOP-10 of major importers, will demonstrate the most significant reduction of corn purchases: Vietnam (down 18%), Malaysia (down 12%) and Taiwan (down 7%). In addition, South Korea and China will likely reduce corn imports - down 3% for each country. Therefore, such trading figures cause the growth of the ending stocks of corn in the world to 218.2 mln tonnes, or 22% of the global consumption of corn, which is a record. Combination of the reporting factors makes a significant impact on the price dynamics in the certain market segment. Also, the global market of corn will increase its competition rates, as the growth of grain stocks is typical for the key global exporters - Argentina (up 95%), the USA (up 38%) and Brazil (up 11%). Thus, in the current season Ukrainian traders will have to make their best for successful realization of the export potential of domestic corn, taking into account all negative factors of the domestic market.
Major factors of the domestic market
According to APK-Inform analysts, in 2016/17 MY the general harvest of corn in Ukraine will total 25.7 mln tonnes, up 10% compared with the previous season. At the same time, there is concern that in terms of the current weather conditions and the harvesting campaign rates, agrarians will fail to reach the figures. As for the distribution rates, in the current season the domestic consumption of corn will reduce by 1% compared with last year - to 8 mln tonnes. In terms of the specified production volumes and domestic consumption, the export potential is estimated at 18 mln tonnes, up 9% compared with last year.
In October 2016, Ukraine supplied 1.35 mln tonnes of corn on foreign markets, which became an absolute record for the certain month during all previous seasons. It became one of the positive factors.
Rather difficult agro-climatic conditions during the harvesting campaign became one of the major negative factors in the current season. According to operative data of the Ministry of Agrarian Policy and Food, as of November 18 agrarians harvested corn throughout the areas of 3.3 mln ha, down 11% compared with the same date last season (3.8 mln ha), which totaled 79% of the forecasted harvested areas (4.2 mln ha). The average yield in the current season increased by 13% compared with last year (6.24 t/ha in 2016, against 5.53 t/ha on the same date in 2015), which allowed compensating the backlog of harvesting campaign rates, and provided the harvest volumes at the last season level - 20.8 mln tonnes. At the same time, very humid environment made negative impact at the grain quality, and caused the further development of diseases and pathogenic microflora. Also, final drying in forced regimes can cause grain splitting and increasing of grain impurities. Thus, we can add the quality problem to the above mentioned uncertainty with corn production volumes.
Quality of new crop corn
Despite the fact that agrarians still provide the harvesting campaign works, within frames of the monitoring realized by APK-Inform experts, most market operators noted that the qualitative characteristics of new crop corn are much better than last season. Thus, agrarian from Zaporizhia oblast reported:
"In the current season, we do not observe any problems with qualitative parameters of corn. Precipitations almost did not impact at the harvesting campaign. Thus, we harvested most grain volumes in late September, and the humidity indicators often did not exceed 13-15%. I should note that the high air temperature in the southern region allowed avoiding any additional costs for grain drying. Also, the price situation was quite favorable, but we managed to sell small-scale volumes of the grain only, and plan to sell the major volumes after significant increasing of the purchasing prices."
At the same time, those agricultural producers who failed to complete the harvesting campaign until worsening of the weather conditions, informed about some reducing of the grain qualitative indicators. The list of major problems included disease contamination (including smut) and high moisture content which reached 18-27% in some cases. Also, treatment of corn with high moisture content produces a large share of broken and damaged kernels. At the same time, agrarians noted that to date, in most regions of Ukraine there are quite favorable weather conditions for ending of the harvesting campaign, and the cold weather will cause some reduction of the moisture level in corn.
We should note that rather low rates of the harvesting campaign were usually observed in the northern and central regions of Ukraine, in particular Poltava, Chernihiv, Sumy and Kharkiv oblasts, which are the leaders in corn production in the country. For example, agrarian from Sumy oblast reported the following information:
"Our company already harvested corn throughout nearly 70% of the planned areas. The situation developed due to rather prolonged rainy weather, which is not allowed to machinery to come to the field. But to date, we make our best to complete the harvesting campaign of corn until the end of November. The average yield totals 7 t/ha, and in some cases - over 11 t/ha. As for the qualitative parameters of corn, there are no problems at all. To date, the moisture level of kernels varies within the range of 20-26%, which requires additional drying services. We plan to stock the grain after the end of harvesting works, do not plan not sell yet."
To date, most market operators prefer avoiding to give any estimations of the qualitative characteristics of corn of the harvest-2016, and the further development of the price situation. However, the need for additional treatment of corn in the current season will form additional financial costs, which will strengthen the prices, and make difficulties to traders, due to the current global bearish trend. At the same time, foreign currency fluctuations will only partly compensate the increased costs.
Price situation on the domestic market
As a reminder, last season the bullish trend dominated in the market segment, and at the end of 2015/16 MY the bid prices reached 4`000-5`100 UAH/t CPT, an increase of nearly 1`400-2`000 UAH/t compared with the beginning of the season.
In the beginning of 2016/17 MY the bid prices for corn fell to 3`500-4`200 UAH/t CPT, with the offer price at 3`800-4`300 UAH/t EXW, due to the influence of seasonal factors. However, by late October 2016 the trend turned to rising of prices caused by a limited number of grain offers in terms of high demand from both grain processors and export-oriented companies. We should note that the trend continued developing until the third ten-day period of November 2016, and the supply/demand prices rose to 4`000-4`500 UAH/t EXW and 3`900-4`400 UAH/t CPT, respectively. To date, there are no significant price changes on the market, and the number of grain offers is quite sufficient.
Price situation on the export market
On FOB basis, in the first half of 2015/16 MY the price dynamics was extremely low-fluctuating, and the supply/demand prices for feed corn varied within 164-174 USD/t and 162-171 USD/t FOB, respectively. But the second half of the season demonstrated a significant growth of prices, due to rather strong demand of importers in terms of a decline of the global carry-over stocks, and corn shortage in the country. As a result, in mid-June the supply/demand prices reached the maximum values - 207-213 USD/t and 200-206 USD/t FOB, respectively. During several recent months, the market segment showed low trading and purchasing activity rates, and the prices were mostly declarative.
In the beginning of 2016/17 MY, the supply/demand prices fell and varied within the range 163-165 USD/t and 159-162 USD/t FOB, respectively. Further, the price situation developed in accordance with the situation on the global market, and the prices started growing. By late October, the grain prices reached the level of 170-173 USD/t and 166-169 USD/t FOB, respectively.
However, since the beginning of November 2016 the supply/demand prices for Ukrainian corn began gradually lowering, and reached the range of 167-169 USD/t and 163-166 USD/t FOB, respectively. According to traders, the November USDA report made the major influence on formation of corn prices, which increased the forecast of corn production in the world in 2016/17 MY.
In turn, in 2015/16 MY CPT-port market segment demonstrated the bullish price trend. So, if in the beginning of last season traders purchased the grain in the ports of Ukraine at 3`000-3`150 UAH/t, then in June 2016 the price range totaled 4`900-5`400 UAH/t due to some shortage of corn offers. In USD terms the prices mainly repeated FOB trends and in the first half of 2015/16 MY the price range totaled 143-152 USD/t CPT-port in most cases. At the same time, in the second half of the season many traders significantly increased the prices to 170-180 USD/t CPT-port, and in rare cases - 183-185 USD/t CPT-port, in order to attract large-scale stocks of corn with high-quality indicators.
In the new season, the market segment faced a gradual decline of prices - to 4`100-4`500 UAH/t and 143-146 USD/t CPT-port, which in the following months gave way to the bullish trend again. Thus, in the first months of 2016/17 MY most traders were forced to increase the bid prices by nearly 200-500 UAH/t, and in the beginning of November 2016 the price range usually totaled 4`500-4`700 UAH/t CPT-port, and in USD terms - 148-155 USD/t CPT-port.
To date, the price situation on CPT-port platform develops similarly with the global market, and the prices reduced to 4`350-4`650 UAH/t, and in USD terms - to 145-152 USD/t.
In such market trends, most market operators failed to make any long-term forecasts about the price situation in the market segment. At the same time, the simple absence of the required number of rail cars for corn transportation became the key problem in realization of the export potential, but not the qualitative indices.
We can conclude that in the current season, the global and domestic factors will have almost equivalent pressure at the Ukrainian market of corn. At the same time, the quality issue will not have any significant effect at the price situation in the first half of the season, and come to the fore in the second half of the marketing year.
