Market of alternate grain crops in Ukraine

Source

APK-Inform

14220

 

In the current season, the market segment of alternate grain crops faced the upward trends in production. According to APK-Inform calculations, the planted areas under the reporting crops increased by 10% compared with the previous year, and even exceeded 1 mln ha. At the same time, due to the growth of yield indices of most crops, the general harvest in the alternate grains segment increased by 27%, and totaled 2.5 mln tonnes, or nearly 4% of the general harvest of all grain crops in Ukraine. At the same time, there was observed a decline in production for certain crops, and some other crops faced the pressure of overabundant supply on price dynamics. The present article covers the basic trends in the market segments of key alternative grain crops.

 

Rye

In terms of the general positive trends in the production of alternative crops, rye production in Ukraine continued demonstrating a gradual decline for 5 recent seasons. Despite slight increasing of the average yield in the current season, which APK-Inform estimates at 2.73 t/ha (record figures), reduction of the planted areas caused the same decrease of the harvest volumes to 388 thsd tonnes.

 

 

The record yield figures are still quite low in comparison with other grains (wheat – 4.23 t/ha, barley – 3.35 t/ha), which makes the grain unattractive for agrarians in terms of the absence of strong demand from importers. Therefore, Ukraine can reach the previous high production volumes only in terms of compensation of low yields with the higher prices, as well as increased demand rather from both grain processors and importers.

As for regional distribution, the planted areas under rye demonstrate rather high level of concentration. So, nearly 70% of the general planted areas of rye in the country focus in 5 oblasts. Volyn oblast is the leader by the planted areas, where agrarians planted rye for the harvest-2016 throughout 26.4 thsd ha, or 18% of its general areas in the country. Also, there are significant shares of rye areas in Chernihiv (17%), Zhytomyr (16%), Rivne (13%) and Kiev oblasts (6%).

 

TOP-5 oblasts of Ukraine by rye planted areas in 2016

Oblast

Planted areas, `000 ha

Share, %

Volyn oblast

26,4

18%

Chernihiv oblast

23,7

17%

Zhytomyr oblast

22,5

16%

Rivne oblast

19,2

13%

Kiev oblast

8,3

6%

Others

43,3

30%

Due to the fall of rye production volumes, in 2016/17 MY the total supply is estimated at 629.8 thsd tonnes, down 12% compared with the previous season. At the same time, the volumes of domestic food processing, which dominate in the supply and demand balances, remain quite stable, and total nearly 240-250 thsd tonnes during four recent seasons.

 

 

 

Analysis of the dynamics of rye flour production in Ukraine confirms rather stable level of its food consumption. During two recent years, the annual production of rye flour totaled over 140 thsd tonnes, while two years before the figure varied within 160-167 thsd tonnes per year. It should be noted that the market has fairly stable demand for rye flour, due to gradual changes in food culture and increasing of the consumer interest in rye bread.

 

 

Kiev oblast takes the leading position in rye processing into flour, which enterprises produced 32.9 thsd tonnes of the product in 2015, or 23% of its general production. Also, Kharkiv oblast produced nearly 14% of rye flour from the general production in Ukraine, and Khmelnytskyi oblast - 10%.

 

TOP-5 oblasts of Ukraine by rye processing volumes in 2015

Oblast

Rye flour production, `000 tonnes

Share, %

Kiev oblast

32,9

23%

Kharkiv oblast

19,6

14%

Khmelnytskyi oblast

14,0

10%

Sumy oblast

12,4

9%

Rivne oblast

11,3

8%

Others

50,4

36%

 

In terms of stable domestic demand for rye flour, last season Ukraine faced a significant increase in the imports of both raw material and the finished product. Thus, in 2012/13 and 2013/14 MYs Ukraine almost did not import rye and rye flour, but in 2015/16 MY the imports reached 15 thsd tonnes and 21.2 thsd tonnes, respectively. At the same time, in July-September of 2016/17 MY rye imports reached 1.4 thsd tonnes, and rye flour - 11.5 thsd tonnes. Active imports of rye flour impact on the price dynamics of rye bread.

 

 

As for the price dynamics for rye and rye flour in Ukraine, we can conclude that the price situation in the market segment is relative low volatile. At the same time, reduction of the planted areas, situation on the adjacent markets, as well as competition from Belarusian flour millers, are the key pricing factors.

So, last season the purchasing prices for rye gradually increased from 2400-2850 UAH/t CPT to the maximum value within 3900-4250 UAH/t CPT. Reduction of grain carry-over stocks supported the price growth in terms of fairly strong demand of consumers. In turn, the rye flour sector faced the bullish trend mainly in the second half of last season. So, at the end of 2015/16 MY the offer prices for Ukrainian rye flour varied within 4850-5800 UAH/t EXW, against 3500-4500 UAH/t EXW in the beginning of last season.

In December 2016, the purchasing prices for rye varied within 3300-3800 UAH/t CPT. And grain processors usually announced the selling prices for rye finished product within 4600-5800 UAH/t EXW, in most cases the customer demand was rather moderate.

 

 

As for the forecast for further development of the situation on the rye market, and taking into account the fact that mainly winter crop areas almost completely form the harvest volumes (99%), in the new season Ukraine should expect for some increase in production. According to the Ministry of Agrarian Policy, the planted areas for the harvest-2017 reached 158 thsd ha. In terms of the stable level of yield, the production volumes of rye will surely increase.

 

Oats

During five recent years, the market of oats demonstrated a fairly high level of volatility in production volumes. The planted areas under the grain continued gradually reducing, and in the current season they reached the minimum figures - 210 thsd ha, down 32% compared with the areas for the harvest-2012 (310 thsd ha).

  

At the same time, the upward trend in the yield indicators of oats allows to partially compensate the decline of planted areas. As a result, in the current season APK-Inform estimates the harvest volumes at 515 thsd tonnes, down 18% only compared with 2012/13 (630 thsd tonnes).

In 2016, Volyn oblast concentrated nearly 19% of the general planted areas of oats in Ukraine, or 39.5 thsd ha. Zhytomyr oblast planted the grain throughout nearly 30.4 thsd ha (14%), and Chernihiv oblast - another 28 thsd ha (13%). Generally, the joint share of the TOP-5 oblasts covered 64% of oats planted areas.

 

TOP-5 oblasts of Ukraine by oats planted areas in 2016

Oblast

Planted areas, `000 ha

Share, %

Volyn oblast

39,5

19%

Zhytomyr oblast

30,4

14%

Chernihiv oblast

28

13%

Rivne oblast

21,2

10%

Lviv oblast

16,2

8%

Others

74,7

36%

 

As for oats distribution in Ukraine, feed consumption dominates in the supply and demand balances. In the current season, the index is estimated at 360 thsd tonnes, while the total supply - 599.8 thsd tonnes.

 

 

As for other items of supply and demand balances, we should note that their volumes are insignificant. The food consumption is fairly stable, and varies within the range of 70-75 thsd tonnes. In the current season, the exports will reach 50 thsd tonnes, including nearly 18.9 thsd tonnes already exported in July-October period. To date, India and Pakistan are the main countries-importers of Ukrainian oats.

It should be noted that the share of oat groats demonstrate quite insignificant volumes in the general volumes of food processing of the grain. In the reporting period, Ukraine showed the maximum volumes of oat groats production at large-scale processing plants in 2013, and the index reached 4.3 thsd tonnes only. In 2015, the index totaled 2.4 thsd tonnes. Production of oat flakes and muesli products covers all remaining volumes of oats food processing.

 

 

The production of oats groats almost entirely concentrates in just five oblasts. Kiev oblast took the leading position with a production capacity of 0.9 thsd tonnes in 2015 (37% of the general production). Also, Kharkiv oblast produced nearly 34% of oats groats, and Chernihiv oblast - 12%.

 

 

TOP-5 oblasts of Ukraine by oats food processing volumes in 2015

Oblast

Oat groats production, `000 tonnes

Share, %

Kiev oblast

0,9

37%

Kharkiv oblast

0,8

34%

Chernihiv oblast

0,3

12%

Sumy oblast

0,2

9%

Odessa oblast

0,1

5%

Others

0,1

3%

 

In 2015/16 MY, the price situation in the oats sector demonstrated relative stability rates. Generally, last season the sector developed a bullish trend due to a number of fundamental factors: gradual declining of carry-over stocks, increasing of the production costs and devaluation of the national currency. So, at the end of last season the bid prices gradually increased from 2000-2800 UAH/t to 3500-4100 UAH/t CPT.

In December 2016, grain processing enterprises realized purchases of the grain at 3100-4200 UAH/t CPT. At the same time, there is some information that qualitative indicators of oats often do not meet the GOST requirements, in particular on the nature indicators.

  

As for the further development of oats market segment, in terms of the current reduction of cattle and poultry livestock in Ukraine, the demand for oats also continues reducing, and the demand for raw materials for food processing is quite negligible. Therefore, only activation of demand from importers can stimulate the grain production segment.

 

Sorghum

Demand from importers is the key factor in formation of sorghum planted areas. Therefore, the production indicators usually demonstrate fluctuating character. Ukraine reached the maximum production volumes in 2013/14 MY - 354 thsd tonnes, while the planted areas totaled 145 thsd ha.

 

 

In the following years, Ukraine continued decreasing the areas, and last season the country reached the lowest figure - 51 thsd ha. At the same time, the growth of yield somewhat compensated the impact of reducing planted areas, which last season broke a record – 3.72 t/ha. In the current season, APK-Inform estimates the planted areas at 64 thsd ha, and the average yield – 3.75 t/ha, which allows to harvest 236 thsd tonnes of the grain.

Traditionally, the main planted areas under sorghum concentrate in southern oblasts of Ukraine. Mykolaiv oblast is the leader by the indicator, where agrarians planted the grain throughout 10.5 thsd ha in 2015, or 20% of the general areas in the country. Also, Dnipropetrovsk oblast had nearly 17% of the areas (8.5 thsd ha), and Kherson oblast - 11% (5.6 thsd ha). Generally, the TOP-5 oblasts covered 67% of the general planted areas of sorghum.

 

TOP-5 oblasts of Ukraine by sorghum planted areas in 2015

Oblast

Planted areas, `000 ha

Share, %

Mykolaiv oblast

10,5

20%

Dnipropetrovsk oblast

8,5

17%

Kherson oblast

5,6

11%

Odessa oblast

4,9

10%

Kirovohrad oblast

4,7

9%

Others

17,2

33%

 

The distribution of sorghum mainly focuses on export sales. During 4 previous seasons, Ukraine exported nearly 54% of the total supply of sorghum annually. In the current season, the export share is estimated at 72%, or 200 thsd tonnes in absolute terms. The index increased, due to reduction of feed consumption, caused by some decline of cattle livestock. In the current season, the figure will total 50 thsd tonnes.

 

 

In 2015/16 MY, the EU became the main importers of Ukrainian sorghum. So, Ukraine exported 51.9 thsd tonnes of sorghum to Italy, or nearly 44%. Spain imported nearly 23% (27.8 thsd tonnes), and Poland – nearly 4% (4.8 thsd tonnes). Also, Ukraine supplied significant volumes to Israel (14.4 thsd tonnes) and Turkey (8.2 thsd tonnes). Generally, the TOP-5 of countries-importers purchased nearly 90% of sorghum deliveries.

 

 

During two months of the current season (September-October), Ukraine exported nearly 1.4 thsd tonnes of sorghum, or down 22% compared with last season. Traditionally, Ukraine realizes the largest volumes of deliveries in November-December period, so the forecast of sorghum export potential will be adjusted in accordance with the delivery volumes in the above-mentioned period.

In 2015/16 MY, the price situation on the sorghum market demonstrated a bullish trend. Last season, the purchasing prices for sorghum gradually increased from 3000-3600 UAH/t to 3300-4250 UAH/t CPT, and in a few cases they reached the maximum level - 4350 UAH/t CPT. According to market participants, rather active demand of export-oriented companies and some decline of grain stocks provided sufficient support to the prices.

In December 2016, the bid prices varied within 3200-4300 UAH/t CPT. According to market participants, the supply of white sorghum was rather limited, while the red and cream sorghum was sufficient with high-quality grain indicators.

 

 

As for the prospects of the market segment, it is worth noting that in terms of the global reduction of sorghum imports, the grain is becoming less attractive for Ukrainian agrarians, and can develop only as insurance crop in the areas of risk agriculture - the regions with mostly drought climatic conditions. In the new season, formation of the planted areas will largely depend on realization of sorghum export potential. The domestic alcohol industry can also be observed as the alternative direction of sales, but the prospects are rather ill defined.

 

Andrei Kupchenko, Anna Tanskaya, APK-Inform Agency

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