Ukrainian export market of wheat in the first half of 2016/17 MY

In terms of large-scale production of wheat in the world, Ukraine started facing some difficulties to keep its leadership positions in the rating of countries-exporters. The list of positive moments of the current season includes improving of the qualitative parameters of wheat of the harvest-2016, and enlargement of the share of milling grain in the crop harvest structure. At the same time, high competitive rates on foreign markets and low selling rates on the domestic market became the major complicating factors.

Position of Ukraine on the global market

Due to large-scale harvest volumes of wheat, which APK-Inform analysts estimated at 26.5 mln tonnes, and the available carry-over stocks, in 2015/16 MY Ukraine managed to increase the export volumes and strengthen its positions on the global market. So, last season Ukraine supplied 16.9 mln tonnes of wheat on foreign markets, and took the 5th position in the rating of global countries-exporters of the grain.

At the same time, in 2016 the harvest volumes of wheat in Ukraine decreased, and totaled 26 mln tonnes, down 1.9% compared with the previous season results, according to APK-Inform figures. Taking into account the domestic consumption at 11.4 mln tonnes (down 1.8% compared with 2015/16 MY), and the carry-over stocks at 2.8 mln tonnes (down 17.1%), the export potential of Ukrainian wheat totals nearly 15.2 mln tonnes, down 10.3% compared with the previous season.

Thus, in the current season Ukraine moved to 6th position in the rating of the global wheat exporters. Also, Ukrainian wheat receded from its leadership position as the major grain export item, and corn restored its primacy on the export market of grains.

Export geography of Ukrainian wheat

The high rates of global wheat production in 2016 contributed to development of a bearish trend on the global market, therefore competition rates on foreign markets somewhat increased, and demand rates of importers started reducing. In particular, the Mediterranean region increased the supply of feed wheat, and Russia also harvested record volumes of wheat, which although faced some problems with qualitative parameters.

In the first half of 2016/17 MY, Ukraine demonstrated rather high rates of wheat export shipments. Thus, in August Ukraine exported 2.7 mln tonnes of wheat, which became an absolute record for the reporting month. Generally, in July-December of 2016 Ukraine supplied 11.5 mln tonnes of wheat on foreign markets, or 73% of the export potential volumes.

Also, Ukraine reduced wheat exports to such key market, such as Egypt, which in the current season was rather unpredictable as importer. The situation was caused by periodic introduction and cancellation of the country's requirements for the zero content of ergot in imported wheat. But in mid-January 2017, Egypt simplified the inspection processes of imported wheat. So, traders expect for continuation of cooperation with the North African country.

Reduction of wheat export supplies to Thailand and Spain became another negative trend. In the first half of the season Ukraine supplied to the reporting destinations 1.4 mln tonnes of the grain, against 1.6 mln tonnes in the same period last season, and 276 thsd tonnes, against 827 thsd tonnes, respectively.

At the same time, in the current MY Ukraine opened a perspective sales market - India, which for the first time during 10 recent years showed active interest in purchasing of Ukrainian wheat, and took the leading positions in imports of the grain. During the first half of the season, Ukraine supplied nearly 1.8 mln tonnes of wheat to the country, or 15% of the general export volumes of the Ukrainian grain.

Price formation in the wheat sector

In the first half of 2016/17 MY, traders focused on problems with VAT refund, significant increasing of tariffs for railway and vehicle transportation, as well as tightening of weight control on public roads. In turn, such factors caused problems with availability of rolling stock and diesel fuels, which often limited stable operations of the companies. Also, the Government increased tariffs for natural gas and electricity, which lifted up the prices for elevator services by almost 50%. Generally, the reporting factors lowered the profits of traders. But due to significant volatility of the national currency rates, Ukrainian exporters managed to neutralize some above-mentioned effects, and supply wheat on foreign markets at competitive prices.

To date, traders reported about some difficulties in formation of large-scale batches of wheat, due to limiting of grain sales by agrarians. Thus, the purchasing prices for milling and feed wheat in the ports of Ukraine mainly reached 5050-5300 UAH/t and 4850-5500 UAH/t CPT-port respectively, against 3500-4250 UAH/t and 3600-4000 UAH/t in the beginning of the season.

On FOB basis, in the beginning of February the offer prices for milling wheat with 12.5% protein content and feed wheat often varied within the ranges 183-187 USD/t and 171-177 USD/t with delivery in February-March, up nearly 17-22 USD/t compared with the beginning of the season. As a reminder, in the first months of the season the prices for 12.5% milling wheat and feed wheat reduced to 164-168 USD/t and 154-157 USD/t FOB, due to the global market influence.

Opinion of market operators

Despite the dominating influence of the global production and carry-over stocks, most traders expect for further development of the bullish trend. According to them, difficulties with formation of large-scale grain batches in the second half of the season, due to gradual reduction of the grain stocks, as well as the growth of price quotations for major grain crops on foreign markets, will become the key factors contributing to the following upward trend in wheat prices.

At the same time, many representatives of Ukrainian export companies reported that in terms of unstable foreign currency rates, it is quite difficult to forecast the further development of price situation and conclude any new forward contracts. And in the short term, until beginning of the spring crops planting campaign, traders expect for development of trading and purchasing activity in the grain sector, which will lead to increasing of grain supply and keeping prices down.

Anna Tanskaya, APK-Inform Agency