Ukrainian market of oats and millet in 2016/17 MY - price trends and influencing factors

A bullish trend became the key feature for the oats and millet market segments in the current season. Rather limited number of offers for large-scale grain lots due to reduction of the planted areas, the qualitative characteristics of grain raw materials, and relatively high demand of companies-processing became the main influencing factors.

Millet

According to APK-Inform estimations, in the current season the production of millet decreased by nearly 11.1% compared with the previous year, and totaled 190 thsd tonnes. The reporting trend mainly developed due to some decreasing of the grain planted areas (down 3.3% compared with 2015/16 MY), and decreasing of the average yield to 1.76 t/ha, against 1.89 t/ha in the previous year. We should note that Zaporizhia and Kherson oblasts are the major production regions of millet in Ukraine, which production volumes totaled 27.33 thsd tonnes and 22.72 thsd tonnes, respectively. At the same time, the qualitative indices of millet of the harvest-2016 mainly met all State Standard requirements (GOST). Only in April-May of 2017, consumers informed about increased foreign material, as well as large share of wet raw materials, which affected the rates of trading and purchasing activity in the market segment and development of the price situation.

In the current season, the prices for millet increased in discretionary way, mainly due to the growth in demand and qualitative indices of the raw materials provided by agrarians. Thus, after a seasonal decline of prices in the beginning of 2016/17 MY the bid prices in August 2016 developed within the range of 3`000-3`800 UAH/t СРТ, and there were no significant changes until October 2016. In terms of growing of demand and reducing of the number of offers of high-quality grain, the prices started rising, and reached the peak in March 2017. So, in October-February period millet prices grew by nearly 200 UAH/t, only in March the prices increased by 300 UAH/t to 3`400-4`300 UAH/t СРТ. According to market operators, growing of the demand level became the main reason for the situation development. However, rather low qualitative characteristics of the raw materials and high prices often did not satisfy buyers, who started lowering the bid prices in late March 2017. As a result, in late March -May 2017 the purchasing prices almost moved to the level in October 2016.

"Our enterprise mainly prefer choosing high-quality grain raw materials, but the market proposes raw materials with completely different characteristics. In my opinion, from year to year Ukraine has the same problems with millet qualitative indices, due to the relatively complex technology of the crop cultivating. During the season, we often met too wet and weedy raw materials, because agrarians preferred selling the better quality grain at the maximum prices. The large-scale lots quite actively came to the market, and even to date agricultural producers offer rather large lots of millet (to 400 tonnes), but most companies already formed the necessary stocks and even paused all purchasing operations," - commented a market participant from Kharkiv oblast.

Oats

In the current season, the planted areas under oats also decreased, and totaled 209 thsd ha. However, the growth of yield figures compensated the issue - 2.4 t/ha, against 2.32 t/ha in 2015/16 MY. Thus, the general harvest of oats totaled 500 thsd tonnes, up nearly 11 thsd tonnes compared with the year before. Volyn (16%), Zhytomyr (15%) and Chernihiv (13%) oblasts became the leaders in oats production.

We should note that the price situation in the market segment largely dependent on the qualitative indices of the grain, which were fairly high in the beginning of the season . Since October, market participants often provided information about decline in the quality of raw materials. For example, consumers informed that moisture and natural weight indices did not meet the GOST requirements.

In the beginning of 2016/17 MY, the oats market faced a traditional price decline due to the seasonal factor. As a result, the market increased a number of new crop offers at rather low prices, and most grain processors reduced the bid prices by nearly 400 UAH/t - to 3`100-3`700 UAH/t CPT. But in September 2016, representatives of grain processing companies reported about the deficit of offers to large-scale lots of high-quality oats and had to raise their purchasing prices. The reporting trend continued developing until the end of March, and the bid prices grew by nearly 250-900 UAH/t to 3`350-4`600 UAH/t СРТ, and there were significant adjustments. Only since April 2017, the price situation turned to a bearish trend, due to some increase in the number of raw commodity offers. Thus, by the beginning of June 2017 the bid prices declined by nearly 100 UAH/t, and reached the range of 3`350-4`500 UAH/t CPT. We should note that several grain processors had to stop their purchasing operations due to rather low demand for oat groats, and usually announced declarative prices.

According to a grain processor from the central region:

"Since the beginning of the season, the purchasing prices for grain raw materials significantly increased by nearly 900 UAH/t. Large volumes were available on the market throughout the whole MY, but we managed to purchase large-scale grain lots of 1000 tonnes only in Volyn, Zhytomyr, Chernihiv and Sumy oblasts. But almost all oblasts of Ukraine proposed the average lots (200-300 tonnes). As for the qualitative indices, we faced two major problems in the current season - low rates of natural weight and a large share of blackened grain.  In single cases, the market also proposed oats with double hull content, but in general in the first half of the season the number of lots with high-quality grain was sufficient."

Expectations of market operators

Generally, most market participants expected that in the short term the reporting market segments will continue developing their current downward trend in prices, due to the low qualitative indices of grain stocks and reduction of the consumer demand . However, most grain processors are not ready to estimate the situation development in the long term. At the same time, the further reduction of crop planted areas, the supply/demand ratio, and the qualitative parameters of new crop grains will be the key influencing factors in 2017/18 MY.

Comment by Andrei Kupchenko, grain market analyst at APK-Inform Agency

Despite the steady decline in millet production, its domestic consumption remained relatively stable, and APK-Inform estimated the index at 120 thsd tonnes in the current season. At the same time, the food processing will cover nearly 55 thsd tonnes, and the same volume for forage consumption. The export potential of Ukrainian millet is estimated at 80 thsd tonnes, and companies-exporters already supplied 74.3 thsd tonnes of the grain on foreign markets. It should be noted that the market of millet continues actively developing export orientation.

In the new season, the bearish trend in production will continue. According to our forecasts, the harvest of millet in 2017 will total nearly 165 thsd tonnes, including 104 thsd tonnes for domestic consumption, and nearly 75 thsd tonnes for exports.

As for the oats market, the forage consumption is the major article of supply/demand balances, and APK-Inform estimated the figure in the current season at the level of 360 thsd tonnes. In the current MY, the food processing will total 75 thsd tonnes, and the exports - 38 thsd tonnes.

In the new season, Ukraine will reduce the oats planted areas, as well as its yield. As a result, in 2017 the harvest will reach 459 thsd tonnes. Taking into account the carry-over stocks, the total supply will reach the level of 511 thsd tonnes, including 453 thsd tonnes for domestic consumption, and 35 thsd tonnes for exports.

Generally, the market segment of alternate grains demonstrates one key problem: low yield, which is not compensated by high prices. Another problem is the reduced effectiveness of post-harvest treatment in terms of the reorientation of granaries to work with the major agricultural crops.

Anna Elizarova, APK-Inform Agency