The Ukrainian soybean market is experiencing a second wave of increased production, which is primarily driven by attractive price conditions and increased profitability when growing soybeans compared to other crops.
It is worth noting that the market is "digesting" this year's increase in production quite confidently and is already preparing for a new maximum.
In 2024, Ukraine is expected to increase soybean production, and only a lazy person did not say this. But there are indeed several good reasons for this: attractive prices for raw materials during 2023 and quite good profitability among oilseeds, not even taking grains into account. In addition, since the beginning of 2023/24 MY, this crop has demonstrated quite high liquidity both in the domestic and non-export sectors.
Another factor in favor of soybeans was the disappointment of some farmers in sunflower seed, or rather in the prices for it in the current season. Besides, some experts believe that the "under-planting" of winter rapeseed in the fall of 2023 due to drought may also cause an increase in the planting area under soybeans in the spring.
According to our preliminary forecast, the planting area under soybeans in 2024 may increase by 13-19%, and the harvest, under favorable conditions, will reach from 5.5 to 6 mln tonnes.
Here it is worth adding that farmers are planning to expand the acreage almost all over the country, but soybean is a rather capricious crop compared to sunflower seeds and the average yield of 2.8-3.0 t/ha, which is typical for the western regions, can hardly be achieved in the eastern part of the country. Therefore, the average yield potential of soybeans in 2024 may decrease.
And while the market is waiting for a possible new record in soybean production, everything looks quite pessimistic amid January's price decline and activity in this sector. However, let's not rush to conclusions and analyze a little what we have today.
According to the updated data of APK-Inform Agency, the gross collection of soybeans in Ukraine in 2023 reached a historical maximum, amounting to about 5.2 mln tonnes. This is 21% higher y-o-y and 9% higher than the previous high (4.8 mln tonnes in 2018).
The market expected an increase in production in 2023. However, despite the increase in supply as the harvest progressed, soybean prices rose due to a significant deficit that formed in July-August both domestically and for export. The upward price trend, established in September 2023, lasted until the middle of January 2024, and was supported by high demand from export-oriented companies.
Thus, for the first 5 months of 2023/24 MY, soybean exports reached almost 1.9 mln tonnes, which was 17% higher y-o-y and became the second-largest export volume for the specified period in history (after 2019/20 MY).
Such export pace was primarily explained by the attractive price of Ukrainian soybeans on the global market in comparison with raw materials of American or other origin, combined with fairly high quality indicators. Thus, Egypt increased the import of Ukrainian soybeans more than 5 times, but already in January there was a decrease in shipments in this direction, which was due to the formation of fairly high domestic stocks of this crop in the country.
Territorial proximity to the main global importers of soybeans is also quite important – the EU (32% — share among buyers of Ukrainian soybeans), Egypt (29%) and Turkey (29%). However, we should note that soybean exports to the European Union this season decreased (-25%), which is explained both by the more attractive Egyptian destination in terms of price, and by some increase in soybean production in Europe.
A fairly significant increase is also observed in soybean processing, although we are still a little short of the record. In September-January of the current season, about 764 thsd tonnes of soybeans were processed in Ukraine (+15% y-o-y), which became the second-largest indicator after 2019/20 MY (864 thsd tonnes in September-January).
The main driver of the processing growth was a 30% increase in soybean meal shipments to foreign markets, and to be more precise, an acceleration in exports to Poland, which accounted for 57% of the export of this product against 43% in September-January of 2022/23 MY. Moreover, Poland, which is the main and traditional importer of Ukrainian soybean meal, is increasing its purchase of this product for the third season in a row.
Here it is worth noting that the blockade of the Polish-Ukrainian border almost did not affect the transportation of soybean meal, since more than 70% of shipments are transported by rail.
But in general, the sale of soybean meal and oil is still slowing down, which accordingly affected the pace of processing in January. However, the fact that soybean prices began declining and farmers significantly increased the sale of this crop in order to have time to sell it at an attractive price contributed to a significant increase in the raw material base at enterprises. Therefore, in the short term, we can expect an increase in the volume of soybean processing.
Thus, according to our forecast, the export potential of Ukrainian soybeans has already been realized by 59%, while the processing potential by about 43-45%.
And let's note a rather interesting point – according to our data, at the beginning of February, domestic soybean stocks (in general, the balances of agricultural producers and already contracted, but not exported or processed volumes) amount to about 2.6-2.7 mln tonnes, which already 8% lower y-o-y. Simply put, in 5 months, a little more than half of the total supply of soybeans in 2023/24 MY has been realized. And even with a slowdown in the pace of export and processing, in a few months the domestic market may see that there is not much soybean left.
Although it doesn’t look so bad, there's still not much optimism either. The second half of 2023/24 MY for the Ukrainian soybean market promises to be not as active as the FH, since the impact of the harvesting campaign in South America, growing supply of this crop on the global market, and, of course, the fact that operators will continue trying to lower the prices on the domestic market, will be felt for the export direction. But it's always been like that, and it won't surprise anyone. But the fact that recently the political factor has come to the fore in foreign trade is not disputed, and here it is probably necessary to maneuver and not focus on the sales market only. Especially this applies to processing products, which are more oriented to the EU market, which has recently become a minefield for Ukrainian exporters – you don't know where and what to expect.
In addition to external factors, internal ones also play an important role. We might not see the prices that reached 20`000-21`000 UAH/t CPT and higher this year in the off-season. The expectation of an even bigger harvest than the previous one may play a role here, but a significant decrease is not expected as well. Domestic prices will be supported by competition between exporters and processors, especially due to the reduction of stocks of the harvest-2023. It is worth noting that, unlike the sunflower seed market, the soybean market remains oriented to a greater extent to the foreign market (almost 60% of the total supply). However, the share of soybean processing is almost a third, which is quite a good competition for export and increases liquidity.
Besides, it will be important to what extent farmers will be ready to sell raw materials if prices fall too much. Here, as an example, we can cite the pace of sunflower seed sales in the fall of 2023 after a significant price reduction by processors, which showed that agricultural producers have a place to store raw materials and can also wait for more attractive prices.
To sum up, we must note that the Ukrainian soybean market has quite good prospects, even with a further increase in production, which is due to:
- territorial proximity to the main global importers of soybeans;
- relatively small soybean production on a global scale, which increases the chances of high liquidity;
- fairly high indicators of the raw materials quality and a good reputation on the global market.
The main risks ahead encompass the potential challenges of exporting via both maritime and overland routes, the influence of political dynamics, and the unpredictable weather patterns that may impact future harvests.
Svitlana Kyryshok,
APK-Inform oilseeds market analyst
