ANALYSIS
The season-2013/14 for the Ukrainian market of sunflower seed and by-products can be called as one of the most extraordinary. The last marketing year showed high number of both market events, and registered draft laws in the Verkhovna Rada concerning changes on the market of sunflower seed and sunflower oil.
The present article focuses on the situation development in 2013/14 MY on the main market of fat-and-oil industry, and the prospects expected by the market participants in the new MY.
SUNFLOWER SEED
Season-2013/14: new records and new losses
Last season-2013/14 for the market of sunflower seed was quite eventful, with new records and unexpected impact factors. Certainly, the record high harvest volumes of the oilseed became one of the most significant events for the market - 11.5 mln tonnes, according to estimations of APK-Inform Agency. So, a slight worsening of the qualitative indicators of the oilseed, due to abnormally high air temperatures in August 2013 and prolonged rains during the harvesting campaign, did not make any significant impact on the production volumes.
The further increasing of the processing capacities of the oilseed is the important factor of influencing the situation on the Ukrainian fat-and-oil market as a whole. For example, last MY Industrial Group Vioil increased its sunflower seed processing capacities in Vinnitsa oblast, through launching of the new line with the capacities of 1250 tonnes/day, and the further rising to 1800 tonnes/day. In Odessa oblast the company Delta Wilmar CIS opened the oil extraction plant with the capacities of 1200 tonnes/day. Also, by the end of the season-2013/14 in Kharkiv oblast the company Agroprodukty completed building of a new oil-producing plant with the capacities of 1200 tonnes/day. As for the start of 2014/15 season in Kirovograd oblast Svitlovodsk oil-extraction plant increased the existing processing capacities to 1000 tonnes/day, and in Zaporozhye oblast the company Agroproinvest-08 (Meat Processing Complex LTD) - to 600 tonnes/day.
However, a number of companies announced on their plans to construct new sunflower seed processing plants, which are scheduled for launch in 2015. First of all, the list of companies includes Allseeds, Bunge CIS, JSC Nizhynskyi Zhyrcombinat and UkrLandFarming. It should be noted that to date construction of some plants in the eastern part of the country (Krasnolimansky oil-extraction plant) is currently suspended.
Thus, the oilseed production capacities in Ukraine still exceed the harvest volumes, and the high competition on the raw material market continues tightening. According to estimations of APK-Inform Agency, in the season-2014/15 the capacities will increase by 8%.
We would like to note that escalation of the situation in the east of the country provided the corresponding impact on work of oil-extraction plants in the region, or rather, caused the forced stopping of a number of enterprises. In particular, the large-scale plants of Donetsk oblast - Slavyansk oil-extraction plant - stopped in May 2014, and the plant Cargill stopped in June 2014. The plant Svatovo in Luhansk oblast stopped for repairing works.
It should be noted that not all plants of the eastern region will resume their work in the new season. According to preliminary data, due to the military operation in the region, Cargill's plant will not be able to restore its activity in the nearest future.
Export duties: new season – old problems
The export duties on sunflower seed is one of the most interested theme on the oilseed market during several recent seasons. To date the index totals 10%.
The issue on its cancellation was actively discussed during preparation of the Agreement on free trade zone between Ukraine and the EU. The European party insisted on cancellation of the customs duties. The reporting draft law was provided in April 2013, and it immediately caused concern of the fat-and-oil industry participants in Ukraine. According to experts, the duties effectively limit the exports, and its cancellation may lead to destabilization of the market situation, and stop many sunflower seed processing plants.
However, the Verkhovna Rada of Ukraine did not support the draft law provided in the beginning of April 2013 on cancellation of the export duties. ItwasrejectedinNovember2013 only.
At the same time, the issue is quite relevant even to date. In terms of the current political and economic instability in Ukraine, many countries-importers of Ukrainian sunflower oil expressed concern whether Ukraine will be able to supply oil on foreign markets within the specified contract period, and perhaps the Government of Ukraine will give "green light" to sunflower seed exports. According to experts, such issues are consequences of ordinary panic, and there is no any basis for such decisions.
Harvest-2014
To date Ukrainian agrarians provide rather active harvesting campaign of sunflower seed – the weather conditions contribute to the field works. At the same time, views of the market participants on sunflower seed production volumes in 2014 in Ukraine did not significantly alternate.
According to preliminary data from various international and Ukrainian analysts, sunflower seed harvest in Ukraine in 2014/15 MY is expected to vary within 10-11 mln tonnes. Taking into account even the most optimistic forecasts, the production volumes will not reach the last year results.
Despite the official revaluation of the planted areas under sunflower seed in Ukraine for the harvest-2014 (the Ministry of Agrarian Policy raised the index to 5.15 mln ha), the qualitative indices of the oilseed became quite important issue.
According to the market operators, the qualitative indices of sunflower seed became much lower compared with the same period last season. The main complaints concern the oil content, which at the reporting stage of the harvesting campaign varied within 40-42%, and the maximum indices in some oblasts reached 44%. Also, it is worth noting that the yield of sunflower seed became lower compared with last season results. In particular, in southern and central oblasts, where agrarians continue massively harvesting sunflower seed, the oilseed yield varies within 0.5-1.3 t/ha. Such yield results can be explained by the moisture content of sunflower seed at 4-7%, and impurity content at 7-8%.
At the same time, experts forecast the further increasing of the qualitative indicators as the harvesting campaign in central and northern oblasts develops.
As for the price dynamics on the market of sunflower seed, opinions of the market operators traditionally divided. Agricultural producers believe that the bid prices for new crop sunflower seed in Ukraine are artifactually low and economically baseless. Taking into account the significant rise of costs for seeds, fuel, plant protecting agents, etc., and the record devaluation of the national currency, the present value of the oilseed may be observed as quite low even in terms of good harvest volumes. However, on the other hand, the main buyers of sunflower seed - processing plants - motivate the formed prices (4100-4450 UAH/t CPT at the last decade of August) by the situation on the export market of sunflower oil.
As for the prospects of the market segment, we should note that the above-mentioned fact of increasing the production capacities, which is especially important in terms of the bearish trend on the export market of sunflower oil, will provide considerable support to sunflower seed prices on the domestic market.
High production volumes
In the season-2013/14 Ukraine broke a new record of sunflower oil production, due to the high harvest of sunflower seed, and increasing of the oilseed processing capacities in the country.
Therefore, in 2013/14 MY Ukraine kept the leadership among the countries-exporters of sunflower oil on the world market.
However, it is believed that Ukraine holds the leadership positions on the foreign market due to small share of oil consumption on the domestic market, which allows exporting the major produced volumes. Nevertheless, in the season-2013/14 Ukraine will supply the record volumes of sunflower oil on the world market - 4.2 mln tonnes (up 1 mln tonnes compared with last MY), according to estimations of APK-Inform Agency. In September-May of 2013/14 MY the following Ukrainian companies traditionally became the leaders of the commodity exports: Kernel (22% of the general exports), Creative (12%) and Cargill (11%).
The domestic market of consumes only small share of the general production volume of the oil in the country - just over 500 thsd tonnes in 2013/14 MY. Such low consumption level is not favourable to the oilseed processors, especially small-scale plants, as the price dynamics on the market is still determined by the export market situation.
The concerns of the market operators concerning sunflower seed quality due to continuous rains in the harvesting campaign period, was the other important factor which influenced the domestic market of sunflower oil in the first half of the season. Nevertheless, there were not observed any significant price adjustments on the market.
Hand of hope
The second half of the season was even more intense for the Ukrainian market of sunflower oil. The political situation in Ukraine provided its significant impact to the market segment. In terms of the worsening economic situation in the country, the EU was the first one, who provided the helping hand.
In March 2014 Brussels noted that the EU plans to unilaterally implement the clauses on the free trade zone with Ukraine in terms of the goods import. And it means millions UAH of saved payments for the import duties. In accordance with the proposal, the EU to unilaterally impose the clauses of the Association Agreement, providing cancellation of the import duties. At the same time, the Ukrainian goods must comply with the rules of the country of origin. In addition, the proposal includes the clauses allowing to resume the import duties in terms if the flow of goods from Ukraine starts forming a threat for European agricultural producers. In the beginning of April, the European Parliament approved the proposal, and on April 23, 2014 (the day after publication in the Official Journal of the European Union), the autonomous trade preferences came into effect. In particular, there were changed the EU import duties on Ukrainian crude sunflower oil – the import duties reduced to 0%, against the previous index of 2.9%, and the duties on refined sunflower oil (bottled or in bulk) reduced to 0%, against 6.1%.
Of course, cancellation of the duties will allow to Ukraine to become more competitive on the market, but it should be noted that the priority markets for Ukrainian sunflower oil last season still included India (37%) and China (15%). Last MY (September-May) the share of supplied sunflower oil to the European Union was only slightly over 8%, down 6% compared with the season-2012/13 in the same period. The summer period in Ukraine usually shows a seasonal decrease in activity on the domestic and export markets of sunflower oil.
However, it will be possible to provide the objective estimation on influence of the cancellation at the volume of sunflower oil supplied to the European Union, and the financial position of the country in general, and exporters in particular, only after the certain period of time. According to the association Ukroliyaprom, cancellation of the import duties by the European Union will contribute to expansion of trading and economic relations between Ukraine and the European countries. Also, it will change the structure of exports of fat-and-oil commodities from Ukraine and increase the exports of products with high added value, namely: refined packaged oil (to 50 thsd tonnes), margarines, fats for special purposes, meals.
Assistance in regulation or spoke in wheel?
The next important factor, which stirred up the market of sunflower oil in Ukraine - a proposal to impose 3% duties on the commodity exports. On May 13 the Verkhovna Rada registered the draft law #4858 on imposition of the export duties on crude sunflower oil at 3% of its customs value. According to the people`s deputies, imposition of the duties would ensure fair conditions on the market of sunflower seed and fat-and-oil commodities, redistribute income in the country, and most importantly - increase revenues to the state budget.
The draft law was sharply criticized by participants of the fat-and-oil market, because in such situation producers of sunflower oil will be compromised the first, and Ukrainian oil will become uncompetitive on the global market.
If approved, the document would come into force on January 1, 2015. However, the Cabinet of Ministers of Ukraine did not support the draft law, because the export duty is a tool of trade, rather than fiscal policy, and the draft law on imposition of the export duties on Ukrainian crude sunflower oil will lead to losses of Ukraine's position as the world leader in the commodity exports.
Of course, 3% export duty is not such large-scale limiting barrier. But it is not logical to impose such export duties, which will limit the operation of the industry, as the EU continues continue simplifying the system of commodity exports at its territory and canceled monitoring of sunflower oil quality exported from Ukraine.
Forecasts and expectations
Last season the above mentioned India and China became the main countries-importers of Ukrainian sunflower oil, at the same time the EU countries, Egypt, Iran, Turkey and others remain the promising directions.
To date it is the priority for Ukraine not only to strengthen its position on the reporting markets, but also to further expand the geography of sunflower oil exports, aided by the high potential of fat-and-oil market.
Nevertheless, in 2014/15 MY APK-Inform expects for a slight decline in production and exports of the Ukrainian commodity - 4.4 mln tonnes and 3.85 mln tonnes, respectively.
By the reporting month the bid prices for Ukrainian sunflower oil fell to the five-year minimum, and as of beginning of September the index varied within 730-745 USD/t FOB (delivery in September-December). At the same time, the domestic market showed relatively high prices, due to seasonal shortages of the vegetable oil.
A number of factors, influencing the Ukrainian export market of vegetable oils in the long-term outlook, continue basing on the expectations of high harvest volumes of oilseeds in the world, including the forecasts of high soybean production in the USA, a record harvest of rapeseed in the EU, and an increase of palm oil production in Indonesia and Malaysia. As a result, the world market of oilseeds and vegetable oils remains under pressure, which is likely to have a direct impact on the Ukrainian market of sunflower oil in the nearest future.
As for the domestic market of sunflower oil, we should note that there are no visible changes on prices. The absence of dynamics is primarily caused by the UAH devaluation, but the situation does not mean that the margin of oilseed processors remained unchanged.
Not so smooth…
At first glance, it seems that the season-2013/14 was the calmest period for the market of sunflower meal /cake. Last MY the production volumes of the reporting commodities reached the record level at 4.5 mln tonnes, which according to our Agency, will form the exports at 3.4 mln tonnes. Last season France, Belarus and Poland were the main buyers of the Ukrainian products.
The season started with the news that on September 21 the Department of veterinary and food control under the Ministry of Agriculture and Food of the Republic of Belarus imposed the ban on imports of non-granulated sunflower meal from Ukraine, in order to prevent introduction and spread of African swine fever at the territory of Belarus. At the same time, the experts considered that Ukrainian exporters of sunflower meal did not face significant losses, as most of the commodity exports are formed by pelletized meal, which the limitation did not cover.
In particular, Zaporizhia (September 2013) and Lugansk (February 2014) oblasts imposed the total ban on the imports of both non-granulated and pelletized sunflower meal. The companies which previously supplied its products to Belarus, were forced to change the geography of exports.
Officially, Belarus cancelled the ban on the imports of forages and feed ingredients of plant origin in March 2014 only. We should note that the reporting situation did not influence the price dynamics on the export market of sunflower meal at all.
Price trends
As for the price situation, last season the Ukrainian market of sunflower meal /cake was quite smooth, and characterized by systematic bullish trends with rather small periods of price stabilization.
The situation was caused by fairly stable rates of trading activity both on the domestic and export markets of the product. Slowdown in trading on the foreign market took place since May due to the news of a good harvest of rapeseed in the EU. So, in the summer period many companies-importers of Ukrainian products favored to purchase cheaper rapeseed meal, thereby the bid prices for Ukrainian sunflower meal slightly declined, and in August the prices varied depending on the country-buyer within a fairly wide range - 205-245 USD/t DAP (delivery in September-October). In some cases, the lower bid prices were declared (from 180 USD/t on the same terms), but they were declarative only. The FOB prices varied within 215-225 USD/t.
Prospects
The new season for sunflower meal/ cake started in the same way - quite calmly and without significant price "jumps". In the nearest future we expect for a relatively stable situation with a slight seasonal decline of supply / demand prices in anticipation of entering the market of sunflower meal / cake from new crop raw materials.
As for the further development of the situation on the export market of the commodities, trading activity in the short term outlook will continue at the low level, due to the low demand.
Svetlana Gnoevets, APK-Inform Agency 
