Holding Urozhay is sure the unofficial ban on wheat exports to assist to Ukrainian flour millers

The Ukrainian exporters will remember the first half of 2012/13 MY as not the most pleasant time. However this situation has another face of coin, though it is turned to the Ukrainian grain processors. What was the first half of 2012/13 MY for Ukrainian millers and what should they expect in the second half? These and other issues will be discussed with Sergei Sakirkin, the Head of grain processing department of “Urozhay”, the largest producer of wheat flour in Ukraine.

- What is the position of Russia and Ukraine on the world market of flour?

As for Russia, despite the significant share in the world production of flour (10%) it is not one of the top exporters of the commodity by preferring exports of grain. At the same time the milling capacities commitment in Russia does not exceed 50% so there is the large potential for growth; so the same is in Ukraine. The volume of Ukrainian flour market totals less than 3 mln tonnes annually (official statistics without “grey” producers). But it has no the tendency to rise but to slow down due to the shortage of the domestic consumption increase and flour exports small volumes.

In the recent years the flour commodities exports were small by totaling less than 1% of the grain exports. And only the limitation of grain exports in season-2007/08 pushed the traders to face an interest for export of commodities able to compensate the loss from grain exports quotation.

In season-2007/08 flour exports from Ukraine reached the record level of 20% from the total grain exports, meanwhile flour production faces the significant increase. Ukraine finally entered the market with the serious volumes. In 2007/08 the flour general production totaled 2.8 mln tonnes, meanwhile the country exported 225.7 thsd tonnes with the good level of profitability. The major importers of Ukrainian flour were Moldova, Georgia, Azerbaijan, UAE, Syria and others.

Grain exports limitation cancellation in 2008/09 MY and wheat record exports of nearly 12.7 mln tonnes did not impact on the flour exports decrease but on the contrary provided the world market with larger volumes of flour – 226.3 thsd tonnes.

- Sergei Varetovich, before to talk about the features of the first half of 2012/13 MY for Ukrainian flour market let us remind the finals of the previous season. How do you characterize them?

Note according to the results of 2011/12 MY (July-June) flour production in Ukraine totaled 3.57 mln tonnes (with overestimation of “grey” producers according to the data of APK-Inform Agency). Meanwhile, the exports slightly exceeded 115 thsd tonnes, as for profitability – the stated rate faced the essential decrease. The leader was Indonesia.

- What did the Ukrainian millers remember in the beginning of 2012/13 MY?

August 2012 was really chocking for the Ukrainian market of milling wheat and flour. Wheat market problems echoed the milling commodities market. They expected if the Russian exporters leave the wheat market, and so there will be Turkish operators activity slow down, the chances of the Ukrainian participants to increase the exports and the business profitability will rise.

In the middle of July of 2012 when it was clear that crop in one of the top producers of grain of the Black Sea region – Russia – will be essentially lower of the forecast, the world markets faced the active increase of grain prices, for wheat particularly. The stated factors caused the Ukrainian traders to rise the wheat domestic purchasing prices. So the market faced the real fight for milling wheat between exporters and processors. In the stated period market faced the active increase of supply and demand prices.

- Was there anything good in the stated period?

You know the Ukrainian millers were lucky because flour prices increase was based on the high demand on commodities. In the end of the previous MY there was the stoppage of the certain enterprises for realization of planned repair works. Thus the flour supplies faced the essential decrease in the beginning of the season, meanwhile buyers stocks tightened and they had to activate the flour purchasing.

Last MY a lot of producers of flour reported about the insignificantly active temps of the commodities realization due to the oversaturation of the market with flour. Besides last MY Ukrainian producers lost the range of the markets for flour realization on the Middle East by let the positions to the Russian and Kazakh companies. Exporters started to draw the new sales market of flour but it is rather long process and they were not successful in saving the previous volumes of Ukrainian flour sales on the foreign markets.

- What will the Ukrainian millers remember in the first half of 2012/13 MY?

In 2012/13 MY the situation on the exports market of flour changed being followed for the wheat market situation – introduction of memorandum on the available exports of grain from Ukraine in the current season. Due to the stated fact Ukrainian market of grain by-products in the certain way is able to return to the scenario of development in 2007/08 MY when Ukraine faced the limitation for wheat exports.

- What will be the circumstance of unofficial ban for wheat exports for Ukrainian market of flour?

To date the operators note the demand of the foreign consumers for wheat flour is facing the essential activation. Monthly exports (September-November in particular) exceeded the last year rate by 2 times. However a lot of exporters note in February the exports will face an increase. The range of processors stated the Ukrainian flour to continue to hold own positions on the markets of Middle East and Africa countries. Meanwhile the certain producers state Ukraine is able to particularly return the market of Middle East being removed by Russia. There are no limitations for flour imports in Georgia. There is the active demand of Moldova, Azerbaijan, Uzbekistan, Turkmenistan

- How will you characterize the price formation on the market of flour and bread in Ukraine in the first half of 2012/13 MY?

Note the flour prices increase was based on the grain rise in price which should cause prices increase on bread market. But bread is social-political commodity and does not follow the market rules but the state authorities ones. Note the high activity of the Agrarian Fund has had the real impact on the bread price in this season owing the mass processing of wheat and flour trade at the fixed prices.

To date flour prices increase slowed down but the demand on it is still high. The processors prefer not to make any forecasts on the further development of the situation.

- APK-Inform organized the 8th International Trading Summit Grains & Oilseeds 2013. What is your opinion as to the Ukrainian flour export to Morocco in view of current wheat export situation?

Morocco prefer to import wheat for domestic procession. But Ukraine has a good experience with export to North Africa, so we have to use the opportunities of the summit. We will try to attend the event and develop the cooperation with Morocco.