Start of the season on the Ukrainian market of feed corn - price trends and forecasts

Source

APK-Inform

9128

 

Ukrainian feed corn sector faced the dynamic temps of development owing harvest, fodder consumption and exports increase. Meanwhile there is a clear export orientation of the segment. However in order not to lose its positions on the global market, the domestic grain is under the hard competition. Ukrainian exporters should offer high-quality grain and orient on the global market prices. Beginning of 2015/16 MY gives hope on saving of high activity in the segment of feed corn. So, it is traditional when the export-oriented companies activity causes difficulties for processors, by preventing prices decline despite the sufficient supplies. The material is about price situation development on the domestic and export directions in the first weeks of the new season.

Facing new season

Ukrainian feed corn market faced the low temps of trading-purchasing activity and prices stabilization during last months of 2014/15 MY. Note despite rather large-scale carry-over stocks exceeding by nearly 50% of the previous season rate, the supplies number was limited. Agrarians were not willing to sell current stocks and did not decrease prices.

After fulfilling of most of contract obligations the traders almost left the market planning to activate purchasing activity after the harvesting campaign begins.

But in September the price situation changed. Farmers preferred to free storage facilities for new crop grain and decreased sales prices for more active trade.

New season domestic market start: quantity, quality, prices

During the harvesting campaign the market trading-purchasing activity faced an increase. Meanwhile in the first weeks of harvesting the market operators suggested in the current season the price situation to mirror the past MY and probable there will be set new price records.

One of the key factors is grain quality. Thus, the market operator of the Southern region reported:

“The first batches of new crop corn entered the market in the middle of September. However due to the dry summer the grain quality was low. The currency market instable situation cause appreciation of fertilizers and crop protecting agents so the agrarians did not treat fields with them in order to save funds. Thus in corn batches there was ambrosia which is unacceptable for grain exports.”

Note that minimum prices were fixed in the regions of Donetsk and Luhansk oblasts on the territories being under the control of Ukraine. Due to the close territorial position of oblasts to conflict zone there were only single buyers who were ready to purchase corn.

The exporter from Kiev oblast stated: “Since beginning of MY there is only small-scale batches of corn on the market, demand exceeded supply. As a result in the beginning of September it was difficult to form large-scale batches of grain. Besides there were issues with qualitative parameters of the grain. However in general Ukrainian corn is facing high demand on the global market.”

New season export market start: sales activity, prices

In the past season feed corn market faced stable temps of exports which reached nearly 19 mln tonnes as opposed to 19.8 mln tonnes in 2013/14 MY. The exports decrease is based on the EU countries interest weakening to the Ukrainian grain and the competition rise. Meanwhile prices situation brought disappointment for Ukrainian and global market as well. High volumes of crop harvest and carry-over stocks in the world and Ukraine in particular were favouring the bearish tendency formation on the corn market during the past MY.

In beginning of new season trading-purchasing activity rose owing high demand faced by importers (Egypt, Iran). Meanwhile in September-October offer prices for corn on FOB basis declined by 2-4 USD/t to 164-168 USD/t FOB under the global market impact. Note that bid grain prices did not exceed 162-165 USD/t FOB. In general, APK-Inform estimates that in 2015/16 MY corn exports to decline by 20% compared to last season rate – to 15.5 mln tonnes due to the harvest decrease.

The representative of the export-oriented company of Mykolayv oblast said: “In current season we do not expect high prices for Ukrainian origin corn. To date there are more bearish factors. But still the importers face rather active demand but the prices are hardly competitive. Current corn market is the buyers' market and demand is the key factor of price formation because it is lower than offer. Also note Ukrainian product is facing high competition by the USA, Argentina, Brazil and Russia. Still there is no reason for exports geography change. The main buyers will be Egypt, Iran and the EU despite volumes decrease. At the same time Syria and Iraq can face a high interest for the product in the nearest time. Despite the risk of corn supplies to mentioned countries, the ones who minimize them will get good price offers.”

At the same time, CPT market price situation was unstable and mostly dependent on hryvna official course change to USD. A lot of representatives of export-oriented companies reported that in September there were sufficient supplies of new crop grain, meanwhile qualitative parameters were within requirements of National State Standard. At the same time, in the stated period prices in foreign currency decreased by 4 USD – to 142-146 USD/t and CPT-port.

Meanwhile, market operators forecast that FOB prices to decline under the impact of global production increase. At the same time CPT-port price situation will directly depend on the currency factor and domestic market conjuncture.

While resuming please note that in the sector of feed corn in the end of October there is a significant change of the domestic market price situation. High purchasing activity of processors and exporters change the ratio of market supply and demand which caused prices rise. The market participants expect bullish trend to last till the end of 2015.

 

Comment from APK-Inform analyst, Andrew Kupchenko

In the past season Ukrainian corn market faced bearish price situation. Considering global market supplies, costs for production and high dependency on importing resources the trend was expected. Thus, in 2014 Ukrainian corn plantings decreased by 4% compared to the record rate of 2013(4.9 mln ha). In 2015 corn planted reached 4.1 mln ha down 12% of the previous year rate. Thus Ukrainian corn plantings are in the stage of stabilizing and setting the wise level allowing saving active exports and diversifying production for other crops. At the same time, considering current situation with winter plantings, it is possible to expect corn planted increase for crop 2016.

We estimate that in 2015 corn general production will reach 23.8 mln tonnes down 17% on yield 5.95 t/ha down 3%. At the same time, general supply of grain will be at the level of 25.1 mln tonnes (-18% to the level of 2014). Note, the harvesting temps are low and as of October 21, the stated rate reached just 2.7 mln ha down 8% of the same date of 2014. Thus, farmers prefer soybean and sunflower harvesting which impacted low result. On the other hand, if there are unfavorable weather conditions the harvesting temps to slow down, meanwhile yield and quality parameters to worsen, which will cause general production volumes decline.

Harvest decrease to be followed by bearish tendency for all the articles of distribution. Thus, in 2015/16 MY corn domestic consumption to reach 8.8 mln tonnes, down 12% compared with the last year rate. The decline is caused by fodder consumption lowering which in the current season we expect at the level of 6.7 mln tonnes, as opposed to 7.5 mln tonnes in previous season (-11%). Ukrainian corn export potential is estimated at the level of 15.5 mln tonnes, down 21% of the last year exports.

Besides, note due to the crop protecting agents significant appreciation and unfavorable weather conditions, corn quality to be an issue in the current season.

 

Alexandrina Ovdienko, Anna Kozhukhova, APK-Inform Agency

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