Lower production and forecast of smaller exports are the features of Ukrainian market of feed corn in 2015/16 MY. Market operators informed that volumes of supply became the main price-determining factor on the domestic market that led to higher CPT-port prices. At the same time, global market development weighted on selling prices that was offset by national currency devaluation.
Place of Ukraine on the global market
Ukraine was on the 3rd place in the list of TOP-exporters of feed corn after USA and Brazil over last 2 seasons. However, lower corn production in Ukraine and elimination of 20% corn export tax and quotes in Argentina could let the South American country to outrun Ukraine in 2015/16 MY.
This season we see lower corn exports to China due to high stocks in the country and governmental plans aimed on reduction of corn exports.
However, in the current season, Ukraine got such perspective market for corn as the EU. Since January 1, 2016, there is a free trade zone between Ukraine and the EU. Moreover, due to lower corn output in Europe, the EU lest the TOP-5 of largest exporters and headed the list of leading corn importers. Ukrainian corn is in high demand in the EU and total quotes volumes (400 thsd tonnes) were used very quickly.
Roman Rusakov, head of trade department of State Food and Grain Corporation of Ukraine said the following:
“Ukrainian exporters keep on open up new export destinations, however, competition on traditional markets of Middle East, Asia and Europe is getting stronger. Moreover, traders are facing some difficulties while dealing with North Africa (Libya, Egypt) due to financial turmoil and high dependence of the countries on USD rate. Lack of demand is the key factor determining lower corn exports to China, as the country has high stocks of the grain. At the same time, higher volumes are going to be sold in Spain and Italy this year. As to the SFGCU, our program regarding China war significantly expanded within last years. We still consider this market to be the most perspective for Ukrainian corn, the same as European market”.
Export potential and destinations for Ukrainian corn
The lowest in 3 seasons export volumes were the feature of 2015/16 MY. Lower acreage and dry weather during germination period led to smaller crop that weighted on shipments. Crop rotation and global market situation (high corn supply in 2014/15 MY) were the reasons for smaller corn area, many farmers preferred to produce other crops as they were afraid of low demand.
At the same time, the first half of the season saw rather fast export pace. Ukraine exported 13.7 mln tonnes of corn during Oct-Apr down just 2% y/y. However, it should be noted that this volumes presents 91% of total export potential that APK-Inform forecasts at 15.1 mln tonnes in 2015/16 MY against about 19.6 mln tonnes season ago and 19.8 mln tonnes in 2013/14 MY.
Traditionally, China, Egypt and Spain were the 3 key destinations for Ukrainian corn. However, China being the main buyer of Ukrainian corn can reduce imports to 2.5 mln tonnes in 2015/16 MY against 5.52 mln tonnes year ago, according to USDA. Thus, in the current season Ukraine already covered 70% of Chinese corn imports (1.75 mln tonnes). At the same time, European buyers are more active this season. Spain, Italy and the Netherlands imported 38.4% of Ukrainian corn during the first half of the season.
We should note that in late January Ukrainian traders saw one more perspective destination – India. Market expected the country to import 900 thsd tonnes of no GM feed corn. Quality of Ukrainian grain was under discussion. As a result, India carried out only one tender and bought 250 thsd tonnes of corn.
Ivan Cherevko, head trader at Cardiff-Trading commented on the situation:
“Demand from India ceased quickly. Everyone understood the difficulty to meet strict Indian requirements. Usually surveyor with GAFTA accreditation examines GM content, but India required to check corn at its state laboratories with unclear procedure and methods of inspection. Moreover, firstly the country required a fumigant prohibited in Ukraine. And finally it is difficult for Ukraine to maintain absence of ragweed in corn that needs careful examination and segregation. There were also fears that Ukraine can lose its market share in case of GM detection. It is important moment as Ukrainian corn is bonus-bearing because it is GM free that let the country to enter Chinese and European markets”.
However, Eduard Ershov, head of grain department at SGS Ukraine pointed out:
“Quality of Ukrainian corn increased over the last years. According to SGS statistics data, the index of cracked grain as to EU (European quality standard) was about 4.24% in 2011. The index stabilized at 2.9-3% in 2014 and 2015. As to GM content, 17% of corn samples of last harvest were negative while the rest has GM lower than 0.1%. 60% of sample had soybean GM line, the share of samples with corn GM traces was 23%”.
Price trends of feed corn market in 2015/16 MY
During the first half of 2015/16 MY, offer/bid for feed corn prices were rather stable and varied between 162-171 USD/t FOB and 164-174 USD/t FOB correspondingly. Trader said the situation was predictable due to stable demand and rather high global supply. China repeatedly supported prices.
The lowest offer/bid prices were seen on the 3rd ten day period of January (160-164/162-166 USD/t FOB) and in the first half of March (158-161/160-165 USD/t FOB). Downward trend happened due to high competition on the global market and upward forecasts of world corn production that led to lower prices on global market. Ukrainian exporters were forced to decrease offer prices. However, since mid-April Ukrainian export market of feed corn faced upward price trend due to higher demand and declining supply in the world. Prices for Ukrainian corn (May delivery) increased by average 10-15 USD/t to 174-180 and 180-185 USD/t FOB correspondingly. Manu operators do not exclude further increase of purchasing prices in short-term.
At the same time, CPT-port prices mainly had been increasing due to unstable currency. Purchasing prices for corn started the season at 3000-3150 UAH/t СРТ-port and had been growing until late February. During that period prices increased by average 1300-1500 UAH/t to 4350-4620 UAH/t СРТ-port, exceeded price maximum of the previous season. Since March prices were volatile due to national currency fluctuation and purchasing activity of traders. By late April feed corn was purchased in Ukrainian ports at average 4400-4800 UAH/t СРТ-port.
Bid prices in dollar terms were rather stable and had been developing in according to FOB basis. Mainly prices varied between 145-152 USD/t СРТ-port and only sometimes declined to minimal (138-143 USD/t) and maximal (153-155 USD/t) levels. Since mid-April number of traders started to increase prices from 144-151 to 155-162 USD/t СРТ-port to attract many offers of large grain lots. Individual deals were signed at 164-165 USD/t СРТ-port.
Ivan Cherevko, head trader at Cardiff-Trading commented on price situation:
“Prices observed this season were unusual for producers and traders. At the beginning of the MY market had been declining and reached low level. During the season prices changes varied between ±5-10 USD/t at most. Thus, the market was calm in this season. By the end of MY we see new feature – high global carry-over stocks and limited corn supply. That led to unusual spread between those crops. Currently, feed corn is more expensive than 3rd grade milling wheat. This trend can stay until new crop enters the market and thus corn will have priority”.
Anna Tanskaya, APK-Inform Agency
