Start of the season-2017/18 for the Ukrainian market of barley - export dominates?

Source

APK-Inform

2095

 

In terms of rather high harvest volumes and relatively stable domestic consumption of barley, the market segments started gradually reorienting towards the export direction. The situation in the beginning of 2017/18 MY demonstrated the new trend, when the first cargoes of new crop barley moved in the direction of sea ports, and the bullish trend took the major positions in the barley sector instead of the expected seasonal price decline. How did the market work develop in the first month of the new season, and what should the market expect in the following months?

 

Production and quality

Despite the stable demand for feed barley in both domestic and export directions, the planted areas in 2017/18 MY reduced by nearly 15.6%. The situation developed in such way due to structural changes in crop rotation processes, as well as rather low attraction of barley, in terms of the current ratio of the cost component and price situation in the sector, compared with the markets of neighbouring crops (mainly wheat). We should note that due to unstandard weather conditions in 2017, the yield indices failed to neutralize the situation and compensate the production figures of barley in Ukraine, which APK-Inform analysts estimated at 7.4 mln tonnes, against the record results of 9.4 mln tonnes last season.

Also, the observed weather conditions caused some delaying for start of the harvesting campaign, and slight underrun of its rates - the average figures for Ukraine totaled nearly 12 days.

At the same time, despite the weather apocalypse in April and frosts in May, the traditional interchange of hot droughts and cold rains in the period of grain ripening, most market participants estimated the qualitative features of barley in 2017 as conforming to the GOST (State Standard) requirements. Only the first shipments of new crop barley entered the market with low natural weight indices, which made export-oriented companies to increase bonuses for the indices in order to form the necessary levels of supplies. Generally, the reporting factor become the key one for upward development of the price situation, as well as reorientation of the major large-scale flows of barley shipments to exports, and some deficit of barley supply on the domestic market.

 

Major figures of barley production in Ukraine

 

2015/16

2016/17

2017/18*

Planted areas, `000 ha

2 825

2 867

2 419

Yield, t/ha

2,95

3,3

3,1

Production

8 288

9 436

7 428

* Forecast

Source: APK-Inform Agency

 

Domestic market

In mid-June 2017, many grain processors announced their bid prices for new crop barley within 3`600-4`100 UAH/t СРТ. However, in early July consumers managed to purchase the first grain batches at 3`800-4`300 UAH/t СРТ, which is significantly higher compared with the starting prices last season (3`350-3`750 UAH/t СРТ).  Due to the late beginning of the harvesting campaign and active demand from export-oriented companies, which were ready to fix even higher purchasing prices, in July grain processors were forced to raise the prices for raw materials. Thus, at the end of the month the purchasing prices reached 3`950-4450 UAH/t СРТ. But according to the buyers, in July grain holders provided rather low-active supply of the grain on the domestic market.

According to market operators from the southern region, they often managed to purchase the required grain volumes at the maximum bid prices only (4`350-4`450 UAH/t CPT), due to the high level of competition from companies-exporters. Despite the gradual growth in the number of offers and their often small-scale batches (200-600 tonnes), in most other regions it was possible to form barley stocks at 3`950-4`350 UAH/t CPT.

In turn, agrarians noted high consumer demand for the grain, and actively raised the selling prices to 4`100-4`550 UAH/t EXW. In most cases, they preferred selling barley to traders.

As for the further development of the price situation, most domestic market operators expect that the current price growth will not become a key trend for the market segment in the first half of the current season. At the same time, increasing of competition rates from export-oriented companies in terms of lowering barley harvest in 2017 and high starting prices, show that there will be no sudden price fluctuations.

 

Export market

At the end of 2016/17 MY, traders realized rather active exports of feed barley, and there was stable demand from the major importers, in terms of the gradual reduction of the carry-over stocks, which somewhat supported the prices. While in April-May the grain mainly developed a bearish trend, which was generally negligible, then in mid-June the market faced an upward price trend.

In mid-June 2017, bid prices for feed barley varied within 4`000-4`250 UAH/t СРТ-port, and in July 2017 the purchasing prices grew to nearly 4`600-4`820 UAH/t СРТ-port, and only in some cases they varied within the range of 4`450-4`550 UAH/t under the same terms. In turn, in the reporting period the USD bid prices increased from 135-140 USD/t to 144-151 USD/t CPT-port. Such situation primarily developed due to the need of traders to urgently bring in large-scale grain batches to fulfill the previously concluded contracts.

As a reminder, in July 2016 purchasing prices for feed barley varied within 3`950-4`050 UAH/t and 139-145 USD/t CPT-port, which is significantly lower compared with the current price levels.

 

 

The global market environment, in particular the growth of price quotations at exchange platforms and concerns for the quality of a new crop in major countries-producers, became an additional factor contributing to the growth of prices on the Ukrainian export market of feed barley.

If in mid-June 2017 the offer prices totaled 156-160 USD/t FOB, then in late July the figures reached 166-175 USD/t FOB. In turn, the FOB bid prices also significantly increased since mid-June till the end of July, and varied within the range of 163-172 USD/t FOB, against 150-154 USD/t FOB in the beginning of the reporting period.

 

 

We should note that the current forecast of APK-Inform Agency on the export prospects total 4.1 mln tonnes. However, the experience of several recent seasons shows that in the first half of any season the export rates of barley are high, and the shipped volumes significantly exceed the initial estimations of experts.

The Director at Daniel Trading SA, Elena Neroba informed about the market situation in the beginning of 2017/18 MY, as well as short-term forecasts:

"Barley takes the fourth position in the structure of global grain production, holding a market share at 5-7%. The EU (with a share of more than 1/3 of the general harvest), the Russian Federation, Australia, Ukraine and Canada are the main countries-producers. At the same time, only the European Union, Australia and Ukraine come to the TOP-3 of exporters. According to analysts, in a new season the global production of barley will reduce by 6-7% compared with the previous year. The largest fall in production in absolute values will develop in Australia - down 1.6 times, and Ukraine - down 1.3 times, which will provide a decrease at 7.5 mln tonnes of barley on the whole, or nearly 5% of the global production. The situation will develop due to decreasing of planted areas (in Ukraine - down 12%), and the low yield indices caused by adverse weather effects.

I should note that the price situation in the beginning of 2017/18 MY was very dynamic. If last year in southern oblasts the purchasing prices totaled 115-117 USD/t EXW, then in the current year the forward prices before the start of the harvesting campaign varied within 134-136 USD/t CPT-port with the following rise to 142 USD/t under the same terms. To date, the purchasing prices in the port are relatively stable, the prices for large-scale batches total 152 USD/t with delivery in the nearest weeks, and 158 USD/t with delivery in the beginning of winter.

Despite the fact that the traditional peak of Ukrainian barley exports comes to July-October, agrarians who do not have an urgent need to free granary room or pay the bills, can hold down the grain stocks while waiting for even higher prices”.

 

Expectations of market operators

As for development of the price situation on the Ukrainian market of feed barley, in the short-term outlook most market participants expect for keeping of upward trend on both domestic and export directions. It is quite possible that after closure of the first contracts by traders and supplying of barley to the final consumers, the market sector will decline its popularity, and the price situation will face some bearish developments. In addition, the harvesting campaign rates and gradual increasing in the number of grain offers will make its further pressure on the prices.

 

Anna Tanskaya, Tatyana Eremenko, APK-Inform Agency

 

Comment by Andrei Kupchenko, grain market analyst at APK-Inform Agency

The current fall in barley production in 2017/18 season is not the feature of Ukraine only, but also the whole globe. According to the USDA analysts, in 2017 the global production of barley will total nearly 138.5 mln tonnes, down 6% compared with the harvest volumes in the previous season (148 mln tonnes).

Traders make more than 70% of the export supplies of barley in the first 4 months of the season, therefore price trends in the barley segment of Ukraine will somewhat rise in the reporting period. However, the harvest results and demand for the Ukrainian grain can put pressure on the prices by late August. Also, it is worth taking into account that in a new season the exports of barley from Russia and the EU will increase, and Ukraine will have to compete in even higher rates.

 

 

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