For several weeks already the Ukrainian agribusiness operates in a new grain season, herewith the question of the estates of production and quality of 2019-harvest and the forecasts of the situation developments on domestic and exports market is still in focus.
How was an off-season, what were the expectations before the start of 2019/20 MY, what was a demand of the importers and the forward contracting activity and the most important what challenges will market participants face in a new season and what are the expectations in general?
APK-Inform Agency asked the experts of the agribusiness of Ukraine about the reporting factors and even more.
Opinion of agrarian
Sales Director of agriholding HarvEast
Yield, quality and new projects
Most of the experts believe that the harvest of grains and pulses in Ukraine will be higher than last year. If we speak about the Azov region and Donbass particularly, this year the volumes of agricultural production will definitely increase. However, today everyone is concerned over the quality of the products. Fore example, in June there was a high temperature and the plants can be negatively affected. So during the harvest we expect the lower natural weight of the grain.
In 2019/20 MY, we plan to export nearly 100 thsd tonnes of grain. When traditionally takes a significantly share of profile.
Also, this year we realize a pilot project concerning the delivery of rapeseed from Mariupol seaport. Earlier this crop was not shipped form this port. Thanks to partnership with Cargill this year we will be able to export our first shop with rapeseed. I would note that to reach this we had to increase rapeseed production several times.
HarvEast as always continues to experiment with niche crops, evaluate the performance of production of different varieties of peas and lentils. For now, we do not plan to use in crop rotation totally new varieties.
Speaking of peas market, this year we declines its production. Herewith, we continue production of winter peas: it is very advantageous in terms of the production be means of decline of machines load in spring period. One cargo with peas in 2019/20 MY we will definitely be able to ship. We still produce red and green lentil hoping that net year the prices will favor us ad the production go these crops will be more interested in terms of profit.
Diversification of risks
In December 2018, HarvEast bought Agro-Holding MS that processes nearly 27 thsd ha in Kyiv and Zhytomyr oblasts. In the very first months we started to actively develop our new asset, we reconsidered the crop rotation, launched the irrigation project for 280 ha in Boryspil region.
I want to point out that we form the crop rotation very thoroughly in any region of our presence. At the same time, the holding continues to develop seed production - this year HarvEast own seed plant will work at full capacity, will process wheat, rapeseed, and sunflower seeds. We also plan to expand and strengthen cooperation with our partners - MAS Seeds Ukraine, EURALIS companies and farmers of southeastern regions.
The prospects for the agricultural processing market are certainly quite high. But in each region, each large business has its own nuances. Thus, export of products of processing is a segment of container deliveries. We are in Mariupol, and it’s logistically disadvantageous for us to “leave” with containers to large water to Odessa or even Kherson. And taking into account the peculiarities of the situation prevailing in the Donbass, container ships, unfortunately, will not enter here. And insurance companies refuse to cover military risks. Nevertheless, we consider the export of value-added products to be promising, we will calculate some options for working in this direction.
Feature of the off-season, start of 2019/20 MY
The off-season period this year was not very active in terms of forward contracting, and this trend was noted by all. No one understood what to expect from the market, what the production forecasts would be, what impact the weather would have on the yield and cost of agricultural products. Everyone actively monitored the situation not only in Ukraine, but also in Australia and America.
We were also quite accurate and restrained during this period. I only note that our expectations were met and were reflected in forward programs. Let's see how the market will develop further.
So far, the influence of Black Sea countries on the global price situation is not as significant as we would like it to be. But they listen to Ukraine, follow the events in the country. In this context, the situation on the market of pulses is interesting: due to the lack of clear unified statistics on the production of these crops, it is widely believed that Ukraine is collecting incredible crops. In fact, this is not entirely true. And if this is a highly advantageous for country's image, but this can negatively affect the pricing and accuracy of forecasts.
Among the price waves, it is important to be able to stay on their crest. This, I believe, to be top class! We strive for this.
Opinion of traders
CEO of COFCO Agri Resources Ukraine
Production estimates vs importers’ demand
In general, today we see that weather conditions did not let us down and, despite the fact that Western Ukraine was flooded a little, the harvest will be good. We expect that there will be more wheat, and we hope that it will be better in quality than last year. The harvesting campaign this year started earlier than the traditional dates. Already in mid-June, farmers in the southern, central, and eastern regions were in the fields.
Only in Western Ukraine, the weather conditions did not allow farmers to enter the fields. At the same time, knowing the problems they faced last season, they tried to carry out the necessary treatment from diseases and pests in order to save the crop. Therefore, we hope that both volumes and yield will be good.
The planted areas under corn were higher than planned. I note that interns of the planted areas reduction under soybeans, it is expected that corn will replace these areas. Ukraine may not reach last year's record in corn production, but it is likely that harvest will be close to this indicator
To date, there are no problems or major disasters in barley.
Regarding expectations of further development of the market situation, I should note that in 2019/20 MY our traditional destinations will remain. Already in June, we saw a gradual increase in demand from Africa. I think that we, competing with Russian wheat, will try to develop these markets for Ukrainian grain.
COFCO as a Chinese company also sees demand from China. We constantly monitor and take into account the factors associated with the trade wars and the escalation of the conflict between China and America, Canada and Australia. In this situation, the Chinese party shows interest not only in crops approved by phytosanitary protocols, but also in the procurement of rape, wheat, barley and other crops. This suggests that China may soon become our partner and one of the main markets for Ukrainian grain and oilseeds. In general, I believe that Ukraine will traditionally be present in Asian markets and cover their import needs.
CEO of MGT Black Sea
Wheat: competition from Russia vs price forecasts
This year, the off-season period differs from the previous ones, primarily due to the fact that despite the smaller volume of wheat production in Ukraine, its export was carried out more actively and the volume of carry-over stocks decreased significantly. In June, virtually no volumes were left for export.
On the other hand, everyone understood quite early that the harvest in 2019 would be good, as a result buyers expected very low prices. This did not happen, and at some point they simply stopped buying. Nevertheless, import needs must be covered, even if the expectation of low prices was unjustified, and already in mid-June we observed a fairly high demand for spot grain supplies. At the same time, there were no deliveries. I believe that the current situation was caused by the fact that the terms and possibilities of export from Ukraine and Russia were overestimated, since June was also quite inactive there.
Therefore, I think that the new season will begin with a very lively demand from consumers who are waiting for new quality and cheap grain from Ukraine and Russia. First of all, these are importers from Egypt and the Middle East. And in this case, Ukraine, most likely, will be on top since the wheat harvest this year is expected to be a record and, considering weather conditions, there will be no particular problems. The situation with grain production in Russia is more complicated. Earlier the grain production in Russian as forecasted at 80 mln tonnes and more, but recently this figure has been sharply reduced — to 74 mln tonnes, which introduces some uncertainty in the further development of the situation.
I believe that the 2019/20 grain season will be very active for the Ukrainian exporter. You can even expect some price increase at the beginning of the season, and then, most likely, prices will stabilize at a lower level.
Opinion of stevedore
Deputy General Director of logistics of the group of terminals Risoil
Port terminals construction boom
Now Ukraine is experiencing a boom in the construction of port terminals due to an increase in grain exports and the shortage of transshipment facilities experienced in 2012/13 MY and, consequently, the high rate, which at that time totaled nearly 20-21 USD/t. As the industry developed, competition between terminals began to increase and the port rates decreased.
From 1998 to 2018 there were 29 port terminals built, thereby increasing the capacity for one-time storage by almost 4 mln tonnes per year, and for transshipment - to 67 mln tonnes per year. Moreover, the most active increase in port capacities was noted in 2016-2018. In 2019, the Seaport Authority of Ukraine registered a new terminal — Evrovneshtorg, located in Mykolaiv in the specialized seaport of Olvia. For now, the annual capacity of Ukrainian stevedoring companies for grain transshipment is estimated at 78 mln tonnes and by the end of 2019 it may increase by 7.3 mln tonnes to 85.3 mln tonnes per year. Subject to the implementation of all planned projects for a total amount of more than $1 billion in 2020, the transshipment capacities in Ukraine may amount to nearly 102-105 mln tonnes per year. So, taking into account the further growth of grain export volumes, we will have a surplus of port capacities.
Quantity vs quality: service is the most important thing
The number of grain terminal in Ukraine is not the priority, the most important for us is the quality of the service. Our company our trade department cooperates with nearly all the multinational companies that are TOP-10 largest exporters of grain from Ukraine, such as COFCO Agri Resources Ukraine, Cargill, Olam International, Soufflet Negoce, ADM etc. considering the increase of trasshippetn capacities and storage and consequently the increase of the competition we become more liable and more client-oriented.
For example, recently we discussed with our clients the specification of work and our collaboration, analyzed the work last season and discussed the prospects of the work for the next MY.
Currently, we together with the Seaport Authority of Ukraine almost implemented the project, which cost $70 mln. We are increasing our silos fleet and plant to launch in in November of 2019, thus doubling the storage capacities — from 150 thsd tonnes to 300 thsd tonnes.
Main problem and its solution
To date, the port and port terminals are the strongest links in the agrilogistical chain, while railway components are legging well behind.
For now, the issue of interaction between the railway and the terminal is most important. We continue discussing the question of grain cars alck, shortage of locomotive traction, closure of inactive stations, and increase in tariffs for the services of PJSC Ukrzaliznytsia. Moreover, even if all these issues are resolved, the port railway stations will remain a stumbling block, which are almost not invested by the UZ.
Now in Ukraine there is a discrepancy between the transshipment capacities of ports and terminals and the throughput capacity of port railway stations. For example, the Odessa-port station is 3 times behind, the Chornomorsk-port station is 2 times behind, the Chornomorskaya station is 4 times behind. In addition, cargoes of various purposes and routes are processed at one port station, which also complicates the work.
At the same time, one of the arguments of the UZ management is that it is supposedly much easier to attract private investment in the development of the port industry than in railways. I believe that they themselves are not interested in developing public and private partnerships. And they welcome only one-way partnership, when the investor invests in the development of access roads and port stations, as TIS and Nika-Tera did. Unfortunately, every sign indicates that in 2-3 years the increase in grain production will “run into” logistic problems. As a result, the volume of grain exports from Ukraine will remain at the same level, and may even begin to decline.
The most important issue for the terminal is the provision of quality logistics, including railway deliveries to the ports. In addition, every year is different, and new problems may be added to existing ones. So, last year in October-November, we faced the arrival of wheat consignments infected with alternaria and other fungal diseases. As a result, only 600 cars were set aside by the terminal at the quality mismatch station, while we waited for the surveyors to take samples, analyze and compare the results of our laboratory with their own.
In February 2019, Risoil Terminal together with Transbalkterminal (Kernel company) launched a pilot project for interaction with the Odessa Railway. We provide UZ representatives with information about the availability of free storage capacities and the approach of ships, inform about the need for supplying trains with a particular culture, and railway supplies trains to the station according to our needs.
It allowed us to increase the turnover of our tanks by 17% without any investment, simply by optimizing the logistics processes, exchanging information and making managerial decisions on our part and on the part of the railway from February to May of this year. As of June 1, the increase in cargo handling at our terminal totaled 46%, of which 17% were provided by this project.
Moreover, a number of promising projects have been developed at the same time with the UZ, which are aimed at providing a number of grain traders the increase of the turnover of cars by rising the speed of cars, minimizing downtime at railway yards, etc.
Prepared by Anna Tanskaya, APK-Inform Agency