August 30 2014, 13:30 Source: APK-Inform Views: 1206

Ukraine to face a difficult grain season

The season-2013/14 became one of the most unpredictable for the grain market of Ukraine. Despite the long rains in the autumn 2013, the domestic agrarians managed to produce the record grain harvest volumes, and plant winter crops in the optimum agro-meteorological terms. However, in the second half of the marketing year not the weather, but worsening of the political and economic situation in the country, became the determining factor of the grain market functioning in Ukraine. Rodion Rybchinskiy, Head of Business Projects Division of APK-Inform Agency, kindly agreed to summarize the 2013/14 MY, and outline the prospects for the grain market development in 2014/15 MY.

- Mr. Rybchinskiy, summing up 2013/14 MY, how would you describe the season for the Ukrainian grain market?

The last season was quite complex for the Ukrainian grain market. It had positive and negative aspects. If we talk about the pros, at first, it is the record grain harvest, which exceeded 63 mln tonnes. The second advantage is the record exports volumes - nearly 32.4 mln tonnes of grains (if assuming maize exports in the period of July, 2013 – July, 2014). It should be noted that one-fifth of the total volume of Ukrainian grains delivered on foreign markets, was shipped to Asia. However, on the other hand, we have the depreciation of the national currency against USD by 46%. For the exporters it is the plus, but for agricultural producers - a huge disadvantage, since the UAH devaluation of has caused the rise of the material and technical resources costs, and combustive and lubricating materials. The other pros is cancellation of the indispensable certification of grains and its by-products, as well as the correspondence of the service delivery for grain storage. In addition, the signing of the Association Agreement with the EU is a certain positive signal for foreign investors. Thus, for the whole market.

- Can we say that in 2013/14 MY Ukraine completely realized its export program?

Of course, we can say that Ukraine accomplished the program of grain exports. Especially, taking into account the fact that in the beginning of the season the export volumes were estimated at 28-29 mln tonnes. The season results proved that Ukraine fulfilled the export program beyond any expectations. However, last season the export plans were raised up. Thus, in the next couple of years the country will face some complexities to achieve the similar results.

- Ukraine started the early crops harvesting, there is already the first data on their yield. How much the indices do differ from the rates of 2013, and what general grain harvest is expected in the current year? What is your opinion about the exports in the new season?

We have to admit that the current year harvest will be lower compared with last year by nearly 6 mln tonnes, due to the rise of costs for grain production in the current season, then – due to the change of tactical preferences. In addition, we withhold the data on the Crimean harvest from the general forecast, which totals nearly 1 mln tonnes as well as the expected loss of the part of the harvest in Donetsk and Luhansk oblasts. Of course, the weather conditions for winter and spring grains are extremely favourable, and the yield will sufficiently compensate of the final result. Therefore, the harvest of 56.5-57 mln tonnes seems to be quite achievable.

As for the exports, it depends on the general harvest volumes, so we expect for reduction of grain supplies in the new season, due to the lower supply of grains. In addition, the current market conditions, as well as the high prices for material and technical resources will cause the further reduction the winter grain areas which will affect the bid-offer ratio on the Ukrainian market, including the export market.

- Will the geography of Ukrainian grain exports change in 2014/15 MY compared with the previous season?

Most probably, it will not change. But if there are changes, they will be inconspicuous. Again, it is not geography, but the price situation determines the supplies. For example, Saudi Arabia is the main buyer of Ukrainian barley. If Ukraine has the required volumes of barley, it will go to Saudi Arabia. Will the share of exports to China decrease? In theory – it should. How it will be at the practice, it is a complex question, because according to the provisions of the current contract, the delivery does not necessarily to realize exactly on the Chinese market, the grain may be re-exported to any third countries. However, we observe a stable interest of Chinese companies in the Ukrainian grain, as well as the interest of Ukrainian companies in the Chinese market. Perhaps, the exports will be realized to the Middle East countries, where the bid for milling wheat will increase, due the refugees from the war in Iraq-Syria.

- How do you estimate the prospects of cooperation between Ukraine and the EU after signing of the Association Agreement?

For the grain market nothing has changed, we will supply the same volumes of grains. Besides, in the current MY the Ukrainian export volumes of maize to the EU total 50% of its general volume or nearly 10 mln tonnes. If we talk about the signing of the Agreement on free trade zone with the EU, the main qualitative changes, as for me, consist in the adaptation of the Ukrainian legislation, normative technical documents in accordance with the standards of laws and regulations applied in the EU. It primarily concerns the certification of quality and safety of food raw materials, in particular grain raw materials. Ultimately, if we consider it from the consumer viewpoint, it is a big plus, because the Ukrainian consumer will receive those products, which are produced in Ukraine, but in accordance with the qualitative and safety requirements applied in the EU.

- How, in your opinion, the export season-2014/15 will differ from 2013/14 MY? What challenges will traders face?

The main difference is that the number of grain offers will decrease. And by September, when the situation on the planting campaign of winter crops will be clear, the situation on the domestic market can seriously change. As for the infrastructure or logistical issues, they will not be sharp in the new season. The only problem, which exists and probably will not be solved in short term outlook, is the condition of motor roads. Our roads are not conceived for moving of motor trains upon 50 tonnes of grains, the half of the road are not able to withstand 20-tonne trains. Thus, we have a paradoxical situation - the country is pierced by the railways network and navigable rivers, but we continue beating our dead roads. And the Ministry of Infrastructure weasels out of the problem.

- Which factors in the new season, in your opinion, may affect the pricing of new crop grain?

As I previously said, it is primarily the reducing of harvest volumes in the country, the uncertainty of the harvest in Donetsk and Luhansk oblasts, and the probable reduction of the winter crops harvest in 2015. The reporting factors will influence most on the pricing on the domestic market, and will adjust the grain exports from the country, which will affect the profitableness of agrarian business. In general, the season is expected to be extremely difficult.


Interviewed by Alina Styozhka


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