In spite of the fact that for several recent years Ukraine
has been finally developed as one of the key world grain exporters, every following year is not the same as last one, and everything is in details.
Hereinafter, we have talked with the Director at "AL GHURAIR RESOURCES – UKRAINE", Oleg Levchenko about the main features of 2017/18 MY and further prospects of Ukrainian and global grain developments.
- Oleg Ivanovich, what features of the Ukrainian grain market in 2017/18 MY would You mark out?
I consider the main characteristics of the current season are low rates of grain export from Ukraine, caused by global market environment, mainly, the prevailing supply of grain and, respectively, the high competition on external platforms. At the same time, for the first half of the season, volumes of wheat export due to several monthly records were gradually approached to the indicators of last season. The situation in the segments of feed barley and corn was much less optimistic. The volumes production of barley and corn in Ukraine in 2017 has indeed decreased, but not in a such extant of reduced export volumes we observe in the current season.
Probably, the question consists also in the price of the Ukrainian production. At the same time, in the conditions of reserved grain sales by agricultural producers, it becomes more difficult fortraders to tack between the internal and export markets.
Among positive aspects, it would be desirable to note that in the current season exporters have practically ceased to face problems at VAT compensation, the system operates is more or less equal. Along with it, in view of the imperfect tax law the big percent of agricultural products still is "grey" and is exported according to shadow schemes. Along with it, in view of the imperfect tax law system, the great share of agricultural products still is "grey" and is exported in shadow schemes.
- The logistics issue became one of the most discussed subjects in the current season. What, in Your opinion, was it caused by, and what are the main mechanisms of its solution?
Everything goes back to logistics, and it is that moment where it is possible to earn money. In addition, the situation is complicated by market volatility and landowners’ awareness with global quotations.
At the same time, the key problems with logistics in Ukraine are in two highlights. It is the monopolization of railway transportation, but the problem is not in monopoly per se, but in badly functioning of the created system. Naturally, it is impossible to disregard the corruption component, but even it is not the problem number one. The lack or total absence of the competence of some officials who don't understand the principles of work industry who sometimes lead it up to the point of absurdity. And it is a big problem.
Among key problems of railway transport logistics it is possible to distinguish the lack of shunting structure, deficiency of the cars and experts working at the railroad, many of which have left the country in search of the better salary abroad.
At the same time, the issue with the shortage of cars in the long term will be resolved by the same traders and forwarding agents who need them. Such a situation was observed in Russia and Kazakhstan when the companies were forced to buy cars in order to become more independent. At the same time, the shunting structure, electro-and diesel tractors are in state prerogative.
As for motor transportations, an important point is an absence of the qualitative roads of general purpose going to ports. In Brazil, Argentina, the USA for instance, the three-axis heavy trucks transporting 35-40 tonnes and equipped with manholes are used. At the same time, they do not spoil pavements. Oppositely, we have an outdated park which, despite toughening of dimension-weight monitoring, continues "to kill" roads. I perceive in this one more corruption diagram and no more than it.
- The atypical spread between feed barley and milling wheat became one of the major features of 2017/18 MY. What, in Your opinion, is it caused by, and what are the forecasts for the situation development in the second half of the season?
Yes, really feed barley is barged at the prices comparable to the prices of 3-grade milling wheat in the current season that is unusual. However, we have already observed the similar situation in November, 2015, but then it was short period, which was caused primarily by the specifics of importers’ demand, in particular from Saudi Arabia.
In the current season, it is caused by the imbalance of demand and offer in the specified market segment. On the one hand, increase in prices for barley was promoted by the reduced barley production in the EU and Australia. On the other hand, many traders concluded forward contracts for large deliveries of barley to Saudi Arabia and subsequently were forced to raise significantly the prices for the purpose of attraction bigger offers of grain for to covering their positions. As a result, offer prices for feed barley quite often reach 190 USD/t FOB now.
Taking into account the developed market condition, the cut planted areas under winter barley for 2018 harvest was a bit illogical fact. Besides, weather conditions during winter barley sowing were undoubtedly more favorable than in last season. Perhaps, it will also be partially compensated by spring sowing. However, you shouldn't forget that the yield of winter barley is 1-1.5 t/ha above the spring one traditionally.
Concerning the market development of the second half of 2017/18 MY I consider that the price won’t be higher than the current level or in some cases, depending on key importers demand and the activity of tenders, however it won't be so essential. In general, I think that importers will begin to switch to other crops, and the offer prices will vary within 186-193 USD/t FOB. Additional pressure upon the export prices will exert the barley offers of Argentina origin which has harvested quite good crop barley in the current season. I will note also, that producers of compound feedstuff in the domestic market of Ukraine have already started to replace barley with other cheaper crops and not the last role in this matter was the decrease of pigs livestock owing to periodic flashes of the African swine fever.
- How far did the significant reduction of delivers to India and China, as well as unpredictable behavior of Egypt, influenced pricing?
I consider it to be political games and one of the fastest and effective ways to reduce import at the right time and to support own agricultural producer. Thus, it is a productive method of influence the price situation. Besides, the most objective and at the same time absolutely unpredictable factor exerting enormous impact on pricing now is weather. If earlier it was possible to predict the development of price situation for the year or half of it, than now it is rather difficult. Warm winters, droughty summer periods…
- How would You characterize the current weather conditions and their impact on winter crops development in Ukraine?
Very favorable weather conditions are now observed on the territory of Ukraine for wintering and further vegetation of winter crops. For the first time in 4-5 years, the top and lower layers of soil waters were closed therefore, there is enough productive soil moisture for the development of plants. In 2017/18 MY, I visited fields a lot, analyzing the condition of crops on different stages of vegetation, and everything demonstrated that the corn harvest in Ukraine will be not less than 30 mln tonnes. At the same time, 5-6 days of the heat in the period of dairy ripeness have just welded everything corn cobs. The similar situation was both in previous year approximately at the same period. Such weather cataclysms significantly reduce the predicted yield. Three years ago the similar situation was observed during the crop pollination processes.
Everyone closely monitor the corn and soybeans production in Argentina and Brazil. And frequently, despite positive forecasts of crop harvest and yield, we observe the development of a price situation in an upward trend due to the adverse weather conditions which have led to reduction of the predicted output or decline in the quality of grain.
It is difficult to predict something in such conditions. In addition, the situation is complicated by the political component in trade relations between the countries complicates, for instance, unpredictable behavior of Egypt and volatility of exchange rate that is especially notable in Ukraine.
- And how can the company stay afloat and strengthen its positions on the market in such terms?
First of all, it is necessary to understand clearly the strategy of companies’ development. For the moment being, I consider the most effective ways of development and, respectively, improvement of economic indicators of the company the vertical integration of building our own infrastructure, capitalization through elevators, terminals, etc. Today, despite the rapid development of port infrastructure, there is a lack of high-quality deep-water terminals in Ukraine all the same. Besides, each one terminal has its own nuances and specifics of work.
Sooner or later, the production of corn in Ukraine will reach 35-40 mln tonnes, and then all problematic issues of infrastructure will become very notable. And actually that is not so much needed indeed for boosting corn production up to such volumes – it is enough to increase acreages under the grain by 0.5 mln ha hectares, up to 5 mln ha, and to achieve the higher yield, for example, 7 t/ha. However, if warming to continue, then the corn belt will be displaced on the northwest where the serious problems with logistics are observed.
Interviewed by Anna Tanskaya, APK-Inform Agency
