Oilseed season-2020/21: record prices do not mean margin




Oilseed season-2020/21 is ending. All market participants will remember this season for its peculiarities that were not always pleasant, understandable and market-based. To date, when the season is virtually finished, everyone is more focused on the fields and crop forecasts for 2021. APK-Inform discussed the preliminary results of 2020/21 MY, expectations and the current situation with oilseed processing in Ukraine with Andrey Bolgov, Deputy Commercial Director for Procurement of Pology oil extraction plant.

- Andrey, as a representative of one of the largest Ukrainian sunflower seed processor, share your impressions of the oilseed season-2020/21.

- The impressions are double natured. The enterprises that used to purchase seeds by forwards got the huge losses, as many agricultural producers did not fulfill their obligations either partially or completely for a number of reasons. Some processors faced the loss comparable to the total profit over the past 5 years. There were small plants that did not even start up because they did not have time to buy up sunflower seeds that were growing in price by leaps and bounds. Record high prices of sunflower oil have not become a guarantee of marginality for everyone. Sometimes the plants were forced to operate with negative margins.

- The processing margin is one of the most painful moment of the current season...

- The skyrocketing prices at the beginning of the season amid the low sunflower seed crop and the growing premium to soybean oil reaching 475 USD/t forced many farmers to hold back sales in anticipation of even higher prices. The pace of price growth for feedstock after the New Year began to outstrip prices of sunflower oil. The processing margin was negative at the moment, and many processors believed in a further rise in prices. But nothing can last forever. Companies that broke even this season can be proud of their keen eye for market and decisions.

- Considering the struggle of processors for raw materials in the current season, the competition between enterprises seemed to be tough both for feedstock and buyers.

- This year the struggle was really tough. Russia poured oil to the flame with its state regulation. We do not struggle for an internal buyer, because the market is virtually absent. The domestic consumption of sunflower oil is less than 1% out of production volume, the livestock complex is stagnating. At the same time, it is not the first season, when we compete with Russia for India and China. Earlier, Russian oil used to be of lower quality, but now Ukraine does not have this competitive advantage. The spread of COVID-19 in India and the decision of the Chinese authorities to open the state reserves of soybeans collapsed the demand for Ukrainian sunflower oil to virtually zero level.

- Traditionally, the main crops for processing are sunflower seed and soybeans in Ukraine (there is a tough competition between processors, while farmers prefer to restrain sales). At the same time, the bulk of rapeseed goes for export. What are the realities of this segment in the current season and are there any prospects for improving the situation?

 - It was possible to buy soybeans on the domestic market after the New Year at prices equivalent to + $ 60 of the export price equivalent. Except RB, our expensive meal was not needed by anyone. The FOB sales market of soybean meal is nearly absent, the expensive meal went to Ukrainian livestock breeders, who have been working in the red since the beginning of the year. The plants are to operating, there are almost no purchases of soybeans, some have accumulated expensive soybeans, others simply have nowhere and no one to sell meal to. The growth of rapeseed prices has forced those few who process it not to sign forward contracts. So far, it is difficult to say that the processing of rapeseed or soybeans in Ukraine will grow - there is no demand for oil and meal.

- Today, analysts are quite optimistic regarding the future sunflower harvest in 2021. But the weather "rules the world," and fighting it can be equated with Don Quixote's battle with windmills. What are your expectations concerning the prospects for the new season?

- So far, everything looks very optimistic. There are good moisture reserves, and moderately warm. The planted area is already higher than expected. According to our estimates, the official harvest could reach 17 MMT. The main question is when will it be on the market? We see a shift not only in the planting period, but also in the harvesting period: the main harvesting falls on October, which means that in August-September there may be a shortage of the oilseed.

- What will be the key global factors?

- Oil prices, green energy policies and the rate of exit from quarantine. Globally, the mood is optimistic, there are no reasons to return to the price levels of previous seasons.

- And, of course, it's impossible not to ask about prices. Taking into account the price trend of the last month, oil stocks at enterprises and ports, the activity of importers, global factors and the situation with planting of crops in Ukraine, will the further decline in prices for sunflower seeds and sunflower oil continue?

- As the new season approaches, prices traditionally decrease. In September-May, according to Ukroliyaprom, we exported 4.4 MMT of oil, which means that there is a gap to the border indicated in the memorandum. But the demand is still low. If the prices for soybean oil continue to rise or there is a threat of a decline in production, buyers will revive. In the meantime, this is not the case, so those who did not want to sell sunflower seeds and were expecting the desirable “a couple more dollars” will not receive them this season. Almost half of the processing capacity is already waiting for a new harvest.

- What do you see as the most adequate price for raw materials and processed products at the start of the new season? Will the introduction of a floating duty on the export of sunflower oil from Russia starting September warm up the market?

- An adequate raw material price is the price at which there is demand for the product and the processor's margin is maintained. At the same time, no one will twist the hands of farmers and lower the price for oilseeds. Processors are interested in the availability of raw materials, not in ruining the farmer. Ideally, the plant needs to have the stocks for 45-60 days, and if the price for oil or meal falls, then the margin is reduced. This season, many have worked even with negative processing margins.

- Thank you for the interesting conversation! Favorable market conditions and high margins in the new season!   

Interviewed by Elena Cherednichenko