Despite all the difficulties and losses in agricultural exports caused by Russia's full-scale military invasion of Ukraine, the rapeseed segment managed to achieve a record export in 2022/23 MY – 3.4 mln tonnes (+26% compared to 2021/22 MY). First of all, it was facilitated by an increase in demand from the EU countries, access to which remained open, while deliveries to remote buyers were really complicated. In 2023/24 MY, the USDA sees a further increase in rapeseed shipments to a new record of 3.55 mln tonnes (+4%). However, current conditions suggest that this may not be an easy task for Ukrainian exporters. The “grain corridor” does not exist at the moment, and there is no understanding whether exports from deep-water ports will be resumed in any form and when this may happen. Also, exports to the EU are complicated by a ban on the supply of rapeseed to five neighboring countries, in force from the end of April and until September 15. Most European countries declare their intention to extend the ban beyond September 15. generally, the import demand from the bloc can ease in the new season. Transit is the hope. APK-Inform talked to Yan Kozyritsky, co-founder and broker of Atria Brokers, and Cristina Serebryakova, broker and head of analytical department, about how Ukraine will export its rapeseed in 2023/24 MY.
- Yan, we are at the start of the new season. It is traditionally the peak of trading activity on the Ukrainian rapeseed market. Have you already seen some distinctive features of this season?
- Despite the fact that only one month of the season has ended, we already see a key feature of the market - strong price fluctuations at any basis. It is a storm like never before. Each link in the export chain is tested for strength. The season started with very low prices, and the producers were simply shocked. They have seen that selling at the asking price breaks even, or even well under. Then in early July, Strategie Grains cut EU rapeseed production prospects and the rally began. The first feature of the market is that many new small exporters have appeared on it. The second feature is that the main flow of sales went to Constanta for multinational companies. The third feature is that our newly minted exporters now know what minus from Matif is and that Q is August and X is November on Matif (Euronext). For many, it was new that they were offered to book deals at minus from Matif with the possibility of fixing the price a couple of weeks before the start of the delivery period. Many preferred a bird in hand and fixed the price right away. When the first price jump ended and the second even more sizable began, many regretted their bird. The price rushed into space and provided the market with contracts at a higher CIF price, on the one hand. On the other hand, the price on FCA, CPT-port and FOB surged even stronger. Many respectable exporters who had not yet bought goods from the market had to bear huge losses. Moreover, defaults on the part of small producers were not long in coming. At this stage, many market participants have already learned that Matif opens at 10:00 a.m. Kyiv time, because every day they were looking for producers to buy from. Many exporters regretted that they did not book contracts in premium from Matif.
Another knife in the back of exporters was stabbed by Russia. Freight on barges had been already growing due to the seasonal factor. And since the end of July, Russia began to attack the small ports of Reni and Izmail. Many barge owners simply refused to make voyages. This was another minus in the budget of exporters.
Also, the exchange rate played a cruel joke with our exporters. Many trades were fixed in euros. At the time when a contract was covered from the market during most of July, the dollar equivalent promised to somehow cover the losses. However, by the time barges or wagons loaded with rapeseed reach buyers and the payment period arrives, the euro is too likely to collapse and return to its position as of early July.
In early August, we entered a new stage. Matif went down and many buyers thought they should be sold at a low price. However, this turned out to be absolutely impossible. The number of export contracts concluded on the high market is so large that so far all trade is about to execute them - purchase from farmers/at elevators and sales on CPT-port. On August 4, the French Ministry of Agriculture lowered the forecast for rapeseed production in France, and rapeseed prices began to rise again.
- Yan, how do you assess the possibility of supplying Ukrainian rapeseed to remote destinations?
- We can say that there are even more opportunities for Ukrainian rapeseed to go to remote destinations in 2023/24 MY. However, this will happen indirectly.
A feature of last season was the fact that supplies to large remote buyers almost disappeared after the blocking of full-fledged exports from Ukrainian deep-sea ports after the Russian invasion. The corridor was focused on wheat, corn, sunflower oil and meal. That is why exports to Pakistan fell by 82% to 61 thsd tonnes, to Bangladesh by 85% to 20 thsd tonnes, and deliveries to the UAE amounted to only 2 thsd tonnes for the entire season (-98%). Ukrainian rapeseed was mainly replaced by Australian canola in the markets of the Middle East. Bangladesh significantly reduced rapeseed purchases, however, an increase in imports from Canada was noted.
Based on the above, rapeseed went to the neighboring EU countries, like Poland and Hungary. Accordingly, about 50% of rapeseed was exported by land transport, compared to about 10% a year earlier.
As a result, the supply of Ukrainian rapeseed to the EU countries increased by 57% to 3.2 mln tonnes in 2022/23 MY.
In 2023/24 MY, the situation changed due to the boycott by the neighboring five European countries (Romania, Poland, Hungary, Bulgaria and Slovakia) of the import of Ukrainian rapeseed, starting from the end of April 2023, after the protests of local farmers. The ban has been set until September 15, but representatives of the five countries are talking about their intention to extend it. Separately, the Prime Minister of Poland said that the country would not open its borders for Ukrainian grain after September 15. In this regard, the flows are redistributed as follows: most of rapeseed go to Romanian Constanta, and then, depending on the presence or absence of the ISCC certificate, it goes by coasters or handy ships to ARAG countries (Amsterdam, Rotterdam, Antwerp and Ghent), France, Portugal or to the UAE/Pakistan. Also, most of the ISCC rapeseed goes to Germany by rail.
RAPESEED TRADE MATRIX & FORECAST FOR 2023/24 MY
- Christina, to what extent will the export of Ukrainian rapeseed depend on demand from the EU in 2023/24 MY?
- At the moment, the dependence of Ukrainian rapeseed exports on demand from European buyers looks even more significant than before. On July 17, Russia withdrew from the grain deal, which completely blocked Ukraine's sea exports. Immediately after that, Russia launched massive missile attacks on the port infrastructure of the Odesa and Mykolaiv regions. In addition to numerous attacks on deep-sea port infrastructure, on the night of July 24, Russia targeted the river port of Reni, which was the first attack on the Danube ports and caused much more concern in the market than the stoppage of the grain deal. In addition, Russia attacked the bridge in Zatoka (Odesa region), which is a key artery connecting the river ports of the Danube with the rest of Ukraine and the only rail link to the ports of the Danube. Moreover, Russia announced that it would consider all ships bound for Ukrainian ports as weapon carriers, which created additional tension in the Black Sea region. However, Russia later announced that it intended to inspect rather than attack the ships. In turn, Ukraine's initiative to resume the grain corridor without the participation of Russia has not yet been implemented.
Regarding shipments from the Danube river ports, some shipowners are afraid to send their fleet to Reni/Izmail after the Russian attacks. This is an additional factor that is pushing up freight rates that are already growing seasonally. As of August 4, freight for the transportation of rapeseed from the ports of Reni and Izmail by coasters of 7000 tonnes to ARAG reached 85-88 USD/t against 80-85 USD/t a week earlier and 80 USD/t before the first attack. Freight for barges to Constanta rose to 47 EUR/t by August 4 against 43 USD/t a week earlier and 35 USD/t two weeks earlier. Even with the further normal functioning of the river ports, the burden on them will increase, if the issue of export by sea is not resolved, and rapeseed will have to compete with grain crops.
At the moment, the land route remains the safest way to export. However, many buyers in Germany at the beginning of August stated that they were covered with rapeseed until the start of 2024. Demand from Germany is very important, as it is one of the key end consumers of Ukrainian rapeseed and imported 451 thsd tonnes of the oilseed from Ukraine in 2022/23 MY.
In the first month of 2023/24 MY, Germany has already imported 28 thsd tonnes of Ukrainian rapeseed vs less than 2 thsd tonnes in July 2022/23 MY. Also, 38.3 thsd tonnes of the oilseed were shipped to France in July 2023/24, while there were no deliveries in the same month a year earlier. Shipments to Romania amounted to 78 thsd tonnes vs 46.2 thsd tonnes in July 2022/23 MY.
In general, the rapeseed exports from Ukraine in July 2023/24 MY is impressive - 241.7 thsd tonnes compared with 116 thsd tonnes in the first month of 2022/23 MY and 52 thsd tonnes in July 2021/22 MY. Among the distant destinations, Bangladesh should be noted, where 10.5 thsd tonnes of rapeseed were shipped in July vs only 0.4 thsd tonnes a year earlier.
In the July USDA forecast, the export of rapeseed from Ukraine in 2023/24 MY was seen at a record 3.55 mln tonnes, which is 4% higher than last year's result, and also 21% higher than in 2021/22 MY, when almost the entire export potential of the crop was performed before the start of the military invasion of Russia. The UGA also sees rapeseed shipments in 2023/24 MY at 3.5 mln tonnes.
The USDA sees the rapeseed production in Ukraine in 2023/24 MY at a record 4 mln tonnes, which is 14% higher than last year's crop. In turn, the UGA expects the harvest at last year's level of 3.9 mln tonnes.
As for now, the rapeseed harvesting campaign is already nearing its completion and as of August 4 it was completed by 86%, which is faster than last year's pace (79%). As of the date, 1.2 mln ha were threshed and 3.3 mln tonnes were harvested with an average yield of 2.81 t/ha (2.68 t/ha in 2022)
- Christina, how strong do you think the impact of the drought will be in the EU?
- In addition to the existing trade restrictions, in general, the demand for rapeseed from the EU is expected to be lower in 2023/24 MY due to the growth in domestic production. Thus, the USDA predicts a 4% increase in production up to 20.2 mln tonnes.
However, the latest adjustments to the EU rapeseed crop forecast was downward, and the updated Strategie Grains report puts the oilseed production at 19.3 mln tonnes, which is already 0.7% lower than last year. A further deterioration in the production prospects is not ruled out amid prolonged dry weather in many countries of the bloc, which is impacting the yield prospects. Thus, in the July MARS report, the rapeseed yield forecast in the EU in 2023 was reduced by 0.09 t/ha to 3.2 t/ha, which, nevertheless, is still 3% higher than last year.
In particular, in Germany, DBV in July put rapeseed harvest at 4.2 mln tonnes, which is 3% less than last year. The IGC sees the crop at 4.2 mln tonnes as well, down 2% y/y.
The IGC sees rapeseed crop in Poland at 3.4 mln tonnes in 2023, down 6% y/y.
In France, the forecasts for rapeseed harvest were higher than last year, but Agritel reported “disappointing” French rapeseed yields. The IGC expects crop growth by 2% to 4.6 mln tonnes. The Ministry of Agriculture of the country lowered the production forecast to 4.34 mln tonnes in August, which is already 4% lower than last year amid deterioration of yields. The yield was cut to 3.23 t/ha against 3.44 t/ha expected a month earlier. At the same time, the expansion of crop area by almost 10% per year to 1.35 mln ha will help limit losses.
A significant increase in rapeseed production is expected in Romania, where the IGC sees the harvest at 1.8 mln tonnnes, which is 50% higher than last year.
The increase in rapeseed production, as well as a significant growth of carry-over stocks, which are estimated by the USDA at 1.8 mln tonnes, up 125% y/y, may cut the European demand for imported rapeseed. The USDA forecasts imports of rapeseed to the EU in 2023/24 MY at 5.1 mln tonnes, which is 26% lower than the result of 2022/23 MY. The IGC sees more restrained reduction in imports to 5.8 mln tonnes (-3%).
- What can we expect from such competitors as Australia and Canada?
- In 2021/22 MY, the main competition for Ukrainian rapeseed was from Australia, which harvested a record 8.3 mln tonnes of the oilseed, up 22% y/y. In 2023/24 MY, the USDA predicts a 41% decline in canola crop in Australia to 4.9 mln tonnes, which is still a massive crop and 15% higher than the average over the past 10 years. Production decline is expected amid reduced acreage and a projected deterioration in crop yields due to dry and hot weather during crop’s key development stages driven by El Niño. Precipitation across much of Australia is forecast to be well below normal for the next two weeks, according to the current forecast.
Canola exports from Australia may fall by 40% to 4 mln tonnes in 2023/24 MY, which also remains a high figure and, apart from the last season, is below only to 2021/22 MY.
As for Canada, despite the drought, the production potential is higher than last year. In the province of Saskatchewan, which accounts for more than half of the country's canola production, some experts report that the moisture deficit is already comparable to 2021, when the final oilseed yield was only 56% of the average annual level over the past five years. Precipitation is expected to be below normal in much of the province for the next two weeks, according to the forecast.