Ukrainian market of feed barley in the first half of 2016/17 MY

During three recent seasons, the Ukrainian market of feed barley started re-orientating to work with foreign markets. And the growth of export volumes and expansion of sales geography demonstrate the above-mentioned trend. At the same time, domestic consumption of barley shows relatively stable indices. APK-Inform experts are already ready to report the first results of situation development in the market segment, and what price trends dominated in the first half of 2016/17 MY.

Production and quality of barley of the harvest-2016

Due to rather stable interest in feed barley on both domestic and foreign markets, for the first time during several recent seasons Ukraine increased the grain production volumes in 2016/17 MY.

According to APK-Inform analysts, in the current season the harvest volumes of barley totaled 9.5 mln tonnes, an increase of 15.2% compared with 2015/16 MY (8.3 mln tonnes). The upward dynamics of barley production of barley developed due to a slight growth of the planted areas, which reached 2.9 mln ha in the current season (up 1.7% compared with 2015), and increasing of the yield to the average level at 3.35 t/ha, against 2.95 t/ha in the previous year. Also, due to favorable weather conditions and sufficient moisture reserves in the period of grain ripening, in some regions of Ukraine the yield level reached almost 7 t/ha.

Market operators usually estimated the qualitative characteristics of barley of the harvest-2016 as conforming the State Standard requirements (GOST). Many exporters noted that the average natural weight totaled 650 g/l, against the required level of 600 g/l. At the same time, rainy weather conditions during the harvesting campaign in several oblasts (Dnipropetrovsk, Poltava, Sumy, etc.) had a negative impact on the quality characteristics of the grain crop. So, some customers reported about decreasing of granulation indices and sufficiently high degree of grain contamination with pests. As a result, in the first half of the season most agrarians preferred slowing down the sales of large-scale volumes of high-quality barley, and actively sold barley with low quality characteristics.

A representative of grain processing enterprise at Poltava oblast commented the situation as follows:

"In the current season, a high share of barley contaminated with pests became the biggest problem of our company. Its solution will result in high costs required for grain treatment. In contrast to export-oriented companies, we are not interested in natural weight indices, due to the fact that our company mainly purchases barley for forages production, and the reporting indices is secondary for us. Also, during the first half of the season there were no problems with formation and purchasing of large-scale batches of barley. But to date, many agrarians prefer holding back any sales of the grain (especially with high-quality indicators), and plan to sell the remaining volumes later at higher prices."

Domestic market: price situation & impact factors

In the beginning of the season, the Ukrainian market of barley traditionally faced the bearish trend. Since the first half of July and till first half of August grain processing companies reduced the purchasing prices by nearly 400-550 UAH/t - to 2800-3500 UAH/t CPT. Such trend developed due to increasing of the new crop supply, while barley came on the market at rather small batches.

However, in the second ten-day period of August the prices started rising, due to insufficient supply of high-quality grain on the market, as well as increasing of competition between grain processing and export-oriented companies. Thus, companies-processors increased the bid prices by nearly 250-400 UAH/t, and realized barley purchases at 3200-3800 UAH/t CPT.

By early October, most consumers already formed the required volumes of grain raw material, and did not review the previously established purchasing prices. Only in mid-December, the grain prices started gradually rising, due to the increased demand. To date, the purchasing prices vary within the range of 3500-4000 UAH/t CPT, up nearly 200-300 UAH/t compared with the prices in December. At the same time, in January some processing companies increased the prices to 4300-4400 UAH/t CPT, to purchase more grain stocks with high-quality indicators.

To date, most market operators agree that in the second half of the season, the price situation is likely to continue developing the bullish trend, due to the influence of high competition from export-oriented companies in terms of the gradual reduction of grain stocks.

Export market: price trends, geography and volume of deliveries

In the first half of 2016/17 MY, the market segment of feed barley faced relatively high rates of trading and purchasing activity. At the same time, market participants realized their major operations in the first months of the season. So, during July-September of 2016 Ukraine supplied the lion's share of the export potential of barley on foreign markets - 3.2 mln tonnes from the forecasted volumes of 5 mln tonnes.

Also, in 2016/17 MY the sales geography included nearly 40 countries. Despite some reduction of the import volumes, Saudi Arabia still remained the key market for Ukrainian barley, and in July-December of 2016 the country received 1.8 mln tonnes of the grain (41.9% of the general exports of barley from Ukraine), against 2 1 mln tonnes (54.1%) in the same period last season. Also, in 2016/17 MY Libya, China, Jordan and Algeria were among the major export destinations.

It should be noted that in terms of high activity of traders, in early months of the season the market segment demonstrated rather high price volatility rates. At the same time, after some reducing of the export volumes, the price situation started stabilizing, and only periodically the market segment faced minor adjustments under influence of the global and domestic markets.

In the beginning of the current season, the price situation showed a significant bearish trend, due to a seasonal factor. In the first half of July 2016, the offer prices on FOB basis decreased from 162-167 USD/t to 146-152 USD/t. But in some time the prices started growing, due to relatively high demand of importers in terms of low barley production in the EU. However, the period was rather short-lived, and developed into significant decrease of price quotations on the global market.

We should note that the price situation stabilized in mid-September only, and there were no significant adjustments until January 2017.

But at the end of January, several traders started raising their offer prices by nearly 2-4 USD/t - to 160-164 USD/t FOB due to the global market impact, and in some cases the offer prices for feed barley with delivery in February-March period reached 166 USD/t FOB.

The price situation on CPT-port market developed in a similar way, but the pricing situation on the global market, purchasing activity of traders, the foreign currency exchange rates, as well as the situation in adjacent markets, became the key impact factors.

Thus, in July 2016 the bid prices for feed barley declined from 3800-4050 UAH/t to 3400-3800 UAH/t CPT-port. In turn, the purchasing prices in USD terms decreased from 139-145 USD/t to 118-126 USD/t CPT-port. According to market operators, such significant decline of price became one of the features of the current season. However, the trend influenced on the market for a month only, and then by the global market conditions began developing a bullish trend. Due to the need to raise large-scale grain batches to close the previously concluded contracts, many export-oriented companies had to gradually increase the bid prices, which in mid-August already varied within 3850-4100 UAH/t and 135-141 USD/t CPT-port.

In September-January period, the grain prices continued growing, and reached 4200-4750 UAH/t CPT-port. In turn, the bid prices in foreign currency also slightly increased, and totaled 139-144 USD/t CPT-port.

Expectations of market participants

According to domestic and export market operators, until the beginning of March 2017 there will be a gradual growth of prices due to slowing down of sales of large-scale grain batches by agrarians. At the same time, export-oriented companies will form the major trends on the Ukrainian market of feed barley, based on the demand of importers and situation on the foreign exchange market, etc.

Comment of APK-Inform analyst, Andrei Kupchenko:

“During several recent seasons the Ukrainian market of barley developed a clear export orientation, therefore the global market conditions have increasingly significant influence on the market situation. Unfortunately, to date the global import volumes demonstrate a downward trend. According to the USDA experts, in the current season the global imports of barley will total 26.6 mln tonnes, against 28.3 mln tonnes in 2015/16 MY, and 29.9 mln tonnes in 2014/15 MY.

Despite the growing competition rates, the exports of Ukrainian barley continue actively developing. In the first half of the season (July-December), Ukraine supplied more than 4.3 mln tonnes of barley on foreign markets, up 10% compared with the same period last season (3.9 mln tonnes), and down 2% only compared with the whole last season (4.4 mln tonnes). Generally, in the current season the export volumes of barley from Ukraine will total 5 mln tonnes.

According to the Ministry of Agrarian Policy, agrarians planted winter barley for the harvest-2017 throughout the areas of 881.4 thsd ha, and the sprouts already appeared throughout 843.5 thsd ha. At the same time, 26% of the areas were in weak and thinned condition. The planted areas of winter barley reduced by 16% compared with barley of the current season. The situation will support prices in the market segment. At the same time, weather conditions during the spring crops planting campaign will traditionally play its significant role in formation of the barley harvest.”

Anna Tanskaya, Anna Elizarova, APK-Inform Agency