Despite gradual increase of wheat crop, production of wheat flour has been declining over the last 5 seasons in Ukraine. Lower domestic consumption of flour, bakery, confectionary and pastry products is the main reason for flour output decrease. At the same time, the export of wheat flour is successfully developing.
Flour production and domestic consumption
Ukraine is forecasted to produce 2.74 mln tonnes of wheat and rye flour in 2016/17 MY against 2.1 mln tonnes in 2015/16 MY. However, flour output reached just 1.1 mln tonnes in the first half of the season, down 2.3% y/y, according to APK-Inform.
Flour domestic consumption will reach 2.32 mln tonnes in 2016/17 MY (down 3% y/y) due to lower demand from the main consumers (including lower needs due to population decrease) and poor production profitability. According to APK-Inform, utilization of flour for production of bakery, pastry and confectionary products declined by average 6% y/y to 578.7 thsd tonnes during the first half of the current season.
Taking to account significant decline of bakery products output, export is a life saver for development of Ukrainian processing industry.
Export volumes and destinations
Ukraine can export record 390 thsd tonnes of wheat flour in 2016/17 MY, up from 346.2 thsd tonnes year ago, according to APK-Inform. During the first 7 months of the season, Ukraine exported 223.6 thsd tonnes of flour, up 11% y/y.
China is the key destination for Ukrainian flour. The country imported 45 thsd tonnes of Ukrainian flour during the first half of the season against 45.6 thsd tonnes within the same period last year. Ukraine decreased somehow exports to North Korea (from 23.3 to 23.1 thsd tonnes), Moldova (from 19.8 to 15.7 thsd tonnes) and Israel (from 19.3 to 17.1 thsd tonnes). At the same time, Ukraine significantly increased the shipments to Angola (from 7 to 20.5 thsd tonnes), Palestine (from 9.6 to 16.4 thsd tonnes) and the UAE (from 1.1 to 13.7 thsd tonnes). First time in the history, Libya entered the list of TOP-10 importers of Ukrainian flour (5.7 thsd tonnes, against 279 tonnes in the first half of 2015/16 MY).
Comment of Rodion Rybchinskiy, Director of Millers of Ukraine Association and Head of Business project unit at APK-Inform Agency:
“Ukraine exported 203 thsd tonnes of flour during 6 months of 2016/17 MY, up 10% y/y, the record monthly volume was shipped in December (42.4 thsd tonnes). If Ukraine maintain such export pace it can ship record annual volume of 370 thsd tonnes this season. In calendar year 2016, Ukraine exported 369.6 thsd tonnes of flour, up 20% from 2015.
Despite some difficulties, North Korea is the main consumer of Ukrainian wheat flour. It imported nearly 23 thsd tonnes of the product during the first half of the season. Moreover, nearly 40% of total exports of Ukrainian flour went to North Korea during 6 months of 2016/17 MY, but the volumes were transited by other countries. However, supply of Ukrainian flour to North Korea is declining, several years ago the share of the country in total export volumes reached 60%.
African countries emerged among buyers of Ukrainian flour. This market is rather promising and shipments to Africa increased over the last years. Except traditional countries, Ukraine started to export flour to Sierra Leone, Benin, South Africa, Madagascar, Cote d'Ivoire, Ghana, etc. Establishment of cooperation with direct buyers is the main difficulty while trade with Africa.
The capacity of global flour market is limited, and totals nearly 15 mln tonnes, thus 370 thsd tonnes is rather significant share. Moreover, there is a regional trade. Kazakhstan trades with Kirghizia, Uzbekistan and Afghanistan. Pakistan and Iran trade locally. Argentina exports to Brazil. Thus, there is quote limited number of buyers. Moreover, Turkey is our main competitor and it is the leading exporter in the world. So, every new outlet for Ukrainian flour is an achievement. In the first half of the season, Ukraine exported its flour to 45 countries.”
At the same time, Sergey Sakirkin, advisor of chairman of Agrarian Fund PJSC is skeptical as to the realization of projected record flour export in 2016/17 MY:
“Ukraine made a negative record in January and exported just 26.43 thsd tonnes of flour. It is the lowest level during 7 months of 2016/17 MY. Lower shipments to North Korea became the main reason of the decline. The country imported 7 thsd tonnes of Ukrainian flour in January against 16 thsd tonnes in December. The share of North Korea made up 26.48% in January, against 40% in the first half of the season. Shipment to east direction (Angola, Somalia, Palestine, Israel) declined a bit in January. At the same time, the exports to Yemen and Jordan increased. Moldova, Georgia and Belarus imported traditional volumes.
Preliminary data for February is pessimistic. The export rates seem similar to January. North Korea imports small volumes.
Ukraine will not reach forecasted record export in 2016/17 MY if shipments to North Korea to stay low or the country does not increase export to Asian and African destinations.”
Price trend
The prices mainly faced downward trend in the first half of the season, thus many exporters received minimal returns. High competition on the global market and between Ukrainian exporters was the main reason of price decline. The offer prices decreased from 200 to 192 USD/t FCA (the highest grade) and from 190 to 183 USD/t FCA (1 grade). The demand was mainly moderate and stable. The prices started to grow in December due to higher trade activity. Currently market operators can sell at higher prices (200-215 and 190-200 USD/t FCA) only small lots of flour.
Forecasts and prospects
Mainly market operators expect for upward price trend due to higher competition between millers and exporters at a time when high quality milling wheat supply is declining. Demand and currency fluctuation will influence price development.
Expected higher supply of food wheat before spring planting campaign can weight on prices, however the factor will be short and negligible.
Anna Tanskaya, APK-Inform Agency
