Development of the fat-and-oil complex of Ukraine in September-May of 2016/17 MY

Despite the fact that ending of the season-2016/17 remains ahead, to date it is quite possible to give some characteristics of the current period. According to forecasts of the association Ukroliyaprom, the highest harvest volumes of sunflower seed (2016) compared with all previous years - 13.6 mln tonnes, together with the current export duties on sunflower seed, provide the maximum level of its processing in domestic enterprises in 2016/17 MY, and the record production volumes of sunflower oil (taking into account oil mills) - 5.7-5.8 mln tonnes, and its exports - 5.2-5.4 mln tonnes.

The industry's performance figures for nine months of 2016/17 MY completely prove such forecasts. As of June 1, 2017, Ukraine processed 11.86 mln tonnes (60.2% of the harvest volumes) of the major oilseed crops at oil (calculations), including 11 mln tonnes of sunflower seed, with oil mills (81% of the harvest volumes), and without oil mills - 9.7 mln tonnes (71.3% of the harvest); 0.16 mln tonnes of rapeseed (14.5% of the harvest); 0.7 mln tonnes of soybeans (16.7% of the harvest). In the period until the end of 2016/17 MY (June-August), the additional production volumes of sunflower oil will exceed 1 mln tonnes.

Also, processing volumes of sunflower seed of 2016 crop increased by 26.4%, or up 2.3 mln tonnes compared with last marketing year. Processing volumes of rapeseed almost halved. Processing volumes of soybeans remained almost at the level of last marketing year. However, the significant increase in soybean exports (up 1.4 times, to 2.71 mln tonnes (63.3% of the harvest) point to the fact that in the current marketing year the processing volumes at oil will continue decreasing.

Table 1. Production and exports of fat-and-oil products, `000 tonnes *

* In July-May of 2016/17 MY, Ukraine produced 66 thsd tonnes of rapeseed oil, and exported 69.4 thsd tonnes. In May 2017, the production of crude oils totaled almost 0.5 mln tonnes, including 0.481 mln tonnes of sunflower oil, 0.14 mln tonnes of soybean oil, and 0.2 thsd tonnes of rapeseed oil. Refined sunflower oil - 57.5 thsd tonnes, margarine products - 16.2 thsd tonnes, mayonnaise - 9.1 thsd tonnes.

During 9 months of 2016/17 MY, Ukraine significantly increased the production of vegetable oils. The result was reached at the expense of record production volumes of sunflower oil. Taking into account oil mills, the production of sunflower oil in Ukraine is estimated at 4.8 mln tonnes, against 3.8 mln tonnes last season (up 26%). At the same time, the production of soybean oil decreased by 4.5%, compared with the figures for 9 months of 2015/16 MY.

At the same time, the production and exports of rapeseed oil somewhat reduced, due to the significant exports of rapeseed raw materials of old crop from Ukraine.

In July-May of 2016/17 MY, Ukraine produced 66 thsd tonnes of rapeseed oil, against 145.6 thsd tonnes in the same period of 2015/16 MY (down 55%). In the reporting period, the exports of rapeseed oil reduced by 55%, and totaled 69.4 thsd tonnes, against 153.8 thsd tonnes.

Table 2. Supply and demand balances of vegetable oils (as of June 1, 2017), `000 tonnes *

Foreign trade

During nine months of 2016/17 MY, Ukraine exported 3.913 mln tonnes of oilseed crops, including 0.18 mln tonnes of sunflower seed (1.3% of the harvest); 1.02 mln tonnes of rapeseed (93% of the harvest); 2.71 mln tonnes of soybean (63.3% of the harvest).

As of June 1, 2017, the carry-over stocks of oilseeds totaled 3.29 mln tonnes, including 2.42 mln tonnes of sunflower seed, and 0.87 mln tonnes of soybeans.

The markets of India and China still continue developing as the promising destinations for the exports of Ukrainian products, in particular vegetable oils (sunflower, soybean oils).

In 2016, Ukraine exported commodities to China at 1832.524 mln USD (including fat-and-oil products at 527.219 mln USD, or 28.8%). The imports of goods from China to Ukraine totaled 4680.356 mln USD (including margarines and fats at 0.325 mln USD). The credit balance deficit totaled 2847.832 mln USD.

But fat-and-oil products demonstrated the surplus (+ 526.894 mln USD). In January-May of 2017, Ukraine exported commodities to China at 719.108 mln USD, including fat-and-oil products at 160.856 mln USD, or 22.4%.

The imports of goods from China to Ukraine totaled 2089.68 mln USD, including margarines and fats at 0.12 mln USD. The credit balance deficit between Ukraine and China totaled 1370.572 mln USD. But fat-and-oil products demonstrated the surplus (+ 160.736 mln USD).

In September-May of the current marketing year, the exports of sunflower oil from Ukraine reached a record rate of 4.4 mln tonnes, against 3.4 mln tonnes in the same period last marketing year (up 29.5%). At the same time, in the current marketing year the export cost of sunflower oil decreased by 20.6 USD/t compared with last marketing year (752.7 USD/t, against 773.3 USD/t).

Main countries-importers of sunflower oil: India - 35.8%, the EU countries - 25% (Spain - 6.4%, the Netherlands - 5.2%, Italy - 4.5%), China - 11.2%, Iran - 6.2%, Egypt - 4%, etc.

During nine months of the current season, the exports of soybean oil increased by 8.7% compared with the same period last marketing year (128.5 thsd tonnes, against 118.2 thsd tonnes). In the current marketing year, the export cost of soybean oil increased by 57 USD/t compared with last marketing year (747.4 USD/t, against 689.8 USD/t).

Main countries-importers of Ukrainian soybean oil: EU countries - 37%, India - 27.3%, and China - 13.2%.

In the current marketing year (July-May), the exports of rapeseed oil decreased by 55% (69.4 thsd tonnes, against 153.8 thsd tonnes).

The export cost of rapeseed oil increased by 19.5 USD/t compared with last marketing year (754.5 USD/t, against 735 USD/t).

In the current marketing year, the EU countries were the main importers of Ukrainian rapeseed oil - 96%.

The exports of sunflower meal increased by 18.5% (3.8 mln tonnes, against 3.2 mln tonnes). The export cost of sunflower meal decreased by 18.5 USD/t (172.2 USD/t, against 190.7 USD/t).

Main countries-importers of Ukrainian sunflower meal: EU countries - 55.2%, Belarus - 10%, Turkey - 6.3%, India - 5.4%.

The exports of soybean meal reduced by 4.5% (238.4 thsd tonnes, against 249.6 thsd tonnes). The export cost of soybean meal increased by 21.1 USD/t (357.8 USD/t, against 336.7 USD/t).

In 2016/17 MY, the list of main countries-importers of Ukrainian soybean meal included EU countries - 33.3%, Belarus - 21.6%, Georgia - 13.1%, Turkey - 9.1%.

During 9 months of 2016/17 MY, the exports of margarine products totaled 42 thsd tonnes at 59.98 mln USD. In the same period, Ukraine imported 11.06 thsd tonnes of margarine products at 26.139 mln USD.

Major trends and directions in 2016/17 MY

Continuation of the global crisis in raw-material based economies. For 5 recent years, since 2012 the prices for energy products (in particular petroleum) decreased in 2.3 times: from 125 USD/barrel to 50 USD/barrel in June 2017. The prices for oilseeds are somewhat tied to petroleum prices. Thus, in terms of increasing of veg oils production from 90 mln tonnes (2000) to 186.17 mln tonnes (June 2017), the prices also fell from 1200 USD/t, to 800 USD/t, or down 1.5 times. However, there was no decreasing of oilseeds production, due to the growing demand for vegetable oils.

Cheapening of sunflower oil on the global market in terms of rising prices for soybean and palm oils. In 2016/17 MY, the prices for all three types of vegetable oils were almost equal (750-800 USD/t). There is a very little difference between the prices for sunflower and soybean oils. In the following months, the premium between vegetable oils will continue reducing at the expense of active growth of palm oil prices.

The global market of oilseeds is the key factor influencing the Ukrainian oilseed market, in particular the demand rates from India and China, as well as fluctuating weather conditions in the major oilseed producing regions.

Also, 2016/17 MY demonstrated the complete dependence of Ukrainian raw commodity markets not only on the global market situation and weather conditions, but also on fluctuations on the foreign currency market in Ukraine. Fluctuations on the foreign currency market affect not only the price situation, but also the rates of trading activity with agricultural commodities, including sunflower seed.

Strengthening of the shadow market. Agricultural producers mainly try to sell sunflower seed for cash, referring to cancellation of the simplified tax system. Such situation significantly disguises the trends on the oilseed market, causes its shadow development, slows down oilseed sales or processing rates.

According to experts, in 2016/17 MY Ukraine significantly increased sunflower seed processing volumes and reduced rapeseed production and processing. At the same time, the exports of rapeseed grew to almost 90% of the harvest volumes, and soybean exports reached 2.8-3 mln tonnes.

High purchasing prices of sunflower seed (almost stable - no less than 400 USD/t) still remain the unique feature of the Ukrainian oilseeds market, despite the current reduction of sunflower oil export prices. Such trend developed, due to the high competition of oilseed processing enterprises on the domestic market.

In terms of record production volumes of sunflower seed at 13.6 mln tonnes, there is no any sudden growth of its exports from Ukraine (to 500 thsd tonnes).

Problems with sunflower meal sales to Belarus, due to the outbreaks of African swine fever (ASF) in Ukraine.

Increasing of the production and exports of goods with high added value (bottled refined oils, margarine products and specialty fats, mayonnaise).

Expansion of sales markets for domestic fat-and-oil products, in particular opening of the Chinese market for Ukrainian sunflower meal.

Ukraine will increase exports of sunflower oil to the EU countries, due to rapeseed harvest failure in the region.

Restoration of positions on the Turkish market, which remains the traditional and strategically important direction for companies-exporters of Ukrainian sunflower oil and meal.

In the current marketing year, for the first time Ukraine processed 10 thsd tonnes of flaxseed at Chernivtsi Oil-and-Fat Plant. The enterprise plans to increase the processing rates to 40 thsd tonnes. PJSC Nizhynsky fat-and-oil complex continued increasing its production of flaxseed oil.

Record production and export volumes of sunflower seed and sunflower oil for all years of the independence became the main feature of 2016/17 MY.

The main condition for the further stable development of the fat-and-oil complex of Ukraine is stability of the export duties on sunflower seed and flaxseed, as well as foundation of the conditions for the maximum processing of rapeseed and soybeans at domestic enterprises, through imposition of the export duties or non-repayment of VAT on the exports of the reporting agricultural commodities.

Forecast of production of the major oilseed crops in Ukraine in 2017/18 MY

Table 3. Ukraine: Production of the major oilseed crops (forecast)

According to estimations of the Ministry Agrarian Policy of Ukraine, the planted areas under major oilseed crops totaled: sunflower seed - 5.5 mln ha, soybeans - 1.9 mln ha, and rapeseed - 0.86 mln ha.

In its June forecast, the USDA increased the figures of sunflower seed production in Ukraine to 14 mln tonnes, sunflower oil - to 5.84 mln tonnes.

According to APK-Inform figures, in terms of the expected harvest of sunflower seed at 13.2 mln tonnes, in 2017/18 MY the production of sunflower oil will total 5.4 mln tonnes, and the exports - 4.9 mln tonnes.

In case of sunflower seed harvest at 13.5 mln tonnes, the association Ukroliyaprom estimated the production of sunflower oil at 5.5-5.6 mln tonnes, and the exports - 5.2 mln tonnes.

Despite the expected decline in the production of sunflower seed and the resulting decline in the production and exports of sunflower oil, Ukraine will still dominate on the global market of the product.

Stepan Kapshuk, General Director at the association Ukroliyaprom