To date, when Ukraine already harvested early grains and started selling the crops, all agrarians, traders and processors mainly gained the focus on development of the corn market. The crop is one of the key commodities in the Ukrainian grain exports, and its production volumes have demonstrated relatively stable figures for several recent seasons. At the same time, in the current season the weather has already provided many surprises, and it is still difficult to estimate the certain harvest volumes in 2017. The current article covers the main trends on the Ukrainian corn market and specifies the main prospects for its development.
Production
For six recent seasons, Ukraine has formed rather stable figures of corn planted areas, which usually total nearly 4.5 mln ha annually. At the same time, there are some minor fluctuations caused by weather conditions during the planting campaign, as well as the results of planting works and wintering period. Market participants did not expect for any significant growth in corn production for the harvest-2017, even in terms of some reduction of winter wheat and barley areas. Such trend developed due to a slight decrease in attractiveness of the crop, in terms of the record figures of its global production and carry-over stocks. As a result, the planted areas reached the average annual rate - 4.5 mln ha.
The yield indices of corn also stabilized and totaled nearly 6.19 t/ha. At the same time, in 2016 Ukraine reached a new record level – 6.6 t/ha. Due to the impact of adverse weather conditions, in 2017 Ukraine will face some reduction of the yield to nearly 6.06 t/ha.
As of September 21, agrarians started harvesting corn for grain in the steppe zone of Ukraine, and already produced 1.069 mln tonnes. The harvested areas reached 239 thsd ha, with the average yield at 4.47 t/ha. It is worth noting that the planted areas in central and northern oblasts mainly faced damages caused by April frosts, which will surely provide its impact on the general harvest volumes.
As for the regional location of corn planted areas, we should note that Poltava oblast has the largest share of corn fields (nearly 13% of the general planted area), which total 583.5 thsd ha in absolute terms. The oblast faced sufficiently strong influence of spring weather anomalies, and according to preliminary estimations, nearly 10% of the crop areas in the region were severely damaged.
Also, Kirovohrad (8.8% of the areas), Chernihiv (8.5%), Vinnytsia (7.8%) and Cherkasy oblasts (7.8%) have large areas under corn.
Generally, in 2017 the TOP-5 of oblasts covered 45.9% of all planted areas under corn in Ukraine. At the same time, the reporting regions even faced a growth of the planted areas under corn for the harvest-2018.
Of course, it is too early to discuss the yield indices for the harvest-2017 in the regions of Ukraine, but in the current season there was observed some increase in corn yield in almost all oblasts in comparison with 2015. In 2016, Vinnytsia oblast became a leader of the specified index, and its yield reached 8.47 t/ha, up 72% compared with 2015 (4.93 t/ha). Also, Zhytomyr oblast increased the yield indices by 67% - to 8.11 t/ha. Generally, in the current season four oblasts demonstrated the average corn yield at over 8 t/ha, which was a good signal for further development of agricultural technologies, and possible prime cost reduction.
In southern oblasts, the yield of corn is traditionally lower than 4 t/ha. To date, a significant share of corn areas is located in the risky farming regions, which will provide low yield indices and high production costs.
Distribution and domestic consumption
As for the general distribution of corn in Ukraine, it is worth noting that the market is mainly export-oriented, and usually supplies 57-72% of the grain total supply on foreign markets. The domestic consumption is much lower, and during five recent years it varied within 25-37%. According to our estimations, in 2017/18 MY the exports of corn can reach 19.2 mln tonnes, or 69% of the total supply, and the domestic consumption will reach nearly 7.8 mln tonnes, or 28% of the total supply.
As for the domestic distribution, then forage consumption covers the major share in its structure (72-78%). At the same time, in terms of downward trends in the livestock industry, as well as changes in forage recipes in favor of oilseed meals and cakes, the market demonstrated a systematic reduction of feed corn consumption - from 7.2 mln tonnes in 2013/14 MY, to nearly 6 mln tonnes in 2017/18 MY.
The share of food processing of corn is much lower, and varies within 2-4% in the structure of domestic consumption. In the reporting market segment, Ukraine mainly produces corn groats, as well as food products (mainly snacks). In October-July of 2016/17 MY, the production of corn groats in Ukraine decreased by 20% compared with the previous season, and totaled 48 thsd tonnes, against 48.8 thsd tonnes.
Also, we should pay attention to the dynamics of corn stocks formation in Ukraine. The peak of stocks formation comes to December, when agrarians completely finish the harvesting campaign. Until January, mainly agricultural producers accumulate the harvested volumes of corn, and since February corn start actively moving to elevators to form export banches. Therefore, in February-June period the share of stocks in storage and processing enterprises dominate compared with the stocks of agricultural producers.
As for the prospects of development of domestic processing of corn, especially deep-processing, we should say that in terms of the planned growth of production and reduction of the prime cost of raw materials, it is not the issue about positive changes in the direction, because development of such market segment requires large-scale investments, and active work with sales markets. But in terms of the global market changes, high level of uncertainty in the economic development of many countries, and the geopolitical environment, it is quite problematic to reach the latter point.
Exports
The dynamics of corn exports demonstrate an upward trend in accordance with the similar growth development in the production segment. According to the forecast of APK-Inform analysts, in the current season Ukraine will supply record volumes of corn on foreign markets - 21.3 mln tonnes, up 28% compared with the previous season. Such high rates of corn exports became quite unexpected, because in terms of rainy weather conditions during the harvesting campaign, analysts expected for significant losses and worsening of the qualitative indices. But the export rates were quite active, and in the second half of the season the average monthly shipment volumes usually exceeded the previous season figures.
The export rates increased at the expense of enlarging of the supplies on traditional markets and development of new ones. Thus, in October-July of 2016/17 MY the key importer of Ukrainian corn - Egypt - increased the purchased volumes by 56% compared with the same period last season. The supplies to the Netherlands increased by 87%.
Also, it is worth noting that in the reporting period Iran significantly increased corn purchases, and imported almost 2.2 mln tonnes of the Ukrainian grain, up 3.2 times compared with last season. And the supplies to South Korea increased in 7.1 times.
As for such key importers as Spain and China, they declined the imports by 11% and 37%, respectively. Generally, it may be noted that despite all expectations, China remained a discretionary buyer of Ukrainian corn, and the destination will not be a high-priority one in the future.
The analysis of corn import dynamics by the key countries-partners of Ukraine shows that three markets are quite perspective for Ukraine - the EU, Egypt, and Iran. According to USDA analysts, in 2017/18 MY the European Union can significantly increase its imports in terms of adverse weather conditions and downward dynamics of the domestic production. The shipments to the region are estimated at 16 mln tonnes, up 19% compared with the previous season (13.4 mln tonnes).
Also, expected Egypt and Iran will increase its corn purchases by 11%, which can reach 10 mln tonnes, against 9 mln tonnes in the previous season.
The list of key companies-exporters of corn from Ukraine remained without any significant changes. In October-July of 2016/17 MY, the company Nibulon took the leading positions, and supplied almost 8% of all corn shipments on foreign markets. The company Kernel-Trade took the second position with a share of slightly more than 7%, and ADM Trading Ukraine closes the TOP-3 of companies-exporters, and exported nearly 5% of the grain shipment. Generally, the TOP-10 covered nearly 37% of the general exports of corn from Ukraine.
As for the future prospects of development of the Ukrainian market of corn, in several following years Ukraine will continue planting corn throughout fairly stable planted areas, as well as steady growth of the grain yield, which can even cause a slight reduction of the areas. The European Union will remain the key buyer of Ukrainian corn. Also, traders will continue developing such prospective destinations as Iran and South Korea. Also, severe competition rates with Russia in the segment of corn will become one of the major factors, because the country will develop the market segment and increase grain production volumes. It may happen that Ukraine will update the issues of domestic deep processing of corn and exports of value-added products.
Andrei Kupchenko, grain market analyst at APK-Inform Agency
