Start of the season-2017/18 on the Ukrainian corn market - where is the grain?

Despite the fact that Ukraine is one of the TOP global producers and exporters of corn, and various developments on the export markets often work as a determining factor in prices formation on the domestic market, in 2017/18 MY agrarians again took the reins of power into hands. And at the end of the first month of a new season, slowing down of grain sales by agricultural producers, coupled with the urgent need by traders to close the previously concluded contract, result in a situation that the traditional seasonal decline of prices changed to an upward trend.

Production volumes and export potential

Spring frosts and adverse weather conditions, which developed throughout the most territory of Ukraine in the period of corn ripeness and harvesting, caused some reduction of grain yield and quality indicies. Despite increasing of the planted areas under the grain in 2017/18 MY by more than 5% – to 4.52 mln ha, APK-Inform analysts estimated the harvested areas at 4.48 mln ha. Therefore, in terms of the average yield at 5.97 t/ha, Ukrainian agrarians will manage to harvest 26.7 mln tonnes of corn, a decrease of 4.8% compared with last year.

Taking into account the carry-over stocks, which in the current season almost halved compared with last year, and total nearly 715 thsd tonnes, in 2017/18 MY the export potential of corn from Ukraine is forecasted at 19.2 mln tonnes, down nearly 10% compared with the previous season figures.

Despite the decline in forecasted production volumes and exports, it is expected that in 2017/18 MY Ukraine will keep its 4th position in the rating of global exporters.

Trading rates and key factors

According to preliminary forecasts, in 2017/18 MY corn will remain the key export crop in Ukraine. Therefore, to date participants of the Ukrainian market focused their attention on the harvesting campaign rates and formation of the export potential of corn to cover the growing needs of major importers.

As for the prospects, in the current season Ukraine will significantly increase corn supplies to the key sales regions. According to preliminary estimations, Iran can increase corn imports by 1.5 mln tonnes, the EU - up 1.2 mln tonnes, South Korea - up 0.9 mln tonnes, etc. Also, such countries as Saudi Arabia, Egypt, and Mexico will increase its imports by 1 mln tonnes. At the same time, in terms of corn exports in the direction of Iran and South Korea, Russia is the major competitor to Ukraine, then cooperation with the EU and Egypt will allow to Ukraine to completely realize the export potential.

At the same time, to date curbing of grain sales by agricultural producers in terms of a deficit of hopper cars does not allow to Ukrainian traders to reach the higher rates of corn export trading. As a reminder, in August 2017 Ukraine exported 269.9 thsd tonnes of corn, up almost 2 times compared with August 2016 (136 thsd tonnes). In September 2017, the export volume totaled 118.2 thsd tonnes, up 74% compared with the same month last year. Before beginning of a new season, the Ukrainian ports demonstrated unusually high shipment rates of corn, but in early season-2017/18 weekly export volumes of the reporting crop slightly increased compared with September, but totaled not more than 25-96 thsd tonnes, which was unusual for the very beginning of the season.

Despite such early start of the harvesting campaign, Ukraine faced some slowing of its rates due to rainy weather conditions. So, as of November 3 agrarians harvested corn throughout the areas of 2.9 mln ha (65% of the forecast), and produced 14.4 mln tonnes of the grain, with the yield at 4.87 t/ha. As for the quality of sold corn, there are often complaints concerning its non-compliance with the State Standard requirements, in particular in such figures as grain impurity and moisture content, which often exceeded 25%. As a result, corn requires additional treatment and drying, which also causes increasing of grain fracturability and the share of broken and blighted kernels.

Thus, despite continuation of the harvesting campaign works, representatives of grain processing and export-oriented companies do not observed any active supply of new crop corn on the market, which contributed to development of a bullish trend.

Price situation

Purchasing activity of grain processing and export-oriented companies, as well as expected growth in the number of new crop grain offers became the key pricing factors before beginning of the season. Under the pressure of the seasonal factor, in September the bid prices of crop processors gradually decreased from 4`000-4`750 UAH/t to 3`900-4`650 UAH/t СРТ. At the same time, low-scale sales by agrarians somewhat slowed down the rapid decline in prices. Only grain processors in central and southern oblasts reported about active supply of corn of the harvest-2017. Such situation developed because the major share of agrarians considered the previously formed bid prices on the domestic and foreign markets as unacceptably low, and preferred restraining sales of large-scale grain batches. Therefore, in СРТ-port segment many traders had to increase the prices in order to attract large-scale offers of the grain to cover its previously signed contracts. And in the beginning of a new season the prices varied within the range of 4`400-4`600 UAH/t, and 141-147 USD/t.

On the export market of feed corn (FOB), it is worth noting that at the end of the season-2016/17 there was a tendency for gradual declining of the prices due to the seasonal factor. So, in September offer/bid prices for corn of the harvest-2016 reduced by nearly 7-10 USD/t - to 170/167 USD/t FOB with delivery in early October. At the same time, offer/bid prices for new crop corn did not significantly change, and traders usually declared the prices at 163/160 USD/t FOB with delivery in October-November.

Also, in the first month of 2017/18 MY corn prices in the ports of Ukraine grew by nearly 100-200 UAH/t - to 4`500-4`700 UAH/t СРТ-port, while the USD bid prices varied within the range of 145-150 USD/t on the same terms. Also, export-oriented companies significantly increased the purchasing prices at elevators, which in late October varied within 3`950-4`600 UAH/t EXW, thereby providing support to the prices on the domestic market. Therefore, many processing companies had to raise the bid prices by nearly 50-150 UAH/t to the maximum limits of the average price range.

In turn, the price situation on the Ukrainian export market of corn (FOB) remained relatively stable, and at the end of October only an upward price trend started developing, due to high demand rates for from importers, as well as the similar situation on the domestic market. Offer prices for new crop corn mainly totaled 163-166 USD/t FOB with delivery in November, up nearly 2-3 USD/t compared with the beginning of the month.

Conclusions

To date, the Ukrainian export market demonstrates rather unstable price situation. On the one hand, the active stage of corn harvesting campaign and gradual increasing of the number of offers on the domestic market makes its price pressure effect. At the same time, the forecasted decline of corn production in Ukraine, coupled with weakening of UAH/USD exchange rates, form an upward trend in the market segment.

Taking into account the export orientation of the market segment, decline of the global harvest of corn in 2017/18 MY, and reduction of the ending stocks in the world, in terms of the dominant demand, most experts expect for an upward trend in corn prices in the long term.

But to date, slowing down of grain sales by agrarians, which consider the previously formed prices as unacceptably low, and prefer taking a wait-and-see approach, makes its key influence on the price situation on the Ukrainian market of corn. In turn, it also contributes to further price growing.

Anna Tanskaya, APK-Inform Agency