A difficult start in the Ukrainian segment of sunflower and its by-products
Since the start of 2017/18 MY, only 3 months have passed, but one can say that for many participants of the sunflower market the season can become unprofitable already now.
The unfavorable price situation in the export market of sunoil, as well as the meal / cake can have a negative impact on processing margins, and lower gross harvest of sunflower seeds will boost the already existing competition for oilseeds.
Features of the start of the season
The beginning of 2017/18 MY (September) for the sunflower segment was characterized by low trading activity, which was atypical for this time of the season. As the market operators reported, the harvesting campaign started more than two weeks late due to sowing campaign shifting caused by abnormal weather conditions in April 2017. Thus, at the start of the season many processors had difficulties with the formation of a raw material base for launching production facilities, and trading and purchasing activities were resumed only in October.
One of the main features of 2017/18 MY is the low oil content of sunflower seeds throughout the whole country. Exactly at the start of harvesting, most enterprises informed about low levels of oil content - an average of 39-44% (49-52% in 2016/17 MY). As the harvesting work progressed most regions increased this indicator to 43-46%, nevertheless down from the results of the past season. Under current conditions, most companies were ready to pay a price premium for sunflower seeds with oil content over 48%,
At the same time the western region of Ukraine saw an opposite situation. Due to favorable weather conditions (rains) during the ripening of sunflower in the region, market participants reported that the yield of the oilseed significantly exceeded the same indicator a season earlier. The quality of raw materials in the western regions was also significantly higher from the last season - an average oil content is 48%.
Due to some climatic changes in the territory of Ukraine, the western and northern regions are more suitable for growing sunflower. In particular, the western region saw the increase of the acreage under this crop by 35.4% in 2017. The higher quality in this region is conditioned by insignificant sterility of the soil in comparison with other regions.
Problems in the processing sector
If we talk about price trends in the reported period, we can notice that each season is unpredictable, and forecasting starting prices becomes more difficult. The new marketing year is not an exception. A distinctive feature of the start of the harvesting campaign was the fact that there was no seasonal reduction in oilseed prices. On the contrary, for almost all September sunflower prices were rising, which was explained by later harvesting, as well as increased competition for raw materials against the background of ever-increasing production capacity.
Under the circumstances, many small oil pressing plants have not launched their production. This situation was also explained by unacceptably high prices for raw materials and unfavorable conditions in the sunflower oil market, which significantly reduced the marginality of processing sunflower. Market participants believe that this season can become unprofitable for most oil pressing plants
At the end of November, the price situation in the segment changed. Significant pressure on the raw materials segment was caused by a reduction in prices in the export market for sunflower oil after import duties increase in India (the duty on crude sunflower oil increased from 12.5% to 25%), as a result Ukrainian processors began to reduce the purchasing prices for oilseeds. So, the bid prices for sunflower in the second half of November decreased by an average of 200 UAH / t, resulting in a significant decrease in oilseed offers on the market.
It is worth noting that some large enterprises reported about possibility to reduce sunflower processing volumes or stop production before improving the situation on the export sunflower oil market.
Summarizing all above mentioned, we can say many market participants do not expect high trade and purchasing activities in the segment of sunflower seeds and processed products until the end of 2017. Due to the shortage of the oilseed crop in the current season, many processors will not be able to work at full capacity, while in the second half of 2017/18 MY we predict possible halt of production capacities of some enterprises.
Separately note the fact that on November 17 the Government of India, which is the largest buyer of vegetable oils in the world and in Ukraine in particular, decided to significantly increase customs import duties on vegetable oils. This decision had a negative impact on the price environment of the Ukrainian export market of sunflower oil. At the same time, experts believe that there may be not enough domestically produced volumes for satisfying India's domestic consumption, so the country will be forced to increase the imports of vegetable oils by the end of the season-2017/18.
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