Prospects of the Ukrainian market of peas — India vs Pakistan

Source

APK-Inform

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The "peas boom", which developed in Ukraine for 2 recent seasons, clearly demonstrates the prospects of peas exports, while the lion's share of peas supplies comes to India and Pakistan. At the same time, in 2017/18 MY Turkey took the second position by the import volumes of Ukrainian peas. The country allows crop fumigation with methyl bromide, and re-exports the major volumes of the crop.

However, in terms of recent events in India, fumigation treatment was not the single obstacle to realization of the export potential of Ukrainian peas. Should the market expect for declining of the prices, due to the surplus of peas on the domestic market of Ukraine; and whether Pakistan is the required "life ring" in the peas export segment?

 

Basic factors

According to the expert findings on the prospects of the peas market, for 5 recent years the planted areas under the crop increased in almost 2.5 times — from 172 thsd ha in 2013, to 413 thsd ha in 2017, which also increased the production volumes in 4.1 times — from 267 thsd tonnes, to 1.1 mln tonnes, respectively. For 2 recent years, the market faced the most significant production increase, when the figures growth rates reached +94.7% (in 2016/17 MY) and +46% (in 2017/18 MY).

 

Peas production in Ukraine

 

2013

2014

2015

2016

2017 *

2018 **

Planted areas, `000 ha

172

154

169

239

413

395

Production, `000 tonnes

267

359

378

746

1096

1017

Yield, c/ha

15,6

23,4

22,4

31,3

26,5

26,0

Exports, `000 tonnes

101,7

183,1

233,3

467,5

790,0

680,0

* For July-March period

** Forecast

Source: APK-Inform Agency

 

As for peas distribution in Ukraine, it should be noted that in 2016/17 MY the domestic consumption totaled 280 thsd tonnes, and in the current season — 295 thsd tonnes. At the same time, Ukraine traditionally supplies the lion's share of the production volumes on foreign markets, which demonstrates the clear export orientation of the market segment.

Due to significant growing of peas production, in 2017 representatives of several multinational companies (in particular Louis Dreyfus, ADM, CHS, etc.) got seriously interested in its exports. Taking into account the fact that Ukraine mainly exports peas to India and Pakistan, the companies managed to conclude contracts for large-scale shipload batches, which somewhat complicated work of the smaller companies and reduced the share of peas container shipments.

 

Price situation

Enlargement of peas production in Ukraine led to the fact that firstly in 2016/17 MY, the prices of peas failed to reach the maximum figures of 2015/16 MY, and secondly, the situation contributed to a significant drop of prices on the threshold of 2017/18 MY. At the same time, the downward trend was short-lived, and already in the beginning of the current season the price situation started developing in a bullish trend, primarily due to increasing of demand rates from export-oriented companies, which required urgent drawing of a large number of offers for closing their positions under the previously signed contracts.

Thus, in the first two months of 2017/18 MY the prices of traders increased by nearly 300-700 UAH/t — to 6`300-7`500 UAH/t CPT-port. In turn, representatives of crop processing enterprises increased their purchasing prices by 300-500 UAH/t CPT — to 6`000-7`000 UAH/t CPT, and in single cases — to 7`300-7`500 UAH/t CPT, while the prices for small batches of yellow peas reached 5`500-5`850 UAH/t CPT.

In November 2017, the situation dramatically changed after India increased its customs duties on peas imports to the ceiling level under the WTO requirements (50%). India, as the key global importer of pulses, is a legislator of price formation, and such decision lowered prices of traders and processors by nearly 900-1200 UAH/t CPT-port and CPT, respectively. As of mid-May 2018, in most cases bid prices of processors for yellow peas varied within 5`100-6`200 UAH/t CPT, and the purchasing prices in the ports of Ukraine mainly totaled 5`700-6`350 UAH/t CPT-port.

At the same time, bid prices for green peas remained at the maximum level — 8`500-9`500 UAH/t CPT. The restraint policy of peas sales by agrarians and the situation on various adjacent markets somewhat slowed down even more rapid price decline in the reporting market segment.

 

India vs Pakistan: balances and opinions

As for the dynamics of peas exports for 2 recent seasons, it follows that the export volumes to India did not decreased, but even doubled, despite the above-mentioned imposition the protective duties. In July-October of 2017, Ukraine supplied nearly 78% of the general exports of peas from Ukraine to India, and in November 2017 the shipment volumes already noteworthy decreased. So, if in October 2017 Ukraine supplied more than 55 thsd tonnes, against 545 tonnes in October 2016, then in November 2017 the figures totaled 370 tonnes only, up 1 tonne only compared with the export volumes in November 2016. Moreover, traders continued shipping Ukrainian peas to the country according to the previously concluded contracts. As a result, in December 2017 the monthly exports of Ukrainian peas to India totaled 53.3 thsd tonnes, against 1.8 thsd tonnes in the same month of the previous year. In January-March of 2018, the export volume decreased by 5 thsd tonnes, while in March 2018 increased by 8.4 thsd tonnes compared with the same periods last year.

However, in late April India decided to impose a ban on the imports of yellow peas for 3-month period, which run from April 1 to June 30, and not covered the crops delivered in the period of April 1-25, as well as the batches, which payment was made until April 25.

The situation immediately impacted on the price situation in the global market of peas, while traditionally came with some delay on the domestic Ukrainian market. Thus, in the first two weeks of April peas prices in the ports of India and Pakistan declined by 20-25 USD/t. And if in the previous month CIF selling prices in the ports of Karachi and Nhava Sheva totaled 280-285 USD/t, then after the ban imposition they mostly varied within 255-265 USD/t.

Here are some comments from market operators about the current situation.

 

Dmitry Kovalenko, Anko-Agrotrade

"To date, I do not see any prospects, except for lowering of the prices. In fact, Ukraine has two buyers of peas only: Pakistan and India.

Will agrarians agree to sell at such low prices? I am not sure, but think that they will have to. Will it have any impact on the new crop production volumes? I think that it will not really influence, because agrarians already planted the crop, and the production will not decrease."

 

Taras Klimenko, Olimp

"The ban will run until 30.06.18, i.e. it will not be affect contracts for a new crop. In may, the current prices on the domestic market will go down, but not globally. Despite large-scale carry-over stocks of peas, many agrarians plan to wait for the higher prices (6`500-7`000 UAH/t)."

 

Davran Nazimov, Kusto Agro Trading

"In early May the prices of importers for peas deliveries significantly decreased, and in the port Karachi they mainly totaled 255 USD/t, Tuticorin — 265 USD/t. Everyone who expected for price rising, almost kicked themselves. Perhaps, it is a temporary measure, while crop processors purchase the whole volumes on the domestic market, and then India will once again allow realizing foreign supplies. At the same time, the Prime Minister of the country, Narendra Modi will have the elections in 2019, and farmers in India are quite numerous. Several contracts were already defaulted. Generally, I believe that on the domestic market the prices will fall by 15-20 USD/t."

 

Dmitry Tatarnikov, Time Capital

"I think that in the current market terms, the crop volumes purchased for India, will be redirected towards Pakistan. As a result, the bid prices of Pakistani importers will decrease (for the first ten days of May, the decline totaled nearly 10 USD/t). I do not consider any other directions for the exports of Ukrainian peas as significant. The domestic market still did not react to the news. And I am not sure that the reaction will take place, due to the fact that in the current year agrarians planted peas somewhat later than usual, and agrarians already had to decrease the planted areas."

 

Market operators forecasted a decline of peas prices on the export market, but their opinions concerning redistribution of the volumes scheduled for India somewhat differed. Some companies reported that after the Indian party took the decision, they redirected their batches to Pakistan, while others believe that it is more likely to increase the exports to Turkey, the EU and even Myanmar, than Pakistan.

For many years, Pakistan was considered as one of the key markets for Ukrainian peas. But in the current MY, Pakistan slightly reduced the domestic consumption of the products containing vegetable protein.

As for the advantages of working in the Pakistani destination, it should be noted the absence of strict requirements on crop quality. The country purchases peas of almost any quality, and processes into flour at its own facilities, for further mixing to chickpeas to reduce the cost of finished products. While India has strict quality requirements, the country is considered to be very difficult for cooperation, and always looks to reduce the prices or not pay for the goods.

At the same time, Pakistan prefers purchasing Ukrainian peas in containers.

 

 

 

Export prospects

While analyzing the peas dynamics and shipment volumes in the last period of 2017/18 MY and same period in the season-2016/17, then in the current season the figures even doubled compared with last year (725.1 thsd tonnes, against 373.1 thsd tonnes, respectively). At the same time, in July-April of last MY the share of India totaled 36.4% of the general exports of Ukrainian peas, and in the same period of the current season — 41.9%, while the share of Pakistan totaled 17.3% and 6.3% only, respectively. Also, Ukraine increased the supplies to Turkey from 57.4 thsd tonnes in the whole last season, to 130.4 thsd tonnes in July-April of 2017/18 MY; Myanmar — from 4.5 thsd tonnes to 49.8 thsd tonnes; the Netherlands — from 1.8 thsd tonnes to 26.7 thsd tonnes; Somalia — from 9.6 thsd tonnes to 23.2 thsd tonnes; and Spain — from 3.6 thsd tonnes to 17.4 thsd tonnes, respectively. Ukraine should not expect for a significant increase of peas exports to Turkey, due to the high competition rates from Russia.

However, as of May 24 the planted areas under peas in Ukraine totaled 418 thsd ha, or 98% of the forecast. As a reminder, on the same date last year the figures totaled 382 thsd ha. According to APK-Inform analysts, in 2018 the harvest volumes will exceed 1 mln tonnes. The exports will reach 680 thsd tonnes, down 100 thsd tonnes only compared with the export potential of 2017/18 MY.

 

Anna Tanskaya, APK-Inform Agency

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