Ukrainian market of corn in the first half of 2017/18 MY — development of processing

Despite the fact that the Ukrainian corn market demonstrates a clear export orientation, it has the significant prospects for development of the domestic processing segment. In addition, the reporting direction is becoming even more attractive, taking into account the exports of value added goods, which is one of the ways of risk diversification, in terms of a high price volatility on the global markets.

Production and quality

Despite a slight increasing of the planted areas under corn in Ukraine, in 2017 its general harvest volumes decreased by 12.1% and totaled 24.7 mln tonnes, according to APK-Inform analysts. The reporting situation mainly developed, due to a reduction of the yield figures from nearly 6.6 t/ha in 2016 to 5.44 t/ha in 2017, after the spring frosts and drought weather conditions in the ripening period. The minimum yield figures (3-4 t/ha) were usually recorded in the south-eastern part of Ukraine, while in the north-west the figures often reached 6-8 t/ha. Moreover, the rainy weather conditions, which took place during the harvesting campaign in most regions of the country, significantly complicated and delayed the harvesting works, and contributed to increasing of the moisture content of corn by 25% or more. Therefore, agrarians had to make additional treatment and drying of the grain, which resulted in worsening of its quality characteristics (in particular, due to increasing of grain fracturability, and increasing of the share of broken and damaged grains), and also made a negative impact on the stored grain, as well increased its cost of production.

Corn, produced in Ukraine, is distributed in two main expenditure items — domestic consumption and exports. During several recent years, the country demonstrated a gradual reduction of the general volumes of domestic consumption, due to the population decreasing, and reduction of the livestock of farm animals, but its positions on the export market remain relatively stable. For the second straight season, Ukraine keeps the 4th position in the rating of the global exporters of corn. At the same time, in 2017/18 MY the export potential of Ukrainian corn reduced by 15.5%, compared with the last season figures, due to some reduction of the domestic production. In addition, the high global supply of the grain and increasing of its production in Russia somewhat increased the trade competition, which impacts on both marginality and supply volumes. Thus, it is a good reason to consider the exports of value added products, which will increase the effectiveness of the traditional scheme of corn supply and demand balances.

Price situation

In the beginning of 2017/18 MY, the seasonal decline of prices changed for an upward trend. Despite the early start of the harvesting campaign in Ukraine, there were observed the slowdown rates, due to the rainy weather and some curbing of grain sales by agricultural producers, who considered the bid prices in that period as unacceptably low. Only grain processors of the central and southern regions reported about high levels of corn supply on the market. The need of traders for completion of the previously concluded contracts provided additional support to the prices. As a result, in the first month of the current season most processors were forced to raise the bid prices to 3`950-4`600 UAH/t CPT.

As of the end of April,  bid prices demand of processing enterprises varied within 4`500-5`700 UAH/t CPT, and the minimum purchasing prices are traditionally found in the west of Ukraine.

According to the majority of processors, the market did not face a traditional increasing of corn supply in the period of the spring planting campaign in the current season, due to the deficit of transport, and the desire of agrarians to sell the grain later and at higher prices. To date, agrarians mainly offer low-scale corn batches on the market.

Prospects of processing

Many representatives of corn processing companies consider to keep a balance between development of the exports of raw materials and increasing of the processing volume with the further exports of finished products. The demand of importers for corn by-products continues growing. Deep processing of corn, and the exports corn flour and grits, are the most perspective directions on the market. As for the bioethanol industry, which Ukraine started developing for transition to the European standards of usage of alternative energy sources, it is also becoming increasingly important.

According to experts in the sphere of engineering, the plant on corn processing usually gets regained in 3-5 years. In addition, many foreign companies started seriously interesting in launching of corn processing plants in Ukraine. In particular, at the end of 2017 the Austrian company announced its plans to build a plant for the production of bioethanol, corn oil and animal feed in Zhytomyr oblast.

As for the production of corn grits in Ukraine in 2016 and 2017, its general production even decreased by 16% — to 52.3 thsd tonnes. Altera Azteca Milling Ukraine LLC (Cherkasy oblast) became the leader in the market segment, which provides more than 60% of corn grits production in the country.

Anna Tanskaya, APK-Inform Agency

Comment by Andrei Kupchenko, grain market analyst at APK-Inform Agency

As for the further development prospects of the Ukrainian market of corn, it is necessary to pay attention to its demand. In particular, the European Union is the main buyer of Ukrainian corn, which share in October-March of the current MY covered over 47% of all foreign supplies of the Ukrainian grain. The region remains quite attractive for the supplies, as the first forecasts of several global agencies reported about the expected fall in corn production in the EU in 2018, due to the current weather conditions. Such trend will stimulate the imports, including Ukrainian corn. The late spring in Ukraine provided some changes to the structure of crop production in favour of increasing of the planted areas under late crops, including corn, as some compensation for insufficient planted areas under early grains. As a result, APK-Inform Agency forecasts that in 2018 Ukraine will harvest nearly 28.2 mln tonnes of corn, up 14% compared with last year. The export potential in 2018/19 MY totals 21 mln tonnes, which will completely meet all needs of the key importers.

As for the domestic processing, APK-Inform analysts forecast that Ukraine consumes less than 1% of the total supply of corn for foods production. Also, the demand for corn grits is one of the constraint factors, because the country has quite low demand for the product, and the foreign market formed a fairly limited circle of importers purchasing rather small batches of the product. Ukraine mainly supplies corn grits to Egypt, Belarus and Moldova. Further development of the direction requires rollout of new sales markets.