2018/19 MY became the season of contradictions on the market of buckwheat and millet, to say the least. And 2017/18 MY was the beginning point of it. It actually was a breaking point. If earlier we saw a decline of production and consequently the upward prices tendency, last season the situation reached its heights. The deficit of buckwheat supplies on the domestic market was compensated by its imports that pressed the prices and made agrarians unwilling to grow the crop. At the same time, on the market of millet the deficit of grain provided the stable price growth, which could not be violated by the new 2018 crop supplies.
What are the consequence of 2017/18 MY? How we will remember 2018/19 MY? And, all in all, what should be expect next season?
First things first…
Buckwheat: under high competition on the marker of finished products
According to APK-Inform data, in 2018/19 MY the planted areas under buckwheat in Ukraine continued declining — to 112 thsd ha. This tendency preserved also because of the low selling prices of the grain so the agrarians became unwilling to grow the crop.
As a reminder, for this reason the planted areas under buckwheat in Ukraine together with the production and the closing stocks began to decrease starting 2011. As a result, there was a deficit of supplies on the market and the price tendency changed upward and reached its peak in the SH of 2014/15 MY. After this in 2016 the planted areas under buckwheat increased by more than 20 thsd ha to 154 thsd ha.
Herewith, the number of offers of the crop on the market was still insufficient and the prices continued increasing slightly hereby stipulating the growth of the planted areas in 2017 by additional 35 thsd ha to 189 thsd ha.
Due to the unfavorable weather conditions the harvesting areas decreased by 4 thsd ha and the yield totaled 0.97 t/ha, against 1.15 t/ha in 2016. As a result, the annual growth of buckwheat production in 2017 totaled only 4 thsd tonnes and the deficit of its supplies on the domestic market of Ukraine was compensated by the import because, as it’s said, if there is a gap, something will fill it.
What for do we put history in details?
Because, this situation became a turning point of the price tendency development on the Ukrainian market of buckwheat. Starting 2017 the prices for the crop were declining and since March of 2018 the cost of the grain and buckwheat groats was more than twice lower compared to the same period last year. In particular, if in March of 2017 the purchases of the raw material were mostly conducted by the prices at 18`000 UAH/t CPT, in March of 2018 the average bid prices totaled 8`300 UAH/t, and in May of 2018 — 6`500 UAH/t on the same basis.
Some slight price rise was observed just before the beginning of 2018/19 MY (June-August) but by the end of September the price trend retreated, due to the active harvesting campaign and consequently the new grain started to enter the market. The additional pressure on prices was due to the increase of buckwheat production compared to the forecasted volumes because of the average yield growth in Ukraine by 24.7%. Speaking of quality characteristics there were no big complaints. Only some single companies informed about some consignments of the crop with higher moisture condition.
The gross production of buckwheat in Ukraine in 2018/19 MY totaled 137 thsd tonnes (-24.1% to 2017/18 MY), herewith the closing stocks increased by 37.7% to 60 thsd tonnes which provided the total supply at 214 thsd tonnes — only 13.7% less compared last year (248 thsd tonnes).
We should note that low prices for raw materials with high consumers’ demand in the area of the finished products stipulated the Ukrainian companies to accelerate the volumes of processing and thus the competition on the market increased.
Where is a paradox?
Traditionally, the competition for the raw materials stimulates the prices to increase. However, this season the fierce competition if not pressing but at least keep prices down. Thus, the development of the processing inside the country did not became the factor to motivate the agrarians to grow buckwheat.
An ongoing buckwheat production decline in Ukraine supports the import of grain on the above-average level. The interesting fact is that the volumes of buckwheat import since the beginning of the current season was 3 times lower compared to the same period in 2017/18 MY, however was nearly 2 times higher against 2016/17 MY. Moreover, if earlier the domestic market of the country “pushed” the offers of Russian grain (which is of lower quality but of much better price), since September till February of 2018/19 MY Russian imported to Ukraine only 341 tonnes of buckwheat compared to 6.8 thsd tonnes year-on-year (11.2 thsd tonnes in 2017/18 MY). At the same time, the imports of buckwheat from Kazakshtan since the beginning of 2018/19 MY totaled 3.1 thsd tonnes compared to 2.6 thsd tonnes in the previous season. The question is: whether it is more advantageous than to support the native producers?
The stable demand in terms of the active supplies provided the low volatility of prices in 2018/19 MY. Even the reduction of grain offers by the agrarians, due to the unwillingness to sell it by the settled prices and the growth of the selling prices for the large consignments were short-term (end of December — beginning of February). This is rather paradoxical in terms of the stable demand of the processors and the sales rate of the finished products, and also of the reduction of import volumes (from 9.5 thsd tonnes in September-February of 2017/18 MY to 3.5 thsd tonnes in the same period this season).
Millet: in terms of the supply deficit
On the Ukrainian market of millet there is an exactly the converse situation in relation to the market of buckwheat.
From 2015 till 2017 the planted areas under millet decreased from 213 thsd ha to 84 thsd ha. Moreover, the unfavorable weather conditions during the maturing and harvesting campaign of the crop contributed to the declined of the yield and quality. All this led to the deficit of the grain supplies on the domestic market in the beginning of 2017/18 MY and upward price formation trend almost during the whole last season. As a result, on the Ukrainian market of millet we could observe the atypical spread — the prices for millet and groats of millet severely exceed the prices for buckwheat and buckwheat groats.
The sort-term decline of millet prices was observed in July of 2018 only — at that time the prices went down by 450-700UAH/t to 6`300-8`850 UAH/t CPT. Herewith, the number of offers on the market was limited that restrained the prices’ further decline. The prices were mainly affected by the season factor and the reorientation of some companies to other crops before the new crop of millet. However, the new crop was not able to push the prices down and despite the active harvesting campaign the prices for millet in Ukraine continued increasing. The reason was a decline of the total supply of millet by 12.2% because of the significant reduction of ending stocks despite the unchanged planted areas and the production volumes in 2018/19 MY compared to 2017/18 MY. Also, the prices were increasing, due to the poor quality of the grain that did not meet the requirements of National State Standard (e.g. size, black dockage and moisture level). In addition, the high purchasing activity of some traders paid an important role for the prices rise.
This the beginning of the season the average bid prices fir millet increased from 8`500 to 14`500 UAH/t CPT. The substantive rise in price for the product led to the growth of production costs of the finished products and as a result the selling prices for groats of millet increased. The offer prices for the product since the beginning of the season increased from 13`000-18`300 to 26`200-33`000 UAH/t EXW.
We should mention the increase of spread between the prices for raw materials and the finished products. If since the start of the current MY the selling prices for grain accelerated by 6`000 UAH/t, the average prices for groats of millet increased by 12`000 UAH/t. The most significant prices rise was observed in February-March of 2019. Herewith, if since the mid-December till mid-January (during the Christmas fast) the prices for groats of millet increased by 500-1`800 UAH/t, by the end of February the price surplus totaled 3`900-5`000 UAH/t, and since March the prices grew again — by 2`500-5`100 UAH/t.
So, the paradox is…
The competition from traders was one of the main reasons for the price rise since the start of 2018/19 MY. Herewith, the high prices for millet on the domestic market were stimulating the decline of the competitiveness and the attractiveness of the grain on the export market, thus forming the low export potential. The monthly dynamics although demonstrates the positive changes in export deliveries of the product, still by the end of 2018/19 MY the total export volumes will total 25 thsd tonnes, as opposed to 26 thsd tonnes last season.
The rise of prices for raw materials led to the finished products becoming more expansive (and faster). Supposedly the profitability of the production if not increasing, than at least not declining, the domestic consumption is consistent with the last year’s results — all these should contribute to the increase of the processing volumes. But many enterprises decline to work with this crop because of the difficulties with the formation of the raw materials base. Moreover, the high prices for millet have provoked the decline of the consumers’ activity.
Despite the high cost of millet in the current season, we can observe the relocation of the domestic consumption volumes. Herewith, at first sight it is completely against the odds — there is a decline of the food consumption and growth of the feed. However, it becomes logical of we look at the dynamics of the poultry production. As of March 1, in Ukraine there was 203.1 mln heads, against 197.5 mln heads.
The settled in 2018/19 MY high prices for millet must stimulate the agrarians to grow the crop. The reduction of planted areas under peas that can possibly be allocated under millet which favors the abovementioned statement. However, the Ukrainian agrarian has become more selective and cautious while taking such decision.
And finally… the closing stocks in 2018/19 MY of buckwheat and millet according to the preliminary estimations are going to decline by 27.7% and 21.9% respectively. And taking into account the settled tendencies the prospects of the planting campaign of these crop in 2019 remains the key question.
Anna Tanskaya, APK-Inform Agency
Comment by Andrey Kupchenko, the analyst of APK-Inform Agency
If speak of the prospects of buckwheat production next season we should emphasize that the current price tendency in the segment does not stimulate consistently the production. At the same time, the fact that for 2018 crop the planted areas under the grain reached the record low — 112 thsd ha, allows to forecast the widening of the planted areas in 2019. According to the data by APK-Inform Agency, buckwheat of 2019 crop can be sown at 130 thsd ha which is 16% higher compared to current season. If we speak of the buckwheat yield, it is not going to change in the positive way and for now the average buckwheat yield in Ukraine in 2019 is estimated at 1.2 t/ha, which is almost the same to last year (1.21 t/ha) and is minimum among the main grain crops. Thus, the production volume of buckwheat next season is forecasted at the level of 155 thsd tonnes — 13% up from the current MY and can totally provide the needs of the domestic market.
The price dynamics on the market of millet, formed in Ukraine this season, at first glance must become a significant spur for the active growth of the production. But, on the other side, the rangeability of prices shows the sufficient high market unsafety. Hence, the analysts of APK-Inform Agency don’t forecast the high surplus of planted areas for 2019 crop and estimate them within 65 thsd ha (+18% year-on-year). Also, it is expected that the average yield of millet in Ukraine can increase by 5% (to 1.53 t/ha). This will allow to form the crop at the level of 98 thsd tonnes which is up 22% compared to the record low crop in the current MY (80 thsd tonnes). Nevertheless, the expected production growth is not going to provide the significant increase of millet exports from Ukraine. The only exception can be the consignments of the organic grain, which has high demand in the EU.
