Wartime food balance. Part 3.2. Export of oilseeds and by-products




Russia's military aggression in Ukraine led to blockage of the main export routes of agricultural products, which not only undermined the country's economic activity, but would also significantly affect the food security in a number of countries.

Read about the ways to export oilseeds, possible export volumes and new price realities in this article.

Ukraine exports about 24-30 mln tonnes of oilseeds and by-products every season, depending on prices, crop size and processing pace. An average 97% of this volume is shipped by sea. Sunflower oil and meal, soybean and rapeseed are the key exporting products. 

The war blocked a significant volume of oilseeds and by-products inside Ukraine, as February-March period was just a middle of the oilseed export season. The absence of export is strongly negative for the country’s economy and hurt Ukrainian farmers, who had large stocks of oilseeds.

On the world market of soybean, the absence of Ukrainian export (1% of the global trade according to the USDA) will not affect the trade turnover. Importers will easily offset the lack of Ukrainian soybean with other origins. At the same time, it will be impossible to cover the lack of Ukrainian sunflower oil (50% of the global trade). It can be partially compensate by palm, olive or other alternative oils, depending on county. However, on the long-term prospect, the lack of edible oil may result in higher prices and lower availability of oil. It will also hurt the biofuel production in the world.

That is why to find the new ways to export Ukrainian oil and modernize the existing logistic capacities on the western borders is very important for both Ukraine and importers. Ukraine borders with the EU, so it is obvious that the main volumes are going toward Europe. However, the logistic is a weak point.

It is clear that it is impossible to reach the export volumes comparable to those we had prior to the war. But it is possible to at least partially ease the internal infrastructure and make storages empty ahead of the new crop.

The EU was the large importer of Ukrainian oilseeds and by-products before the war as well. More than 40% went to the EU. If Ukraine manages to increase export volumes, primary the European market will be saturated. After that, it will be necessary to plan export from the European ports to other countries.

Moreover, the EU and UK have canceled all tariff quotas and import duties for Ukrainian products for 1 year.

Today, Ukraine has several options for export, but all of them are limited by insufficient capacity:

- Ukrainian river ports of Reni and Izmail. They were unpopular before the war. However, there are plans to modernize existing terminals and to build the new capacities;

- road checkpoints on the western border. This option was used before the war to a small extent.

- rail checkpoints (more than 30 terminals along the western border, including only 16 liquid bulk terminals). The war resulted in massive use of these terminals that raised the necessity to modernize the infrastructure and develop the throughput capacity.

Additionally, more than 10 European seaports are ready to provide their services to export the Ukrainian products to other countries.

It is necessary to point out the negative factors pressuring the functioning of the agricultural market.

- higher cost and lack of fuel;

- sharp increase of price of handling services;

- decline of prices for Ukrainian products due to weaker demand;

- missile strikes on railway infrastructure by Russia.

Taking to account these and other factors, we provide the overview for the further development of the situation and forecast the export possibilities.

Sunflower and by-products  

Ukraine is the world leading producer of sunflower (31%) and exporter of sunflower oil (50%). It supplies its products to about 180 countries.

For about 20 years, Ukraine traditionally processes 98-99% of its sunflower crop. The export usually does not exceed 1.5% of the overall supply volume. Such situation was due to 10% export duty on sunflower as well as high demand from processors. Within the trade agreements with the EU, the export duty on sunflower has been decreasing gradually for several years. However, it has not influence sunflower export.

The situation changed with the beginning of the war. While the Ukrainian market participants were trying to find the new way to export their products, the global market faced with the sharp deficit of sunflower oil. As a result, it raised not only the demand for sunflower oil, but for sunflower from Ukraine as well.

Sunflower export is limited by the capacity of land border checkpoints. However, the volumes are growing sizably. In March-April, preliminary, Ukraine exported about 125 thsd tonnes of sunflower, up by almost 3 times compared to the volume shipped during the first half of the current season. At the same time, there was information that needed to be confirmed about “grey” export of sunflower seed at certain border checkpoints. It could be possible in the current reality. However, the reported volumes of “grey” export seemed to be unreal taking into account the capacity of functioning river ports and land border checkpoints.

Logistics is the main bottleneck. Available seaports and western border checkpoints (rail and road) are overloaded, there are lines of wagons and vehicles dozens of kilometers long. It  does not allow to restore exports to pre-war levels.

At the same time, while Ukraine is trying to make sunflower oil to flow out of the country, that still is facing significant logistical problems, a number of neighboring countries are offering their help for sunflower processing at EU plants (mainly Bulgaria and Romania) to reduce the oil shortage. That is, all sunflower that will be shipped from Ukraine will most likely be processed in the European Union.

It should be noted that since the beginning of the current season, many farmers have kept their stocks hoping to sell sunflower at more attractive price in the second half of the season. Due to the closure of a significant number of processing plants due to the war and the lack of traditional ways of selling this crop, Ukraine now has large sunflower stocks, which has already affected the prices significantly. Pressured by a huge supply, the bid prices of sunflower began to decline in late March and decreased by average 130 USD/t by late April.

But, given the current realities, we estimate sunflower export at 350-400 thsd tonnes in the remaining months of the season. The overall exports can reach a multi-year maximum in 2021/22 MY amounting to about 570 thsd tonnes (up by 3 times compared to the previous season). The share of external shipments can reach 3.4%. However, even this figure will remain insignificant taking into account the volume of sunflower production in Ukraine, and it will not affect the oil industry.

Further, monthly sunflower exports to the EU are expected to decline as the market saturates. At the same time, this figure will largely depend on the demand from the European plants, as a new season of rapeseed processing will begin soon.

Next season, sunflower exports are also expected to be quite high (about 550 thsd tonnes). Given the expected reduction of sunflower crop in Ukraine due to smaller sown area, the share of export could increase to almost 4%. However, this figure will significantly depend on the further situation in Ukraine and forecasts of oilseeds production in the EU in 2022.

Sunflower oil

For many years, Ukraine has been a leading producer and exporter of sunflower oil in the world with the shares at 31% and 47% in 2020/21 MY (according to the USDA), respectively. Due to the Russian aggression, it is possible that the leading position will be lost this season, as many processing enterprises has stopped with the start of the war.

Sunflower oil is a key export product of Ukrainian oilseed segment. In the last few seasons, the shipments of sunflower oil averaged about 6 mln tonnes, or at least 90% of the total supply.