Ukrainian rapeseed: optimistic estimations and skeptical mood

Source

APK-Inform

14706

The Ukrainian rapeseed market is one of the few that is actually just beginning to feel the effects of the full-scale Russian invasion of Ukraine. Thus, taking into account the specifics of trade, the blockade of Ukrainian seaports became noticeable in the period when the active phase of concluding forward contracts for Ukrainian rapeseed used to begin. In fact, most of traders who already had experience of working in wartime, saw that the most interesting thing was ahead.

Overloaded logistics at the western border checkpoints due to a gradual increase in the flow of agricultural products, large sunflower stocks, growing supply of new-crop grains, moderate demand from European buyers, ISCC certification requirements are just some of the issues that Ukrainian exporters face.

At the same time, the forecast for the new season for Ukrainian rapeseed is quite optimistic. The country can retain its place in TOP-3 world exporters with a share of about 16% against 20% in the previous season.

Results 2021/22 MY

In 2021/22 MY, Ukraine increased rapeseed export to 2.7 mln tonnes (+13% y/y) that was the second largest volume shipped after a record of 2019/20 MY. It accounted for one-fifth of the global trade.

Higher export was based on increase of rapeseed production by 20% to the second largest on record 3.1 mln tonnes.

Sharp decline of production and export of canola in Canada in 2021/22 MY favored stronger demand for Ukrainian rapeseed from traditional importers of Canadian oilseed (Pakistan, UAE).

The EU remained the key destination for Ukrainian rapeseed in 2021/22 MY. It accounted for 67% of the overall export from Ukraine. However, shipments to this destination decreased by 10% y/y.

In 2021/22 MY, Ukraine went down to the second place among the key suppliers of rapeseed to the EU, while Australia moved to the first place.

Pakistan accounted for 12% in the overall structure of Ukrainian rapeseed export. There were no shipment to Pakistan since October 2018. The share of the UK totaled 9%.

Rapeseed processing increased in 2021/22 MY to a record 421 thsd tonnes, up by almost one-third compared to 2020/21 MY. It was driven by high demand for rapeseed oil in the world amid poor harvest in Canada.

Forecast for 2022/23 MY

Production

In Ukraine, the rapeseed harvesting campaign is progressing quite fast, and market participants note a sufficient supply of the oilseed.

According to preliminary data, the planted area under winter rapeseed of 2022 harvest has become a record, amounting to more than 1.4 mln ha (+45% y/y and +4% to the previous maximum of 2008), amid favorable price situation on the world rapeseed market in 2021/22 MY. In 2022, almost 34 thsd ha were planted with spring rapeseed (+7% y/y).

But, we expect the rapeseed production to decrease in 2022, primarily due to the reduction of the harvesting area to 1.1 mln ha.

Thus, taking into account that a significant part of winter rapeseed area (about one-fifth of the total area) is located in Zaporizhzhia, Kherson, Donetsk and Kharkiv oblasts, the territories of which are temporarily occupied completely or to a large extent, the rapeseed harvesting area can be only about 1-1.1 mln ha, which is almost at the level of last year. Dnipropetrovsk and Mykolaiv oblasts can also be added to the list (another 18% of the total planted area), which also suffer from constant shelling.

We also should take into account the losses in the oblasts that were liberated (Sumy, Chernihiv, Kyiv), or where shelling is still observed, which can also affect the final figure. Demining of shelled areas is ongoing where possible, but the harvesting risks are still too high.

Due to the untimely treatment of winter rapeseed in the oblasts with ongoing hostiles, the average yield of the oilseed will decrease to 2.4-2.5 t/ha in Ukraine, down 16% lower than the record of 2021.

According to the preliminary estimates by APK-Inform, the rapeseed crop may decrease to 2.7 mln tonnes (-13%) in Ukraine in 2022. However, this figure is only slightly lower that 5-year average.

Rapeseed processing in the 2022/23 season will depend primarily on the further operation of the ports. Usually, the share of rapeseed processing is quite insignificant – on average 12% of the production,. The volumes of processed products offered by plants in previous seasons could be exported without significant difficulties in the current conditions. But since the beginning of the current season, processing plants have shown a moderate demand for rapeseed because of complicated logistics and sufficient stocks of sunflower.

If the Ukrainian ports do not resume operating in the near future, or if there are severe Russia’s provocations, which will affect the stability of the ports functioning, rapeseed processing in 2022/23 MY may become the lowest since 2013/14 MY, amounting to 100 thsd tonnes (-76% y/y).

Under an optimistic scenario, which provides for the unblocking and further stable operation of the Odessa’s ports, the volume of rapeseed processing may reach 280 thsd tonnes (-33% y/y), which will be the lowest in 5 seasons.

Export

Since the beginning of the current season, export-oriented companies have shown a higher interest in the purchase of rapeseed.

According to our preliminary estimates, the exports will also primarily depend on the operation of the ports. Particularly, the overall export volume itself will slightly depend on ports, while monthly shipments will be highly dependent on this factor. Monthly export maybe lower and more extended. In 2022/23MY, it is likely that we will not see the traditional way of rapeseed export, when almost the entire export potential is performed at the beginning of the season. It is because the rapeseed harvesting coincide with harvesting of early grains, so there can be large lines at the western border.

If the main Ukrainian ports remain blocked or their work is unstable, the export of rapeseed may amount to about 2.6 mln tonnes (-4% y/y). If the ports are unblocked, the demand for rapeseed from processors may also increase. As a result, the exports in 2022/23 MY may decrease more sizably to 2.4 mln tonnes (-10%).

The USDA forecasts Ukrainian rapeseed export at 2.75 mln tonnes in 2022/23 MY (+2% y/y), that will account for 16% of the global trade.

Prices

Despite the gradual adaptation of the Ukrainian market to new supply chains in the conditions of the war, the new crop of grain and oilseeds can be a significant logistic challenge not only for Ukraine, but also for Europe, which currently prefer to transport and process their own harvest.

Significant growth of transportation costs and overloaded logistics became one of the main bearish factors for Ukrainian rapeseed prices. It also resulted in widening of price gap between Ukrainian and European origins.

In addition, higher canola production in the main exporting countries has been pressuring the prices since May. This factor together with the price dynamics on the market of crude oil weighted on the bid prices of Ukrainian rapeseed and pushed them to the lowest in more than 2 years.

The bid prices of new-crop rapeseed in the ports of Izmail and Reni at the beginning of July were at 12000-13700 UAH/t CPT-port. The quality of rapeseed is mostly satisfactory. In the same period last year, the prices were announced at 18300-19300 UAH/t CPT-port. It hits sharply the profitability of rapeseed production and reduces the interest of farmers for further cultivation.

By mid-July, the bid prices fell by another 10-15% as a result of futures decline on Euronext. In the near future, we can expect some increase in hryvnia prices due to the fact that the National Bank lowered the official exchange rate of the hryvnia to the US dollar by 25%. However, there will be no significant increase of the bid prices, as it may be offset by further decrease in prices in dollar terms.

Ukrainian exporters so far note a quite stable demand for rapeseed from European companies. However, logistics remains a problem and the unblocking of ports could support the bid prices on the domestic market and push the trade up.

However, most market participants are quite skeptical about the export deal. Even after the unblocking of the main ports of Odessa, the restoration of pre-war shipping pace should not be expected right away, as the ships that were loaded before the invasion will be first to leave the ports.

In addition, there is a high probability of provocations from the Russian side, which will significantly increase the risks for ship-owners and reduce the trade flow, or completely block the operation of the ports again.

Key factors for new season

  • Fast progress of rapeseed harvesting campaign in the EU and Ukraine.
  • Decrease of rapeseed crop in Ukraine by 13% (APK-Inform estimate) due to hostilities in a number of oblasts, but an 11% increase in world production (USDA estimate) thanks to Canada (+59%), the EU (+3%) and other countries.
  • Heavy loaded Ukrainian and European logistics and pressure from the new crop.
  • High competition from European rapeseed due to disruption of traditional supply chains.
  • Record carry-over stocks of sunflower in Ukraine.
  • Moderate interest for rapeseed from Ukrainian crushing plants.
  • Possible unblocking of Ukrainian seaports will not lead to the immediate restoration of pre-war rapeseed shipment volumes due to damage to the port infrastructure. As a result, land transportation will remain the key in the near future.
  • Promoting the idea of ​​gradually phasing out the use of vegetable oils in the biofuel production.
  • China's resumption of Canadian canola imports after a long hiatus.
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