Summing up the interim results of the first half of the 2017/18 marketing year, the focus of the grain market is wheat.
So, according to preliminary information from the Ministry of Agrarian Policy and Food of Ukraine, the grain harvest in the 2017/18 marketing year was 62.3 million tons, which is 6% less than in the past record year 2016/17, with a yield of 42.1 c / ha, which is also 6% lower than the previous season's estimate. Gross harvest of wheat is estimated at 26.1 million tons, with an average yield of 41.0 c / ha, which is 1.1 c / ha less than in the 2016/17 marketing year. The export potential of the Ukrainian wheat market is projected at 16.1 million tons of grain, which is 1.4 million tons, or more than 8%, showing a decrease compared to 2016/17 MY.
In accordance with the materials of Cotecna Ukraine, the protein content in wheat is at the level of last year, the level of protein in wheat was 12.03% versus 12.21% in the 2016/17 harvest of the season. The ratio between food and fodder wheat is in the same relationship. However, I note, according to information from the Ukrainian Grain Association, the share of food grains of wheat is 60%, and the feed grain is 40%, along with a low amount of wheat with protein above 12%.
According to the updated data of the State Fiscal Service of Ukraine, our country has already exported 11.6 million tons of wheat from the beginning of 2017/18 MY (c 01/07/2017) as of January 16, which is 4% lower than the result for the same period of the last marketing year, also more than 72% of our export potential. The leading reasons that hold back export potential from Ukraine are the highest competition on the world market, in particular, the record harvest of wheat grain in the entire history of Russia (gross yield grew by 17% compared to the last 2016/17 season - up to 85.8 million tons) In addition, problems of internal grain logistics were reflected.
In the current marketing year, export geography has changed somewhat. Firstly, in connection with the new requirements for imports of Egypt. Namely, in the spring of 2017, Egypt, the world's largest importer of wheat, introduced new rules for the import of cereals, increasing the required protein content to 12.5% from 11.5% for wheat purchased from Ukraine and Russia. And secondly, due to the record wheat harvest in India, which amounted to 98.38 million tons, which is 13% more than last year. The main buyer of our grain in the previous season was India. It was also a surprise that India doubled the import duty on wheat, bringing it up to 20%. With the help of such a measure, the government limited imports and supported prices in the domestic market. Let me remind you that in the previous year, India imported a fairly large amount of wheat from Ukraine, since the gross grain harvest was extremely damaged due to drought. This year does not promise such cataclysms (wheat harvest will be collected in March).
Thus, the key markets for Ukrainian wheat in the current season are such countries as Indonesia, Bangladesh, Egypt (wheat exports in smaller volumes), the Republic of Korea, Thailand, from the European Union countries - Spain and Italy. In turn, active work is underway to promote and increase the share of Ukrainian wheat in new markets.
It is necessary to touch on the fact that today it is Ukrainian fodder wheat that is in great demand among importers. Thus, as of the second decade of January of this year, there is a rise in export prices for Ukrainian wheat. Prices for feed wheat rose to 181-185 USD / t, on terms of delivery FOB in February. Offer prices for food wheat with a protein of 12.5% are announced in the range of 191-193 USD / t FOB with delivery in January-February. Supply prices for food wheat with protein of 11.5% also increased to 183-186 USD / t FOB with delivery in January-February of the current year.
Regarding, the forecast for the future wheat harvest and what scenario will be in the 2018/19 marketing year is not easy to say now. However, today we can verify that as of January 18, 2018, according to the Ministry of Agrarian Policy and Food of Ukraine, a survey of winter wheat and triticale crops for the upcoming harvest shows that 6.274 million hectares of seedlings were obtained on an area of 6.274 million ha or 99.7% of the sown areas, of which 5,408 million hectares (86.2%) are in good and satisfactory condition, 0.866 million hectares (14%) in a weak and thinned state. During the first decade of January 2018, there were no threatening phenomena for wintering winter crops throughout the country. Winter wheat are in a state of winter dormancy. Further state of sowing will depend on the weather conditions of wintering, as well as a combination of circumstances at different stages of cultivation.
In addition to the agrometeorological conditions in the main producing countries, the global balance of wheat supply and demand, which is heavy, has a great impact. Thus, according to the USDA January report, the forecast for world wheat production in 2017/18 MY was raised to 757.01 million tons compared to the previous estimate (755.2 million tons), which is the maximum figure for the last 5 seasons. The forecast of world wheat production is increased, mainly due to Russia.
The estimate of world wheat exports was reduced from 183.76 million tons in December to 182.91 million tons in January. However, the updated figure still exceeds the result of last season - 182.2 million tons. Downward adjustments were made for Australia - up to 17.5 (-1.5) million tons, as well as for EU countries - up to 27 (-1.5) million tons. At the same time, the forecast was raised for Argentina - to 13 (+0.5) million tons and Russia - to 35 (+1.5) million tons.
The forecast of world ending stocks of wheat in 2017/18 MY was slightly reduced - to 268.02 million tons against the previously forecast 268.42 million tons. The estimate was lowered at the expense of Russia (to 16.3 million tons versus the 16.8 million tons voiced in the December report) and India (to 10.1 million tons versus 10.6 million tons previously announced). At the same time, upward adjustments were made for China (up to 128.2 million tons against 127.37 million tons), EU countries (up to 12.6 million tons against 12 million tons) and the USA (26.9 million tons against 26, 1 million tons). I note that global ending stocks are at an unprecedented value, more than 6% higher than the level in the last 2016/17 marketing year, 11% higher than the value in the 2015/16 season and 23% above the mark two years ago.
The USDA analyst's estimate of the acreage of winter wheat in the USA in 2018 was published, which was reduced to 32.6 million acres (13.2 million hectares), which is 0.3% less than last year’s and will be the minimum over the past more than 100 years, after 29.2 million acres in 1909.
As a result, the complex Stock to use ratio (the ratio of the forecast final balances to the sum of domestic consumption and exports) increased to a record high of 36%. This indicates a shift in the balance between supply and demand towards the latter. World wheat supply remains very high, which significantly affects the balance of power, price levels and competitiveness.
Irina Prodan, AgroGeneration agrarian market analyst
The opinion of the author may not coincide with the opinion of the publisher. Responsibility for the quotes, facts and figures given in the text is the responsibility of the author.
With the closure of the Russian sales market, the Ukrainian agrarian began a real struggle for a European and Asian buyer. Now it's no time for jokes: after 20 years of targeting Russia alone, we have to change a lot - to increase rates, to improve quality standards - and this is the minimum. We have prepared several graphs, which will tell you whether we can win in this competition.
Ukrainian agricultural producers have long begun to look for alternative sites, and found them both in Europe and in Asia. Domestic livestock breeders led the way to the East, where key product buyers are now concentrated.
Grain and fats continue to occupy key positions in the export structure. However, mainly low-quality wheat, which is fed to animals, is sold abroad. Therefore, the old stereotype about Ukraine as the breadbasket of Europe still remains only a lofty phrase.
Oils and grains continue to be export heavyweights
Since the beginning of 2014, the structure of Ukrainian food exports has changed significantly. Since the hryvnia has depreciated, there has been a great demand for Ukrainian products throughout the world, and especially from the EU. For the first half of 2016, exports of Ukrainian agricultural products to the EU grew by about 15%, amounting to $ 155 million.
With the beginning of trade wars with Russia in 2013, Ukraine was able to successfully redirect export flows of agricultural products
Now our country exports agricultural products to 190 countries of the world, besides negotiations are underway with a dozen other powers.
Among the main buyers of Ukrainian agricultural products are China, Egypt, India and EU countries.
Eastern countries - new markets for Ukrainian livestock products
Since 2014, Ukraine has been hard at work on finding new markets and has achieved contracts for the export of meat to China and Asian countries, which had a positive effect on the overall picture.
Detailed data on the dynamics of exports of livestock products over the past three years are as follows:
Indicators of exports of animal products could be amazing if it were not for currency surges, the recent scandal with Ukrainian eggs in Israel, and the African swine fever virus, due to which Kalita, the largest agricultural complex, suspended its activities.
In the situation with eggs and honey, we “gotten” about 48% of the currency compared to the same period of 2013. And this is despite the fact that for three months alone, Ukraine produced 4833.7 million units. (excluding temporarily occupied territories). At the same time, profits from export operations with honey also fell markedly, despite the fact that Ukraine is one of the leaders among suppliers of honey in the EU. At the same time, profits from the export of meat and offal are gradually falling, but the revenue from export operations with live animals is only growing.
Crop products for export: feed grains and by-products
In the first half of this year, grain crops are in second place among Ukrainian goods sold for export. Fats and oils occupy the third position.
However, there is a nuance. The Organization for Economic Cooperation and Development, in its annual review of the Agricultural Outlook, states that fodder (or fodder) grain dominates Ukraine’s exports to world markets, followed by wheat, oilseeds and vegetable oils, as well as meal (a by-product of crushing production).
So, unfortunately, Ukraine remains only a supplier of feed wheat, which can only be used as raw materials.
The export volumes of the first half of 2016 show that we are rapidly losing ground in terms of profits from the export of plant materials for processing, but gradually we are starting to rehabilitate the export of vegetables, nuts and cereals.
Ukrainian oil continues to go up abroad
Ukraine annually supplies the foreign market with over 3.5 million tons of sunflower oil. Experts predict that this year the country will retain its leadership in the global market in terms of the export of these products. For the 2016-2017 marketing year, we will ship another 4.1 million tons, which is 56% of the total world market.
In Ukraine, only 20% of the produced sunflower oil is consumed, 80% is exported to 90 countries of the world.
Spain became the key European buyer and the second largest buyer of Ukrainian oil in January, followed by the Netherlands, then Italy and France.
In the current season, the EU countries have already overtaken the countries of the Middle East in terms of imports of the products in question and are in second place after South Asia.
Unfortunately, most sunflower oil leaves Ukraine as a raw material. After that, it is refined and poured into its bottles under local brands. Photos of such a "rebranding" were made in the United States and Sri Lanka. Abroad, Ukrainian sunflower oil, a liter of which costs 27-40 hryvnia in the homeland ($ 1.08-1.6), "becomes more expensive" by 2-7 times!
Ukrainian charcoal is supplied to 35 countries
We are among the world leaders not only in the export of grains and oilseeds, but also in the supply of materials for processing and various kinds of production.
All this is due to a good geographical position: logistics plays an important role in the final cost of the product.
Exports to Russia continue to fall
Ukraine has always supplied food, for the most part, to Russia. With the start of trade wars and the seizure of Donbass and Crimea, the top 5 products sold to the aggressor country consisted of coffee and tea, cocoa and cocoa products, confectionery, tobacco and other products.
In general, last year we supplied 12% of total exports to Russia, today - 8%.
Ukraine still remains the leader in the world oil and grain market. However, there is little reason for pride. These products are just raw materials, which in other countries turn into a complex product and rise in price many times over. Therefore, Ukrainians need to work 600 hours to buy an iPhone, and a Swiss resident - 20. While we produce oil and metal, world-famous watches are being made there.