Ukraine has all chances to expand grain export geography – UMG Agro

Source

APK-Inform

1921

  

 

The grain season-2017/18 has passed its equator, and along with the results of the calendar year, market participants analyze the achievements and challenges of the period. The results of the past year and the first half of the 2017/18 MY, its features and future prospects, can be read in the below interview of APK-Inform Agency with Walenty Sielwiesiuk, Agro-trading Project Director of UMG company and trader of the agro-trading project of UMG, Sergey Kozhushkin.

 

- What are the main trends of the first half of the grain 2017/18 MY?

Walenty Sielwiesiuk (WS): Summing up the results of the first half of the grain season-2017/18, it can be noted that in the middle of December Ukraine still actively exported wheat, less actively corn, and almost did not supply barley. According to the latest estimates, in the current MY barley exports from Ukraine are estimated at 4.5 mln tonnes, but today stocks are nearly 1.6 thsd tonnes. The main volumes of barley were exported to Saudi Arabia. We can say that there is grain just for only a dozen parties.

 

- What can You say about future of wheat and corn market taking into account the results of the past six months?

WS: In the first half of the season, Ukraine exported nearly 11.5 mln tonnes of wheat (60% of export capacity). However, in the second half of the trading season, Ukraine will be uncompetitive compared to other exporting countries. We expect in the second half of 2017/18 MY wheat shipments will be low, because until the end of the season it remains to export only 5-6 mln tonnes, including 1 mln tonnes of Ukrainian wheat to the EU. 6 mln tonnes for 6 months is a small amount, down twice from the norm. A similar situation was observed last year: heavy deficit was in May and June, although the quality of grain this year is consistently high. At the same time, there is a high competition from Russia. Its export supplies of wheat in the second half of the year will also be stable, as in the first one. However, if the dollar rate to the hryvnia rises, we will become more competitive in the world market.

Sergey Kozhushkin (SK): With regard to corn supplies, after the first half of the season, countries such as Brazil and Argentina increased the price of this crop, which will cause lower supplies from Russia. Russia has lower profitability of corn exports because, first of all, wheat is exported from this country. We do expect that Ukraine will be able to export 2 mln tonnes per month steadily. As of the end of December, nearly 4.5 mln tonnes of corn were exported, and according to analysts, the export potential is estimated at 18-19 mln tonnes. The USDA forecasted the exports of corn from Ukraine at 20.5 mln tonnes against last year's 20.7 mln tonnes. However, there are still nearly 15 mln tonnes, that is 2.5 mln tonnes per month. But if to include August figures, then an average of 2 mln tonnes. While market participants in Ukraine expect a price increase. In January 2018 corn prices in deep-sea ports (FOB) were $165-166/tonne, and in December - $162-163/tonne. However, buyers expect a $2-3 reduction. In our opinion, sellers will unlikely reduce the prices, most likely, they will be raised by buyers. Especially now, since early 2018, when you can use quotas for duty-free export of 1.125 mln tonnes of grain to the EU. Based on the experience of the past years, I can say that this quota is used very quickly - within three months from receipt. The most active period for corn is January-March, sometimes it lasts until April. In the past season, due to the corn deficit, the price growth was up to $45 from the end of April to June, however, in the current year the situation will be different. Despite of the decrease of corn harvest in Brazil by 3 mln tonnes and in Russia - only to 15 mln tonnes, the expected volume of export from Ukraine is below 20 mln tonnes, considering the fact that nearly 10% of the grain still remains in the fields, and winter can give us surprises. Note that on a global scale corn is sufficient thanks to a good harvest in South and North America, South Africa (nearly 370 mln tonnes). However, we expect a continued or small rise in prices in January and, perhaps, in February, taking into account the expected severe weather conditions that will affect the speed of shipments.

 

- China plays an important role on the corn market…

WS: You are right, China has an impact on the global market of both soybean and corn. But in our region its impact is not very acute. China can store grain for years, which can lead to the forced recycling of more than 1 mln tonnes of corn, which cannot be used. Ukraine is mainly focused on work in the Mediterranean, where the main importers are Spain, Italy, Portugal, Egypt (up to 8 mln tonnes in total) and to a very small extent Turkey, which prefers Russian corn, the quality of which is lower than the EU standards. Also among our buyers can be called Tunisia, Israel, incidentally Lebanon and Algeria (more than 2 mln tonnes a year in total), and also in the last 2-3 years Iran (more than 2 mln tonnes in the previous MY). Among the Asian countries, the largest consumer is South Korea - 9.5-9.7 mln tonnes, where last year large Ukrainian companies exported nearly 650 thsd tonnes of corn. However, for UMG Agro, an average company with 1 mln tonnes of exports per year, the main market is the Mediterranean.

 

- Recently, more and more attention has been paid to the growing competition on the grain market between Russia and Ukraine. How do You evaluate it as a trader? And how did Ukraine manage to take advantage of the periodically arising difficulties in the relations between Turkey and Russia?

S.K. When there were certain difficulties and restrictions in the supply of grain from Russia to Turkey, then, naturally, we took advantage of the situation. At that time, Turkish buyers were ready to immediately buy Ukrainian grain. In terms of quality, Turkish consumers note that in the current season the quality of Ukrainian wheat is better than Russian, even despite the instability of the indicators, for example, low gluten content, protein content is from 8 to 17%. In the current season, a number of supplies from Ukraine demonstrated a shipload lot of high-protein wheat with a protein at least 12.5%, although mainly wheat has 11.5% protein. In addition, we were also able to send several lots of quality Ukrainian wheat to Turkey and Egypt. In Russia, as far as we know, because of the large ending stocks of grain in July and August, market participants realized that there was a mix of grain of the old and new crops, which influenced the quality. In addition, there was a period when the percentage of germinated seeds exceeded the permissible norms of international requirements.

 

- That is, there are real prospects for further expansion of markets for Ukrainian grain...

S.K. Yes. In addition, in recent months, come to Ukraine some traders and buyers from the countries had not previously been interested in our wheat. For example, representatives from Morocco, which mainly bought South American wheat. Countries in West Africa, such as Senegal, Mauritania, a few years ago did not buy Ukrainian wheat at all, and bought European, in particular from France, or North or South American. In the last 2-3 years, Ukraine has been selling grain in Africa and eastern countries such as Kenya or Yemen. Our company delivered wheat to Mauritania by sea. We are already negotiating supplies to Senegal and Morocco. Everything begins, as a rule, with container supplies of flour. Probably, buyers note good quality.

W.S. Over the past 100 years, the United States have seen minimal wheat acreage, and consuming countries understand that it is necessary to diversify supplies and seek new opportunities. In this regard, Ukrainian wheat is more competitive.

 

- What factors, in Your opinion, can become global in the next few years and change the market of buyers and suppliers? How can the geography of supplies of Ukrainian wheat change?

S.K. I would single out two main groups of factors: weather and political. Weather factors include global warming; excessive precipitation and drought, abnormal heat and excessive cold. We can add here La Niña, which in some countries causes drought, and in others - very heavy rainfall. In the current season, the probability of the impact of this phenomenon in Australia and Japan is estimated at 60-70%. Of course, this affects agriculture. If we talk about the winter period in the Northern Hemisphere, then, of course, a cold winter can influence the volumes and rates of shipments of grain from the Azov, for example, and the Black Sea regions. If we take Russia and Ukraine as the largest producers and exporters of grain in Eurasia, it turns out that the volumes of supplies decrease because of the cold winter and there is a very big load on deep non-freezing ports - in Ukraine such as Southern, Chernomorsk and Odessa.

The second group of factors is political, that is, relations between countries, the emergence of local military conflicts, etc. For example, the situation in Libya, which is a major consumer of wheat from Russia and Ukraine. According to companies operating in the agricultural market of this country, existing military groups in Libya create risks for the supply of agricultural products.

 

- In Your opinion, what are the global economic and macroeconomic factors affecting trade?

W.S. As already mentioned, America has got the lowest level of acreage since 1890, which makes the country less and less competitive. The agrarians harvest 15 tonnes of corn from 1 hectare, and wheat - 3 times less. Of course, the US will not stop growing wheat at least for domestic consumption and the nearest markets, but eventually it will cease to be a global exporter. For Ukraine, this is an opportunity to become the world's main exporter of wheat along with Canada and Argentina.

S.K. In our opinion, in 10 years a half of the global wheat export will come from the Black Sea region, taking into account the fact that Ukraine and Russia have the yield of wheat lower by at least 20-25% compared to the Western countries. Since today wheat remains the only non-genetically modified crop, the sales markets for Ukrainian grain will expand. So, the close markets are East and West Africa. In addition, according to the experts, until 2050 the African continent has a huge potential taking into account a growing population and a developing economy, which will cause higher consumption of wheat.

 

- If we sum up the results of the past 2017 year, what was it like for the agrarian business? What changes do You expect from 2018?

W.S. It should be noted a positive moment in mid-2017 such as a breakthrough in the export VAT refund. At the end of June, our company got 90 mln UAH. Further VAT refund is on schedule.

S.K. I would note degradation in work of Ukrzaliznytsia in 2017. The export of grain significantly depends on the successful organization of work: the timely supply of wagons and the delivery of grain to the port, the availability of diesel locomotives, reducing the turnover of rolling stock. In 2017 there was an unsatisfactory work of Ukrzaliznytsia and we saw the absence of a state strategic policy for the development of the transport system in the country. In particular, this concerns the increase of traffic along the Dnieper River and the proper operation of Ukrzaliznytsia, that is, the timely repair of diesel locomotives, the supply of the necessary components for their repair, the construction of new trunk and shunting locomotives, the transparency of the distribution of empty wagons for loading and the development of a system capable of providing equal rights for all market participants.

In addition, in 2017 we faced a number of cases when, having purchased grain on an internal elevator located at a distance of 400-500 km from the port of Kherson or Mariupol, we could not ensure the supply of wagons and the timely delivery of grain to ports within a few weeks. This absolutely unacceptable situation is an alarm signal. The automatic distribution of empty cars was introduced two months ago. And according to the Ministry of Infrastructure of Ukraine itself, it is not adjusted. This factor is very worrying, as we know that the extend of wear of some wagons built in the Soviet era is 80%, despite the fact that Ukraine has a huge potential for wagon and diesel locomotive building.

A positive aspect is the development of the port industry in the last 2-3 years. Today, large new terminals are being built by the world's largest trading companies, which increases the capacity of transshipment in deep ports and, consequently, reduces its cost.

 

Company profile

UMG AGRO is a part of the investment company UMG INVESTMENTS. Since 2015, it has developed the export of grains and oilseeds of a full cycle: from the purchase of the product from agricultural producers to its sale on the world markets directly to the consumer in the importing countries.

The product portfolio covers such crops as wheat, barley, corn.

Following the results of 2017, UMG AGRO exported 997 thsd tonnes of grains, started developing export shipments in containers. The main volumes of transshipment of agricultural cargoes are carried through Mariupol and Kherson Commercial seaports.

 

Interviewed by Elena Cherednichenko, APK-Inform Agency

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