Export market of Ukrainian feed corn in 2016/17 MY - impact of the global trends

Source

APK-Inform

3649

The competition from the main countries-exporters and high global production volumes of corn in the current season forced out Ukraine from the TOP-3 exporters on the global market. Nevertheless, Ukrainian traders managed to increase the export volumes of corn. How export-oriented companies worked and what conditions had to face – hereinafter in our article.

In 2016/17 MY, the production of corn in Ukraine exceeded the last year level by nearly 12%. Taking into account large-scale carry-over stocks and stable domestic consumption rates, the country managed to significantly enlarge its export potential. However in terms of high global production and, respectively, the rising competition on global platforms, Ukraine moved from the third to fourth position in the rating of top corn exporters.

 

Rating of the global exporters of corn

Position

2014/15 MY

2015/16 MY

2016/17 MY*

country

mln tonnes

country

mln tonnes

country

mln tonnes

1

USA

47,4

USA

48,2

USA

56,5

2

Brazil

34,5

Argentina

21,7

Brazil

31,0

3

Ukraine

19,7

Ukraine

16,6

Argentina

25,5

4

Argentina

19,0

Brazil

14,2

Ukraine

18,7

5

Russia

3,2

Russia

4,7

Russia

5,3

* According to the March adjustments

Source: USDA

The key features of the Ukrainian export market of corn in 2016/17 MY can be highlighted as followings:

- global growth of production volumes;

- environment of the domestic market, namely, problems with forming of large-scale volumes of high-quality export grain;

- rising competition from Russia which considerably increased not only the grain export volumes, but also expanded its geography of deliveries, in particular at the expense of India;

- boosting shipments to Iran;

- essential reduction of supplies to China that resulted in decreasing of influence of such important market player on pricing.

Traditionally, Egypt, Spain, the Netherlands and Italy became the top-five main importers of the Ukrainian grain, while Iran took the first place, which in the previous took the 8th position only in the same rating.

First of all, while analyzing the geography of Ukrainian export deliveries in the current season, it should be noted a growth of shipments in the direction of the Middle East and Asia. At the same time, Ukraine still carried out the bulk of supplies to the EU countries.

During the first half of the season, purchasing-trading activity rates were often estimated as rather stable. For October-March of 2016/17 MY, Ukrainian exporters exceeded the year ago level of corn shipments by 13% and realized approximately 76% of all export potential.

In particular, in February Ukraine exported nearly 1.8 mln tonnes of the grain, against 2.3 mln tonnes in January 2017, and 2.4 mln tonnes in February 2016. However, since March 2017 trading rates in the market segment became more active. The shipped volumes totaled more than 2.6 mln tonnes that is 45% more compared with the index in February, and up 11% compared with the level of March 2016.

 

 

Price situation (factor)

During the expired period of 2016/17 MY, the price situation in the segment of feed corn remained rather low-volatile. The global market environment formed the key impact for pricing.

Thus, despite reserved sales of high quality batches of grain, the prices increase was interfered by large global production. Additional download pressure on pricing placed increased competition from Russia which can export 5.3 mln tonnes of corn in the current season, against 4.7 mln tonnes according to March reports of USDA.

During October-March of 2016/17 MY offer prices for feed corn on FOB-basis varied in the range of 162-175 USD/t, in its turn bid prices didn't exceed the limit of 159-170 USD/t.

According to traders, the similar situation was observed the last season also due to stable demand of importers for the specified culture in the conditions of rather high world supply.

The minimum bid/offer prices in the Ukrainian export market were fixed only at the start of a season – 159-164/162-165 USD/t FOB respectively. Insignificant reduction of prices in this segment was experienced twice: in January and the second half of March when Ukrainian exporters were forced to decrease the price adapting to the global market conjuncture. However, since the start of April bid/offer prices for corn began to grow gradually, foremost due to insufficient numbers of offer grain with high quality indexes. Thus, now the demand/offer prices of the Ukrainian corn are sounded mainly in the ranges of 167-170/168-173 USD/t FOB accordingly to delivery at the end of April – the beginning of May.

Thus, current bid/offer prices for Ukrainian corn are sounded mainly in the ranges of 167-170/168-173 USD/t FOB with the delivery at the end of April - beginning of May respectively.

Some market operators don’t exclude further bullish price tendency in this segment of agriculture in the short-term outlook.

 

 

In it’s turn, the upward price trend prevailed on the CPT-basis. Thus, while at the start of 2016/17 MY purchases of grain were performed mainly at the prices within 4050-4500 UAH/t CPT-port, then in the beginning of April the price range constitutes 4800-5070 UAH/t CPT-port. The prices increases was promoted by rather high demand from export-oriented companies against the background of reserved sales by agrarians as well as a currency rate and the situation in the adjacent markets. It should be noted that in some cases purchasing prices for grain reached 5100-5200 UAH/t CPT-port that was caused by the necessity of traders for urgent attraction of large offers for closing positions of previously concluded contracts.

 

 

In the reporting period, the purchasing prices in dollar terms were quite often exposed to adjustments towards increase as well as insignificant decrease. At the same time, the situation in foreign market acted as the factor containing the active growth of the bid currency prices. In general, within October-March 2016/17 MY bid prices for corn didn't exceed the limit of 143-158 USD/t CPT-port. Now many traders sound the prices in the range of 153-158 USD/t, periodically reviewing them proceeding from purchasing activity. In the short-term, meanwhile, a lot of exporters don’t exclude the probability of increase prices in a view of reducing the offer numbers.

 

Commentary by Andrey Kupchenko, analytics of APK-Inform news Agency

The export segment is the key one for the Ukrainian corn market as well approximately 64% of all supply is delivered on the foreign markets. In the current season, however, the situation in this segment is rather intense. On the one hand, the rates of export during last 5 months of the current season (October-February), are ahead of last year’s by 13% but on the other hand record global production and inventories put pressure upon price dynamics and increase the competition among major exporters. Besides, the situation with volumes production of grain in the current season is ambiguous.

In case of the developed adverse weather conditions during the harvesting of 2016 some part of crops remained in fields till spring, and another part that was harvested in later terms, required essential completion that affected quality.

According to operational data, following the results of October-March, Ukraine exported about 13.5 mln tonnes of corn that is 13% more than the same period of the previous season (12 mln tonnes). At the same time, we should note that the general corn supply in the domestic market in the current season is estimated by only 5% more than the previous season and constitutes 27.4 mln tonnes. The export potential of corn in the current MY is estimated at the level of 17.7 mln tonnes. Thus, about 76% of the export potential were realized in the first half of a season, against 72% the previous year.

Also, it is necessary to note some changes in geography deliveries of the Ukrainian corn. Thus, Iran which bought about 1.7 mln tonnes (or 17% of the export share) became the key importer following the results of 5 months of the season. It is caused by essential growth of domestic consumption (26% higher the previous season) and are estimated by experts of USDA at the level of 11.1 mln tonnes, against 8.8 mln tonnes a season earlier. In 2015/16 MY, Iran purchased 673.4 thsd tonnes of Ukrainian corn only. At the same time, this country didn't appear among importers of the Ukrainian grain in October-February of the last season. As for traditional buyers, rather high supply rates are fixed to Spain (1.3 mln tonnes during October-February or 13% of the total amount) and Egypt (1.6 mln tonnes or 16%).

Speaking about the prospects for the rest part of the season, let us point that corn deliveries will be much more reserved. At the same time, difficulties with forming export consignments can keep domestic prices at rather stable level, even in terms of the global environment. Crop prospects for the next season remain so far uncertain as question of resource ensuring production

In terms of the expected increase of the planted areas, the issue of resources provision of agrarians is still open. Anyway, Ukrainian exporters will try not to lose their positions on the global market in terms of tough competition.

 

Anna Tanskaya, APK-Inform Agency

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