The grain season got ended, which brought new challenges and opportunities for market participants. Traditionally, APK-Inform experts summed up the results, errors and achievements of the reporting period, as well as plans and forecasts for the new season. At the same time, various bursts of the weather anomalies, changes in the political and economic situation, as well as transformation of the global trade relations, again complicated formation of the certain expectations. The present article provides APK-Inform estimations of the current trends on the grain market of Ukraine and expectations for the new season-2019/20.
Production and distribution
The analysis of trends in the production of grain crops in Ukraine demonstrates that after the five-year period of stabilization of the harvest figures, the country faced another period of growth. Thus, in 2018/19 MY the record harvest volumes became the main factor that formed the situation on the grain market. The figures reached 70.1 mln tonnes, an increase of 13% compared with 2017, and up 11% compared with the average level for 5 previous seasons.
The upward trend in production developed, due to the active growth of the average yield figures in terms of the fairly stable planted areas. For 5 recent seasons, Ukrainian agrarians usually planted grain crops throughout the areas of 14.7 mln ha. At the same time, in 2018 the average grain yield reached the record level of 4.74 t/ha, up 8% compared with 2014, and up 11% compared with the average figures for five previous seasons.
The record production volumes of grains in 2018 became quite unexpected factor, and developed, mainly due to the significant increase in crop harvest, in terms of the favourable weather conditions. It was corn that formed more than half (51%) of the grain harvest volumes (35.8 mln tonnes in absolute terms). At the same time, the reporting segment demonstrated the historical records. For the first time for the Ukrainian market in 5 oblasts (Vinnytsia, Volyn, Kyiv, Khmelnytskyi and Chernihiv oblasts) the average corn yield reached the level of 10 t/ha.
Also, it is worth noting the relatively stable share of wheat in the general grain harvest, which varied at nearly 40% for 5 recent seasons. At the same time, there was observed the systematic downward trend in the barley segment, because the grain started gradually moving into the category of niche crops, even in terms of the situational high demand and high prices.
As for the supply and demand rates of grain crops in Ukraine, the continuing increase of the export share in terms of the reduction of domestic consumption became the key trend. Thus, in 2018/19 MY the share of exports in the general distribution of grain crops in Ukraine reached the record level of 66%, which increased the export orientation of the market, as well as dependence on the external factors. At the same time, the absolute values of export shipments almost approached the level of 50 mln tonnes per year.
In 2018/19 MY, the volumes of domestic grain consumption in Ukraine totaled 21.3 mln tonnes, down 3% compared with the previous season, and down 16% compared with the average level for 5 previous seasons. The key factors influencing the current trend remained unchanged: decline of the country's population, stagnation in the exports of flour, as well as uncertainty in the livestock segment.
The export trends of wheat and barley developed in accordance with the dynamics of production. Thus, in 2018/19 MY Ukraine faced a decrease in wheat production by 6% compared with the previous season, and barley — down 11%. Therefore, in 2018/19 MY the export volumes of the reporting grains decreased by 9% and 16%, respectively. As for the reduction of supplies in absolute terms, it can be noted that in the wheat segment the reduction in exports (down 1.5 mln tonnes) corresponded to the same reduction in production (down 1.5 mln tonnes). At the same time, barley harvest decreased by 936 thsd tonnes, while the exports lowered by 697 thsd tonnes only. It indicated decreasing of the demand for the grain on the domestic market and the continuing interest of importers.
As for the geography of wheat exports, we should note the consolidation of sales markets. According to APK-Inform estimations, in 2018/19 MY the TOP-10 of countries-importers of the Ukrainian grain covered 78% of the supplies, against 66% in the previous season.
The similar competition rates were observed in the barley segment, in particular on the key market of Saudi Arabia. But the situation was more risky, as the export market of Ukrainian barley is much more consolidated. Thus, in 2018/19 MY Ukraine supplied more than 65% of the grain exports to the reporting country only, while in the export structure of Russian barley the share of Saudi Arabia was estimated at nearly 33%, and the market is more diversified at the expense of such countries as Iran, Jordan and Turkey.
Despite the high competition rates and decline in the production figures, Ukrainian traders managed to increase the supplies to Saudi Arabia to 2.3 mln tonnes, up 30% compared with the previous season.
Generally, Ukrainian wheat and barley remained quite competitive on the main sales markets. At the same time, the Asian vector in formation of the export flows is becoming more and more significant, due to the active growth of the population and the dynamic development of the economy of the region.
Trends of the domestic processing industry
Despite the rapid development of the export segment, the share of domestic consumption in the general distribution of grains in Ukraine also remains quite significant, and has its impact on development of the price situation and the market trends.
The flour milling and animal feed industries are the main segments forming the domestic demand in grain crops. The trends and prospects of their development are very disparate. Thus, the flour milling segment demonstrated the strong downward trend in production. According to APK-Inform estimations, in 2018/19 MY large-scale Ukrainian enterprises produced the minimum volumes of flour for 20 recent years, which totaled 1.7 mln tonnes only, down 10% compared with the previous season. The trend completely reflected the situation in the production of bakery goods, which production figures also decreased by 10% compared with the previous year.
Also, it is important to note the more significant stagnation in the export segment of the flour market, which also influenced on formation of the production volumes and demand for wheat. In 2018/19 MY, Ukraine exported 301 thsd tonnes of flour only, down 30% compared with the previous season.
As for the animal feed production, the market demonstrated a slightly different trend. Analysis of the dynamics of feed production showed the formation of the systematic upward trend. In 2018/19 MY, large-scale feed mills produced nearly 6.3 mln tonnes of animal feed, up 3% compared with the previous season, and up 3% compared with the average figures for 5 previous seasons.
Market prospects: factors, trends, expectations
As for the prospects for the wheat and barley markets in the beginning of 2019/20 MY, and for several following seasons, the domestic market will continue stagnating in the segment of food consumption, which will be slightly compensated by some increasing of the feed consumption.
At the same time, the grain exports will continue its active development in the future, supported by a number of significant factors. First of all, the population growth and economic development of Asian countries will contribute to increasing of the demand in the region. In particular, Indonesia and the Philippines can become the key sales markets in the region.
Also, we should do not forget about the risk factors. For example, China is observed as the prospective sales market for barley. Ukrainian traders started actively supplying the grain to the country. At the same time, China has rather difficult situation with African swine fever (ASF), which reduces the livestock of pigs and can lead to decreasing of barley imports. Also, Saudi Arabia plans to start importing some alternate feed grains.
Another risk factor is the continued competition from the Russian grain, which share is steadily increasing on the key sales markets. Of course, the logistics remains the permanent risk factor for Ukraine.
Taking into account the current trends and expectations, APK-Inform formed the estimations of the production and distribution of grain crops in 2019/20 MY. In particular, Ukraine will possibly break a new record in grain production, and the general grain harvest will reach 71.8 mln tonnes. In terms of the expected slight decrease in corn yield, the grain production is forecasted at 33.8 mln tonnes, down 6% compared with 2018. Wheat harvest will total 27.5 mln tonnes (up 12%), and barley — 8.4 mln tonnes (up 14%).
As for the distribution figures, the domestic grain consumption in the new season is expected to reach 21.6 mln tonnes (up 2%), and the exports — 49.9 mln tonnes (up 1%). In particular, APK-Inform forecasted wheat exports at 17.8 mln tonnes (up 15%), and barley — 4.7 mln tonnes (up 32%).
Growth factors of the Ukrainian exports:
— population growth
— development of the Asian economies
— global climate changes
— US-Chinese trade conflict
— China is the risk partner
— global changes in the commodity structure for animal feed
— competition rates from Russia
Andrei Kupchenko, APK-Inform Agency