Export market of Ukraine – results of the half-season of 2012/13

The beginning of 2012/13 MY for Ukrainian exports market was marked by the major grain prices violent increase. Unlike the beginning of 2011/12-season when the government imposed duties for the grain exports till November 2011, the new MY faced the good trade activity which exceeded by 2.5 times the volumes of the exported grain in the first half of the previous season.

What difficulties did the Ukrainian trader face in the first half of the current season and what was the development of the grain exports market in Ukraine and what factors impacted on the trade activity in the country – all these and other features of the first half of 2012/13 MY will be told by the experts of APK-Inform Agency in the article.

FOB basis

The first and notable feature of the beginning of the 2012/13 season was the fact that on the Ukrainian exports market there was no the season fall of the prices. Unlike of the previous one the current MY faced the major grain prices violent increase and the good trading activity. The reason was the growing demand on the grain while there was the world grain production decrease. In particular remind the “rush” for feed barley, which world production decrease was followed by the grain cost rise in Ukraine. Thus in the beginning of July barley supply prices totaled 270-280 USD/t FOB, but by the end of the month they reached 300 USD/t FOB. The representative of the import-oriented companies hurried to purchase the necessary volumes of the Ukrainian grain due to the rumors on the barley exports ban due to its local production decrease. As a result the major volumes of the grain were signed under the contract in the beginning of July. The export market operators stated that just only Saudi Arabia bought 2 mln tonnes of barley the supplies of which were in the period of July-September But despite the stated fact in September-October 2012 there was the light increase of the grain price – to 310 USD/t FOB, though the trading-purchasing activity was weak due to the grain volumes shortage in the country. By the end of November the crop lost its positions on the grain exports market.

Barley exports from Ukraine in 2012/13 MY (July-October) by country*

Milling wheat also followed barley by the export potential in the beginning of the first half of 2012/13 MY, which quality satisfied the demands of the domestic producers and the Ukrainian export-oriented companies as well. In total 80% of the harvested crop was milling wheat and only 20% – feed one. So the exporters started to sell low quality wheat as the feed grain and equaled the price rates for food and feed grain. Thus following the world grain prices rise the milling wheat cost increased by 25 USD/t FOB – to 285 USD/t FOB and by the end of the month reached 300 USD/t FOV meanwhile feed wheat offer prices increased by 55 USD/t FOB – to 290 USD/t FOB by the end of the month. Thus the ratio between the milling and feed wheat cost totaled nearly 10 USD/t FOB. The stated tendency was unchanged till the end of August meanwhile the Ukrainian wheat prices faced an increase despite the world prices decrease. Still most of the representatives of the export-oriented companies are afraid to sign the contracts for supply of the grain in order to escape the probable risks of non fulfillment of the foreign contracts despite the absence of the documentary confirmation of the wheat exports ban from Ukraine. But there are companies continuing to supply small volumes of wheat through the Azov sea ports.

Wheat exports from Ukraine in 2012/13 MY (July-October) by country*

Most of the traders consider the major problem is that the state does not know what are the milling wheat supplies in the country so here comes the “hand” regulation of the exports. The market participants state if there is the wheat supplies enough for 2 years requirement then it will be possible to provide the commodities interventions in order to regulate the prices when it is necessary.

And now let’s talk about maize. Unlike of the above stated grains, the sector of feed maize is the most export stable. Being not strategic crop in Ukraine there should be no problems with the grain exports in our country. Thus despite the season of the active trading started in October, in the first three weeks of July its prices increased by 60 USD/t FOB – to 285-290 USD/t FOB and by the end of the month – to 300 USD/t FOB. Note the price increase was in August and the middle of September, and then the prices faced a decrease to 285-290 USD/t FOB. But in November due to the slow trading activity on the wheat market the only active position of the Ukrainian export market is feed maize so it returned the lost and saved the current price positions within 304-306 USD/t FOB. Meanwhile the market operators forecast the grain offer prices further increase to 313-315 USD/t FOB to be supplied in January-February and nearly 317-318 USD/t FOB for delivery in March.

Note if in September-October 2011/12 MY the major export directions were Egypt (25% from the general exports volumes of maize from Ukraine), Spain (17%) and Iran (15%), in the same period of the current season the leading positions were taken by Spain and Italy by replacing the leader of 2011/12 MY, Egypt, on the third line.

According to the exporters forecasts in the first half of the second half of the year the exports market of Ukraine will be presented by the trading-purchasing activity in the sector of feed maize. There will be the fight for the good quality grain. Thus as of to date the representative of the certain export-oriented companies declared the maize qualitative parameters decrease in November. In particular the certain traders noted the moisture high content and the high content of the ash. If the number of the hit grain in total will exceed 15% the agricultural producer will not be able to sell grain of the export quality by the market price.

СРТ-port basis

Following the growing world market of the grain and the decrease bearish dynamics of the world grain production forecasts for CPT-port basis the beginning of the first half of 2012/13 MY also was marked by the demand prices increase for the major grains. In particular the essential activity was in the sector of feed wheat and barley in July-August. Due to the upcoming shortage of feed wheat in July the grain prices faced a violent increase. Thus in the period of 6.07.12 to 20.07.12 the feed wheat cost increased by 320 UAH – from 1620 UAH/t in the end of the first week of the reporting month to 1940-1980 UAH/t in July. Note the bullish tendency was actual in August-September, meanwhile in October the prices stabilized. Since November there is the prices light increase but the trading activity is weak due to the shortage of the necessary volumes. The major parties of the grain were realized in July-September and to date the producers hold the rest supplies awaiting the prices further increase.

The second position by the trading activity in the first half of the current MY belongs to feed barley. Due to the grain export prices increase in Ukraine (FOB basis) and the agiotage due to the negative forecasts of the grain production, in the first week of July the barley cost increased by 220 UAH/t – to 2080 UAH/t. As a result the barley price bullish tendency stopped in the end of August and resumed in the end of September. Due to the limited supplies of the commodities from the producers who already realized the major grain parties for exports in July the trading-purchasing activity in the sector was stopped.

As for the milling wheat prices, in the beginning of the reporting period they faced increase, meanwhile the demand have become active since the end of July. As of to date there are singular contract necessary for the commodities export parties formation. At the same time a lot of export-oriented companies stopped working with the stated grain. As a result since October of the stated period the major export grain was feed maize. Thus due to the growing demand of the exporters and the representatives of the import-oriented companies on the stated grain in November maize faced the second wave of the offer prices increase, though it was slow but still caused the good activity on the domestic (CPT-basis) and the foreign (FOB) markets of Ukraine. Also note in the second half of the first half of 2012/13 MY the exporters faced the lack of the storage capacities for the maize due to the port elevators being filled with milling wheat.

Besides, the current situation on the grain market is worsened by the sharp shortage of the freight rolling stock while transporting grain cargoes from elevators to ports. The problem is that the loaded cars spend the time standing at the junction depots waiting for unloading the vessels that did not arrive on time for loading. In addition, market participants frequently reported about the corrupt machinations on the material basis of the Head of some spurs, which carried out the car supply to the elevator. Trying to change the current situation the exporters tried to use moto-transport also lacking to cover the current needs and timely delivery of the commodities to be loaded on a vessel. As a result, there have been cases of ships downtime due to untimely arrival of the goods to the port. And these are huge contingencies …

So how should the Ukrainian trader work in the stated conditions? What should he expect? What should be concerned about? Despite the wheat production volumes in Ukraine allow to continue the grain export supplies without prejudice to its domestic consumption in the country, to work with the grain – is the risk, and barely who is ready to accept it. As for the feed maize, which is easiest worked Ukrainian trader and which today is the only export-active units of the Ukrainian market, so it is easier for Ukrainian trader to work with and which is the only export-active unit, there is the problem with its storing and transportation to the ports. The one and another problems are not new but the old ones. And our government should understand these moments impact negatively on the position of Ukraine as the grain exporter on the world market.

here is a problem with the storage and transportation to the elevators in the port. And both problems are not new, but rather old sore. And our government would be worth to understand that all these things have not a positive influence on Ukraine’s position as an exporter of grain on the world market.

Oksana Starina,
expert of the Foreign Trade department of APK-Inform Agency

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