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USDA GAIN: Oilseeds, Cotton, Sugar, Grain and Feed


09 May 2012

USDA GAIN: Ukraine Grain and Feed Annual 2012USDA GAIN: Ukraine Grain and Feed Annual 2012

Corn production in Ukraine is forecast to reach a record high for the second year in a row. Marketing Year 2012/13 corn production is projected at 23 Million Metric Tons. This will result in high exports of corn as well as a possible drop in domestic market prices due to high beginning stocks and abundant supply. Wheat and barley production are projected to decrease significantly as a result of unfavorable fall planting conditions and winter kill. Lower exports of wheat and barley are anticipated as a result in the next season in Ukraine.
USDA GAIN Report - Oilseeds, Cotton, Sugar, Grain and Feed

Commodities:

Wheat

Production:

In 2012 wheat production is expected to decrease drastically compared to the previous year’s production. In 2011, wheat production in Ukraine was reported at 22.3 Million Metric Tons (MMT), and area harvested at 6,657,000 Hectares (ha). However, FAS-Kyiv expects no more than 13.2 MMT wheat produced from the summer 2012 crop. The low harvest is anticipated as a result of significant losses in winter grain areas due to unfavorable weather conditions both in the fall and during the winter season. Winter wheat yields are anticipated to be below the 6-year average.

Extremely dry fall conditions in 2011 did not allow most producers to plant winter crops on time. Some farmers reported planting in the dry soil on the hopes of ‘savior’ rain, while others did not plant until later in the fall. In Eastern, Central and Southern (main winter crop growing areas in Ukraine) regions, there were reports of no rain for about two consecutive months, which is quite unusual for this region. Some crops that were planted did not emerge until late November or early December, when the first rains appeared. And about 1.1-1.2 Million ha of winter crops failed to emerge at all in fall according to the Ministry of Agrarian Policy of Ukraine (MinAg).

As a result of the unfavorable weather conditions in the fall 2011, majority of winter crops in Ukraine went into the winter season in weaker than usual condition. In addition, continuous periods of very low temperatures, that in some areas were reaching the critical levels for winter crops, resulted in significant winter kill. Even though in winter, Ukraine received a lot of snow, in Eastern and especially in Southern regions, strong winds were recorded that blew away the protective snow cover. According to specialists of Ukrainian Meteorological Center (Hidrometcenter), in some regions winter wheat losses may reach up to 40 percent while in other areas this number was estimated at close to ten percent.

On the other hand, spring weather conditions at the time of this report writing are quite favorable for winter crop to resume vegetation and regain some of its strength. Spring in Ukraine started later than usual by about two weeks. The beginning of spring was characterized by cool temperatures, cloudy skies, and rains that were replenishing the top-soil moisture and allowing the crops to develop good secondary roots. Also, some winter plans that emerged very late started developing tillers only in spring after they resumed vegetation (which usually means this wheat would not produce much). Due to the continuous cool temperatures in early spring some crops had a chance to go through the process of vernalization in the spring and may be expected to produce some wheat but with below average yields.

Due to the fact that wheat production is not the most profitable of all crops grown in Ukraine, the majority of the winter area that observed crop losses is expected to be replanted with such spring crops as corn, barley, soybeans, and sunflower.

Consumption:

Decreased wheat production in MY 2012/13 will impact domestic consumption as well as trade. However, Ukraine is anticipated to have large wheat ending stocks in the current season (MY 2011/12). This will allow some ease for the domestic market. Both domestic milling and feed wheat prices are expected to start increasing as the harvest progresses and production proves to be low.

Production of wheat flour in Ukraine in July – December 2012 was five percent lower compared to the same period in 2011. Relatively low trade volumes for the time of the year, unattractive domestic wheat prices, and uncertainty over the grain export situation resulted in farmers that were not eager to sell on the hopes for a more favorable market. However, wheat flour production in January and February 2012 rebounded and reached nine percent above the previous year’s level but stayed well below the average for the four previous years.

Bread producers have been struggling to break even for the last two years when domestic wheat prices increased and stayed at relatively higher levels regardless of a near record wheat crop in the current season. Thus, production of bread as well as bread products in general has been on the decline in Ukraine in the recent years.

Trade:

Exports

Exports of wheat from Ukraine have been unusually slow this season considering the large production. The Government Policy in the current season had a great influence on the domestic wheat market. Exports of wheat in MY 2011/12 are not expected to exceed five MMT.

Export tariffs that were in effect in Ukraine from the start of the current season until October 2011 made trade unattractive for most Ukrainian exporters. According to official data, wheat exports from July 2011 to April 2012 totaled 3.8 MMT. As a result, record stocks of wheat are expected to be held in Ukraine at the end of the MY 2011/12 and thus influence the domestic and export prices at the start of the season.

Exports in the new season – MY 2012/13 – are not expected to be any better than in the current MY due to anticipated low production.

The largest buyers of Ukrainian wheat in the current season, as of February 2012, were Spain and Egypt. In the last MY, Egypt and Turkey bought the largest share of Ukrainian wheat leaving Bangladesh and South Korea behind. (For details see Statistical Tables in the end of this report)

Imports

Wheat imports for MY 2012/13 are likely to remain low due to record high beginning stocks.

Stocks:

For MY 2012/13 Ukraine is expected to hold record high beginning stocks, as the previous season’s production was quite high. In addition, unfavorable export situation in the beginning to MY 2011/12 and negative news about winter crop conditions slowed down trade. As a result, producers were hesitant to sell and thus accumulated large stocks. Information on monthly stocks held by farmers, elevators and processors is provided below.

Wheat Stocks Held by Producers, Elevators and Processors in Ukraine (1000 MT)

Commodities:

Barley

Production:

Barley production is forecast to decrease significantly compared to the previous year. Winter barley planted area, which accounts for about one-third of average barley plantings in Ukraine, was significantly reduced due to high winter kill rates which, according to the data from Hidrometcenter, reached up to 60 percent in some regions. Spring barley plantings are expected to increase compared to the previous year but total area would remain close to the last years. We anticipate barley production to keep declining.

Barley yields are expected to be below 6-year average due to unfavorable fall planting and winter conditions for the crop development. Usually, spring barley yields are much lower than that of the winter crop. The overall barley production in the new season will decline due to the following factors:

  1. Significant winter kill
  2. Lower average yields for barley because spring barley will prevail in overall production.
  3. More planting area is likely to be dedicated to more profitable crops like corn, soybeans, sorghum, and sunflower.
  4. Government Policy in the recent years made barley unattractive for farmers who are export oriented.

Consumption:

Barley consumption in MY 2012/13 is expected to remain at the level of the current season due to limited supply. Even though compound feed production has been on the rise, it is mostly attributed to the use of corn for pork and poultry production.

Trade:

In MY 2012/13, barley exports are expected to decrease to 2.5 MMT, compared to 2.8 MMT projected by FAS-Kyiv for MY 2011/12. The following factors are expected to influence barley exports in the coming season:

  1. Domestic barley prices are anticipated to remain on average on higher levels due to projected low production and consequently tight supply
  2. Low profitability of barley in the new season due higher production expenses and large winter kill
  3. Tight supplies

Saudi Arabia is expected to remain the largest buyer for Ukrainian barley in the current and in the following season with a market share of over 50 percent. In general, Middle East buyers have been favoring Ukraine for their barley purchases due to availability of the crop and close proximity, and thus low shipping costs.

In MY 2011/12 exports of barley at the beginning of the season were greatly influenced by an export duty that remained in effect until January 2012. For more information on this issue, please refer to FAS-Kyiv’s market updates in GAIN.

Stocks:

Barley stocks remained high through the current season due to slow trade and on the expectation of significant winter crop damage. According to the official data barley stocks held by farms and elevators and processors were about 1.7 MMT, which is about 30 percent above the same period last year.

Commodities:

Corn

Production:

Production of corn in Ukraine in MY 2012/13 is anticipated to reach another record high. Corn planting area has been expanding in Ukraine in the recent years and is projected to go over four million hectares in MY 2012/13. Corn yields have also been improving, which resulted in a dramatic increase in production. Within just five years, Ukraine more than tripled its corn production increasing in from an average of 6.8 MMT in 2002-2007 to above 22 MMT in MY 2011/12 (see chart below).

There are a number of factors that resulted in such outcome:

  1. Increasing domestic demand for corn as an input for a growing domestic poultry production Change in the weather patterns in Ukraine in the last years that made corn growing more attractive and less risky compared to other agricultural crops traditionally grown in Ukraine
  2. Attractiveness of the crop due to its higher profitability compared to other crops, especially considering the fact that corn is an exportable crop that is in demand on the global market
  3. Minimal to no domestic corn price regulations enacted by the GOU, while wheat and barley domestic prices as well as exports have traditionally been strictly monitored and influenced by official policy
  4. Promotion of corn growing by MinAg
  5. Availability of better quality seeds in the recent years as well as the advancements in agricultural technology

Ukraine: Corn Production and Exports Statistics, 1,000,000 MT

In spring 2012, corn plantings in Ukraine will depend on planting seed availability. In recent years Ukraine depended on up to 60 percent imported seeds. However, the trend may be changing as more and more domestic seed producers are beginning to show good results. In addition, larger agricultural producers started producing their own hybrids in dedicated test fields. Some industry experts believe that planting seeds produced domestically are more suitable for specific climate conditions, develop better disease resistance, and can compete well with imported hybrids and varieties. Nonetheless domestic corn seed producers have quite a way to go to monopolize the Ukrainian market. Statistics on corn seed imports are shown in tables in the end of this report.

Consumption:

Corn use in MY 2011/12 increased dramatically from the prior year in part due to higher losses. Corn consumption in MY 2012/13 is projected to drop compared to the previous marketing year in part because producers will be better prepared for the large crop. But domestic corn use for feed as well as industrial use will actually increase somewhat when compared to the previous season.

Feed corn demand has been on the rise in Ukraine and is expected to remain high in the coming season when domestic wheat and barley prices may go up due to low crop and tighter domestic supplies. Even though wheat and barley were traditionally widely used for feed purposes in Ukraine the poultry producers have found great benefits of including higher percentage of corn in feed mixes. In addition, swine and milk producers are starting to use more corn in animal diets.

Compound feed production in Ukraine in the last several years can be described as being on an upward trend. A slow but steady increase in feed production can be observed as domestic poultry production had established and is still expected to grow. Hog production is on the rise, tool.

Another possible use of corn in Ukraine in the coming season may be ethanol production for industrial use. The Policy section of this report discusses draft legislation that was recently reviewed by the GOU in regard to ethanol mixing in fuel. However, this industry has not developed yet and it may take some time for this type of corn use in Ukraine to demand a significant portion of the produced crop.

Compound Feed Production in Ukraine (1000 MT)

Trade:

Corn exports in MY 2012/13 are expected to reach an all time high of 14.5 MMT. Ukraine has been increasing its exports of corn in the recent years and has become a significant global market player. Egypt, Iran, Israel, Syria and Spain have become the largest buyers of Ukrainian corn. (See statistical tables in the end of this report for details). These buyers are expected to remain quite active in the coming season. In addition, Ukraine is expected to reach out to the destinations in the East and some in North Africa. With abundant supplies of corn and high stocks from the current season, the country needs to secure large contracts and establish new marketing channels to realize its export potential until domestic consumption picks up.

Corn imports comprise an insignificant portion of domestic supply and are for the most part corn planting seeds. (See data in the statistical tables in the end of the report).

Stocks:

Large production and slow exports of corn in MY 2011/12 will result in significant ending stocks in the current season. However, next year’s situation may not be different as Ukraine still needs to secure large corn export markets and overcome technical export difficulties that were created in the domestic market.

Corn Stocks Held by Producers, Elevators and Processors in Ukraine (1000 MT)

New storage capacity has been constructed in the last few years and is continuing to be expanded to allow storage of larger quantities of grain for extended periods of time. Storage security and preservation of adequate crop quality have been an issue in Ukraine in the past. So, larger producers as well as trade companies have recently started investing in building large private grain and oilseed storage complexes. Some are located in close proximity to exporting ports in Ukraine. And some were built in-land close to the main production areas of the owners.

Commodities:

Rye

Production:

Rye production area has been declining and dropped to the half of that planted in the 1990’s in Ukraine. Rye area remained steady in the last few years and is expected to stay low due to the decrease in domestic consumption of rye bread products and weak export demand.

Consumption:

Overall consumption of rye in Ukraine is expected to decrease in MY 2012/13 just as it is projected to go down in MY 2011/12.

Stocks:

Rye stocks would have to be used for domestic consumption due to tight supplies and possible production losses due to winter crop damage.

May 2012

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