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


10 May 2012

USDA GAIN: Ukraine Oilseeds and Products Annual 2012USDA GAIN: Ukraine Oilseeds and Products Annual 2012

Sunflower and soybean production are expected to increase in Ukraine, while rapeseed production is on the decline. Sunflowerseed crush is expected to go up once again in Marketing Year 2012/13 with most of the oil and meal production to be shipped to traditional destinations. An anticipated five percent increase in soybean meal production in Ukraine should satisfy additional demand from the growing domestic animal production. More rapeseed oil is expected to be exported to the EU, rather than raw rapeseed.
USDA GAIN Report - Oilseeds, Cotton, Sugar, Grain and Feed

Commodities:

Oilseed, Sunflowerseed
Oilseed, Soybean
Oilseed, Rapeseed

Production:

Oilseed production profitability in Ukraine continues to be high when compared generally to grain and pulse production. Sunflowerseed production is especially attractive to Ukrainian farmers, considering the lost opportunity costs that producers had to absorb in the last few years when grain export quotas and tariffs in place impacted both Ukraine’s international trade and domestic markets of agricultural commodities. The table below illustrates the areas planted and profitability of major agricultural crops in Ukraine.

Sunflower production has been expanding in Ukraine in recent years and FAS-Kyiv believes that producers may be underreporting sunflower area planted and production figures for various reasons, one of which may be related to crop rotation rules. Thus, FAS-Kyiv has revised up its sunflower harvested area and production estimates for Ukraine for the most recent years. The revised figures are shown in PSD tables in the end of this report. About 80 percent of sunflower is produced by agricultural enterprises and about 20 percent by private households.

However, sunflower yields are anticipated to be slightly lower than in the last season, when the weather condition were most favorable, a situation which is not expected to repeat this year. In addition, seed quality may be not as high on average while farmers are pressed for production funds. Some have already invested in grain production where winter kill was observed. In addition, seed importers reportedly encountered higher import costs due to new regulations in Ukraine and thus high quality imported planting seeds may cost up to 50 percent more than expected.

FAS-Kyiv expects the expansion of sunflower production to continue in MY 2012/13 due to the following factors:

  1. High profitability of sunflower compared to grains production
  2. Strong domestic demand from the crushing industry (mostly export oriented)
  3. Need to replant winter grain areas that were lost to winter kill with a crop that would allow to recover the costs and still make some profit
Another crop that has been gaining popularity in Ukraine in recent years is soybeans. Area planted to this crop has been steadily increasing in the recent years and is expected to reach 1.3 Mln ha in MY 2012/13. The factors that stimulated soybean production are similar to those for sunflowerseed. In addition, soybean production has been expanding to satisfy the needs of the growing poultry and animal production in Ukraine. However, a larger share of soybeans produced in Ukraine is still exported.

Soybean yields are expected to remain at the last season’s level. Soybean production in MY 2012/13 is projected at 2.6 MMT, almost 13 percent increase on year mainly due to expansion of area planted.

Rapeseed production in Ukraine in MY 2012/13 is expected to decline significantly mainly due to winter crop losses and somewhat lower expected yields. An extremely dry fall season did not allow winter rape planting to begin in a timely fashion. Farmers who made a choice to plant rapeseed regardless of the weather conditions in some cases obtained uneven germination and the majority of the plants were germinating later so the crops went into winter season in weaker condition. Then, when extremely cold weather hit winter rape regions, uneven and in some instances inadequate snow cover did not provide enough protection. Spring field trip reports show poor conditions of winter rape plantings in the majority of its production areas.

Rapeseed production is expected to keep declining in Ukraine. The following factors influence this change:
  1. Rapeseed production is quite risky for Ukrainian climate conditions and recent high winter kill figures reduced attractiveness of this crop to the producers.
  2. Production of rapeseed in Ukraine have become quite expensive, mostly due to an increase in fertilizer costs in the recent years. Return on investment of this crop dropped to approximately 13 percent, while other agricultural props’ profitability remained higher.
  3. Ukraine’s largest rapeseed buyer was the EU. However, EU’s bio-fuel production regulations have changed recently that led to changes in their rapeseed buying patterns.
Weather experts in Ukraine suggest that such winter crop scenario may repeat in Ukraine more often than not in the coming years. Also, farmers indicate that their experience with rapeseed growing has almost never been without trouble. Based on these opinions and considering the fact that the prospects of exports of rapeseed to the European Union (EU) has recently been shaken by the EU’s change in legislation, FAS-Kyiv believes that rapeseed production in Ukraine is starting on a declining trend.

Consumption:

Domestic consumption of oilseeds is expected to increase for both soybeans (by about two percent) and rapeseed (by about 25 percent) due to an increase in crush. Rapeseed crush capacity has been developing in Ukraine in the last two years. Several new crushing facilities started operations in the second half of 2011.

Due to the changes in the EU legislation regarding rapeseed imports, Ukrainian farmers are also considering switching towards food grade rapeseed, which will translate into food grade rapeseed oil that can be either consumed in Ukraine or exported depending on the market attractiveness. The domestic market for food grade rapeseed oil has not developed yet. Sunflower oil has been a staple on Ukrainian dinner tables for many decades.

Soybean crush in Ukraine is mostly oriented towards the growing domestic soybean meal demand from the livestock industry. Still, expanding poultry production in Ukraine and a recent expansion in hog farms are the best consumers of soybean meal in the country. Just a few years ago, Ukraine imported large quantities of soybean meal to satisfy the need in its growing poultry production. However, in the large vertically integrated poultry producers in Ukraine we can observe a trend of expansion of land banks and production of own inputs.

Sunflowerseed crush is expected to remain high at about 9.1 MMT in both MY 2011/12 and MY 2012/13. The sunflower oil producing industry has enjoyed a number of years of good profits. However, having decreased the export duty on sunflower seed to ten percent, the GOU may be opening up this market to exports of unprocessed seeds once again. Turkey is usually the largest buyer of sunflower seeds from Ukraine for their domestic oil production industry. Data of oilseed exports is shown in tables in the end of this report.

Bio-diesel production has not picked up in Ukraine to consume significant quantities of oilseeds. However, the GOU has recently redrafted legislation on production of bio-ethanol. The legislation has not yet passed the approval in the Parliament but is expected to receive some positive reviews.

Trade:

Exports:

Marketing year 2012/13 sunflower seed exports are expected to remain under 0.5 MMT mainly due to high demand from the domestic crushing industry. However, exports are expected to be stimulated by the supportive global market.

Rapeseed exports are expected to stay unchanged in the new season. Ukraine is expected to export the majority of its rapeseed to EU. However, the current and the next seasons may become the turning point for rapeseed trade in Ukraine. Since rapeseed production is decreasing, the trade is also expected to decline in the near future.

Soybean exports on the other hand are expected to go up by 25 percent and reach almost 1.7 MMT as a result of an increase in production and a favorable global market price. Italy and Turkey have been increasing the quantities of soybeans purchased from Ukraine in recent years and are expected to continue this trend. In addition, Iran, Egypt, and Syria have recently started buying soybeans from Ukraine. For more details, please see statistical tables in the end of this report.

Imports:
Oilseed imports to Ukraine mostly consist of sunflower and rapeseed planting seeds. Sunflower seed producers in Ukraine would like to compete with the internationally known companies. But, farmers prefer the higher quality imported seeds that provide better return on investment and certain desirable seed characteristics. However, for this planting season, Ukrainian crop growers are facing tough seed purchasing decisions as their general production costs have gone up due to losses associated with winter kill in addition to increase in fertilizer and fuel costs while imported seed prices have increased because of the associated customs charges.

The U.S. share of the sunflower imports market in Ukraine has been slowly shrinking over the last couple of years. Turkey, France, and recently Belarus, have been supplying large quantities as well. However, the U.S. remains the largest imported of sunflowerseed to Ukraine with 31 percent share of imports in MY 2010/11.

Commodities:

Meal, Sunflowerseed
Meal, Soybean
Meal, Rapeseed

Consumption:

In MY 2012/13 consumption of the main oilseed meals in Ukraine is expected to increase mainly due an increase in availability from the domestic oilseed crushing operations and in part due to the growing demand in animal production. Soybean meal especially is gaining popularity among Ukrainian large poultry producers. There is also some increase in compound feed production observed in Ukraine that will consume more oilseed meals next year.

Trade:

Sunflower meal exports are expected to be high due greater availability of the product and due to the growing demand from Poland and Belarus. Turkey is another large buyer of Ukrainian sunflowerseed meal and is expected to maintain its third largest market share. For detailed information see statistical tables in the end of this report.

Soybean exports remain negligible because the product is in high demand on the local market. Rapeseed meal is not exported from Ukraine due to domestic consumption and a lack of international markets for Ukraine. Imports of soybean meal are expected to remain at the same level as the domestic production is covering the additional demand from the animal industry.

Commodities:

Oil, Sunflowerseed
Oil, Soybean
Oil, Rapeseed

Consumption:

Sunflower oil consumption in the current season will remain stable but is expected to increase by about 10 percent to cover the demand in the domestic food production industry that is expected to be facing a shortfall in palm oil imports at that time.

Also, some addition soybean oil from an increase in crush is also expected to be absorbed mostly by the domestic market.

Rapeseed oil has not been used by Ukrainians for food purposes because over 90 percent of all rapeseed grown in Ukraine produces rapeseed oil that is not suitable for human consumption. However, a small proportion of the rapeseed oil, especially that produced by the newly established rapeseed crushing plants, is going be for human consumption and is expected to be exported for the most part.

Trade:

Sunflowerseed oil exports are expected to be by about 24 percent higher in the current season compared to MY 2010/11 and remain at about the same level in the next season. High rates of production and good profitability of sunflower oil exports stimulates sales. Favorable global market outlook shows supporting indicators for the remaining season. India, Turkey, and Egypt have been the largest buyers of Ukrainian sunflower oil and are expected to remain the market players with above ten percent market share. The Netherlands, Italy, and Spain in the EU, and Russia and Belarus are also traditional buyers of this commodity from Ukraine and are expected to continue the trade.

Soybean oil exports are expected to go up by about four percent mainly due to higher availability on the domestic market.

Rapeseed oil exports, even though insignificant when compared to sunflower oil exports, are expected to double in MY 2012/13 due to demand from the EU bio-fuel sector. However, FAS-Kyiv does not believe this to become a trend for the following seasons as rapeseed production is on the decline in Ukraine.

Ukraine is not expected to import any significant quantities of sunflower, soybean or rapeseed oils because the domestic market offers an abundant supply.

May 2012

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