02 Jul Ukrainian Grain Shipment
FEATURES OF THE UKRAINIAN CEREAL MARKET IN 2020/2021
A specific analysis of the grain and wheat market in particular suggests that 2020 is most likely to be characterized by a decrease in production compared to the previous one. At the same time, the increase in production expected in Russia and Australia will not be able to fully compensate for its expected decline in the vastness of the European Union, the USA and Ukraine.
Statistical review and crop prospects in the current year in comparison with 2019.
The total volume of grain consumption in the world market in 2020-2021 is expected to increase by 43 million tons, which in essence represents 1.6 percent from the previous year. Thus, consumption volumes will recover after the stagnation of the 2019-2020 season and reached a record high of 2,732 million tons.
The main vector of increasing demand for cereals will primarily be an increase in the consumption of cereals as feed, followed by food and industrial spheres of consumption. The main growth will be in corn. An increase in its consumption by 3% is expected, which represents 33 million tons to an indicator of 1,169 million tons. Recent data are associated with the expected partial normalization of demand for cereals from industrial enterprises, in particular, American producers of ethanol. Of no less importance is the forecast for increased demand in the Chinese forage crop market.
Given the sufficient global rice reserves, its consumption in 2020-2021 is projected to increase to a record 510 million tons, which is 1.6% more than the previous year. At the same time, the main increase is planned for consumption by the food industry, which is projected to account for 420.0 million tons. If we associate consumption with the number of people, we get an average of 53.9 kg per capita. That is, 0.6% more than last year.
At the same time, in the 2020-2021 season, a trend is forecasted to decrease wheat consumption by 0.4%. approximately 754 million tons are expected. It is associated with a decrease in feed sector requirements due to large stocks of feed grains and an expected decrease in industrial consumption. This mainly relates to biofuel production in the European Union.
Futures Market Data
In August 2019, the introduction of the trading of grain futures contracts began – the first deal on the supply of wheat was carried out, then corn futures were launched. Since Ukraine is the third largest supplier of grain in the world, such a decision was justified.
This season is highlighted by concerns that the pandemic will drop demand for crops and wheat in particular. Initially, the cost of culture declined quite rapidly. But, unexpectedly, consumer demand increased, with the demand for grain processing products and wheat prices growing even faster. In addition, weather conditions significantly affected this.
The cost of wheat this season has become the main driver for its shipment abroad. The marketing year already in the second half showed the opening of a “second wind” in exports.
March showed an absolute record of 1 million 300 thousand. In April, the pace did not drop and exports amounted to 1.2 – 1.3 mlm ton. At the end of April, Ukraine exported a total of about 19 million tons of wheat.
To these volumes, according to expert Elizabeth Malyshko, one can also add almost 0.5 million tons that went abroad in the form of processed products, then by June the “export vacation” will begin. But, according to experts, it will not be long as the weather conditions of the year 2020 make the pace of crop ripening go faster than in previous years.
Also this year, a more active export of wheat was noted compared to previous years. But this left its mark on the fact that this season Russia began to lag sharply behind previous international deliveries. Thus, according to the indicators of the first half of the season, Ukraine shipped almost 77% of its export potential and at the same time freely felt in the markets of Egypt, Turkey and Bangladesh that were new for it.
Legislation and regulations regarding the export of grain
The issues of grain export in Ukraine are decided by the Ministry of Economic Development, Trade and Agriculture and the participants of the grain market. It was they who signed the supplement to the grain Memorandum of Understanding. It set a cap on wheat exports for the 2019/2020 season. According to it, the maximum amount of wheat that can be exported this season is 20.2 million tons.
At the same time, according to Igor Petrashko, Minister of Economy, Ukraine traditionally grows more grain than it is able to consume. This indicator allows not only to ensure domestic food security, but also to allow the export of wheat to other countries.
According to data provided by the State Fiscal Service, as of April 30, 2020, grain exports have already exceeded 50.5 million tons. This in itself is 19.4% higher than last year.
Wheat export alone amounted to 19 million tons, which is 32.3% more than last year. Barley supplies increased by 38.7%, corn exports 26.2 million tons (9.8% more).
At the same time, the export of Ukrainian flour increased significantly. It is 22.4% more than last year and amounts to 295.2 thousand tons.
Now, the Ministry of Economy of Ukraine has proposed a restriction on wheat exports in the 2020/2021 season to 17.2 million tons (the start of the season begins on July 1).
Features of grain trade and grain export in Ukraine
Representatives of the Ministry of Economy confidently declare that there are no prerequisites for making forecasts for the rise in price of bread in Ukraine. They confirm this information with a memorandum signed with major traders, providing approximately 90% of Ukrainian grain exports.
Nevertheless, the Union of Ukrainian Millers and the All-Ukrainian Association of Bakers urge the government to limit the amount of grain exported in order to avoid the increase in the cost of bread and bakery products. They explain their demands by a massive reduction in the population and the sending of workers on extraordinary holidays. Thus, the solvency of the population can drop sharply, and this, in turn, will affect producers.
According to representatives of the Baking Association, already now the domestic grain market has reached a critical situation. Due to seasonal factors and an increase in external demand, the cost of food wheat has risen sharply and as a result, the final consumer will be forced to pay more.
Closing bills of lading according to coastal scales
It must be remembered that, according to Ukrainian law, in the bill of lading for the shipment of grain indicated data on the shore and silage scales. This feature of the local market makes it necessary to participate in the process of an independent surveyor who carries out draft surveys and seals the covers of the holds after fumigation of the cargo. A surveyor’s certificate can serve as a significant factor in resolving probable further disputes regarding shortage of cargo.
Production capacities of the state corporation Bread of Ukraine and independent traders
Since April 1, 2020, “Bread of Ukraine” launched 4 flour milling complexes in the Sumy, Zhytomyr, Lviv and Ternopol regions on the territory of the state. Already, all complexes are operating at full capacity, processing a total of more than 10 thousand tons of wheat and producing more than 7 thousand tons of flour for the domestic market. In total, the corporation’s assets include 10 milling enterprises located in 7 regions of the country. Their total productivity per day is about 1000 tons of finished products.
The main players in the Ukrainian grain market are:
- “NIBULON”. It owns a large network of inland and port silos, the storage volume of which is 2 million tons. The company has initiated the construction of a river port on the Dnieper estuary, near the village of Aleksandrovka, Kherson region.
- COFCO Agri Ukraine. The company controls 8 enterprises, including silos, terminals and an oil extraction plant. All of them are located in the South-East of the country – Kherson, Nikolaev, Dnipropetrovsk and Donetsk region.
- “Bunge Ukraine” company owns silos in the Dnipropetrovsk, Odessa and Kirovograd regions, a transshipment complex in the port of Nikolaev and an oil extraction plant in the city of Dnipro.
No doubt, each of these companies faces hard competition, nevertheless, they still manage to occupy leading positions in exported volumes.
Summary If grain production turns to FAO forecasts, it becomes clear that by the end of the sales season in 2021, global stocks could increase to a record level of 927 million tons, 40 million tons higher than the fairly high level of stocks at the beginning of the season. The ratio of the percentage indicator of grain reserves and its consumption may increase slightly (from 32.5% in the 2019/2020 season to 32.9% in the 2020/2021 season). That is, in general, an acceptable level of cereal stocks and their consumption will be maintained.