What Ukraine’s grain market will show in 2018

Ahead of the New Year, UkrAgroConsult Company traditionally assesses the distribution of crop planted areas for next year’s harvest. Below we’ll consider in more detail possible patterns of placing...

Ahead of the New Year, UkrAgroConsult Company traditionally assesses the distribution of crop planted areas for next year’s harvest.

Below we’ll consider in more detail possible patterns of placing staple crops in Ukraine in the current market conditions.

Wheat. Wheat traditionally occupies the largest area among cereals in Ukraine – it accounts for some 43-45% of grain plantings in recent years. To a major degree, dynamics of the area seeded to this or that crop is influenced by their margins. So, profitability of wheat production in Ukraine has been slowly but steadily increasing since a few years ago. According to scientists of the National Academy of Agricultural Sciences, profitability of wheat production will continue climbing this season, to 34.2% against 31.7% in 2016.

However, noteworthy is that world wheat prices have been staying at a minimum level over the last three seasons. At the same time, Black Sea wheat prices increasingly follow their own scenario, though they had related to Chicago for a few years before. This indicates that the Black Sea region plays an increasing role in the global wheat market.

In our opinion, Black Sea wheat price bottomed out in 2016 (July, some $160/MT FOB for Ukrainian milling wheat of 2nd and 3rd classes). Unlike America, wheat price in the Black Sea region has been growing since last season. This growth is uncertain, but it is growth.

In our opinion, no substantial changes will occur in Ukraine’s wheat market in 2018, neither in prices (i.e. they will keep recovering) nor in planted areas. Owing to the upward trend in margins, Ukrainian wheat planted acreage remains steadily large and that for the 2018 harvest will not change considerably – even some upturn is possible. Apart from other drivers, the expansion of wheat plantings in Ukraine may be caused by the need to restore soil fertility exhausted by sunflower production.

Barley. Maybe for the first time in many years, barley became the most lucrative crop among staple cereals. According to preliminary calculations, barley margins in Ukraine may increase 1.6 times this year, i.e. to 39.5% from last year’s 25.4%. This is at least a five-year high of barley production profitability in Ukraine. This season’s domestic barley prices are more than just attractive – they have actually caught up with prices of milling wheat.

At the same time, Ukrainian barley enjoys steady strong demand and faces no sales problems. So, in essence, there are all prerequisites for an expansion or, to be more exact, some restoration of barley plantings. However, regarding winter barley, its planted area in Ukraine even shrank by 5-6% this year according to preliminary information.

Taking into account all of the attraction factors, UkrAgroConsult believes that spring barley plantings will increase against 2017 in case of favorable spring weather. This is a quick crop, and it is quick in all senses of the word: quick ripening, quick sale, and quick money. In addition, spring barley yield grows rapidly. It exceeded 3 MT/ha for the first time in 2016 and reinforced its position in 2017. The yield gap between winter barley and spring barley has narrowed to 5-15% over the last few years.

In addition, barley has been showing the clearest dependence of planted area on margins since a few years ago. Every low-margin year is followed by a decrease in plantings and vice versa.

Corn. Corn is a crop Ukrainian farmers put their hopes on. The reason is that it has featured the highest margins among staple cereals over the last two years. However, corn may replace barley this year as the least profitable crop: the National Academy of Agricultural Sciences forecasts corn margins to plummet 5.5 times to 8.3% from 45.7% registered in 2016 (50.3% was in 2015).

Unlike barley, corn prices are quite flat both in the domestic and export markets. Moreover, export prices have hit their three-year lows.

Along with this year’s 7-8% drop in Ukrainian corn yield, the crop became far less lucrative both for farmers and traders. This partially explains the delay in corn exports from Ukraine in the first months of the season.

Consequently, there are no market drivers for increasing corn planted acreage, and it will quite likely decrease in 2018.

Thus, corn plantings in Ukraine can be expected to shrink in 2018 in favor of spring barley. Also, wheat planted area will likely expand to some extent.

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Agriculture
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