The Bulgarian grains and oilseed sector has been successfully navigating the stormy waters of the global grains markets during the last two marketing seasons. Despite major Black Sea grain flows being under a major re-shift in the face of the conflict in Ukraine, and global prices continuing to experience heightened volatility and long-term slides, combined with logistical bottlenecks and government interventions, Bulgarian grains and oilseeds players are still thriving to keep the wind in their sails, and despite some growing risks and disbalances starting to appear on the surface, the sector successfully continues to navigate in the right direction. 

Preslav Raykov 
Commodity Trading Manager

Growing export demand saves the situation 

Disrupted Black Sea trade routes, elevated farmgate break-even prices, still ongoing inflationary pressures and not enough government investments in export and logistical infrastructure are some of the main challenges that led to this year decline in total grain production in the country, affecting short-term Bulgarian agricultural competitiveness on the global ag markets. 

All along combined with the unavoidable climate factors during this growing season, which saw record high temperatures, heavy lack of rains and prolongated summer dryness, put enormous pressure on Bulgarian farmers, traders, processors and government officials, all trying to navigate through this complex vortex of challenges. However, it turns out that even that the agricultural sector in Bulgaria is passing through hard waters, in the long term it continues to move in the right direction, as the grain segment continues to be among the most important for Bulgaria’s foreign trade balance, as values of exports this year are projected to be reaching almost USD 3.9 billion at year-end, continuing their way on a very good long-term uptrend in export values and extended demand for Bulgarian grains and oilseeds products. Even the fact that the “farmer-friendly” combination of record yields and record prices is no longer present on the local ag market this season, as it was during the last two years, the sector continues to be among the fastest growing in the country, with an average revenue growth of over 50% for the last 5-7 years, making it a good and attractive spot for private investments and long-term visionary ideas that are more and more shaping and crystalizing in realization. 

Following this strong export trend and long-term attractiveness, Bulgarian grain companies grew their combined revenues by a staggering 37% and generated EUR 2.17 billion in operating revenues, while also keeping their first-place standings among the region for a third consecutive year, turning a combined net margin of 23.2% for the year. Its worth mentioning the interesting fact that the increased competition for facilitating the Ukrainian transit grain flows with mostly neighbouring Constanta port is also putting pressure on the local producers and grain traders, but ultimately this will lead to long-term positive impacts for the sector, as it will need to innovate and improve in order to compete effectively.

Pressure on the local production levels, but healthy export demand continues to support the sector   

Market prices are retreating from their highs and this also translates in some vulnerabilities on the production side of the grain and oilseed industry which were mainly caused by the high prices of seeds, fuels, fertilizers and crop protection products. This all was transferred to the yields and the production levels which saw a decline during the fully finished 22-23 season. Speaking purely on the grain production figures in the country, just days away from closing the calendar year, Bulgarian overall grain production for the 2022-23 marketing year has declined by almost 26% year-on-year. The country grain sector saw a wide range year-on-year production declines, ranging from 12% for wheat (reaching 6.8MMT), 11% for barley (reaching 625,000 tonnes) and 26% for corn (reaching 2.55MMT). However, despite the pure production declines, on the major export grain – wheat, the country saw an uptick and realized some good export potentials among some of the major buyers in the region and worldwide. 

Driven by the large beginning stocks and the good export demand during the second half of this year, have boosted Bulgarian wheat exports in 2023-24 to reach over 3.3MMT, as of the end of November, making a strong comeback on the global markets, where it was met by e healthy demand from major locations in the MENA region. Global wheat prices, although much lower than in the previous marketing year, were recorded to still provide a positive margin to producers this year, despite some of the claims from the industry that break-evens are below their production cost. This could be true for the ones that are operating in an inefficient manner of agricultural practices and are not adequately replying to the market challenges. 

On the other major grain – corn, Bulgaria was heavily suffering from unfavorable climate developments. The very hot and dry summer weather had a severe negative impact on the corn crop within the country. The yield picture was very mixed in different regions, but still the total harvest reached 2.5MMT with an average yield of 4.2 MT/HA. This decline in both production and yields led also to decreased export potential and Bulgaria may export only 1.0MMT of corn this season, which is 0.4MMT less than last season. Due to the unfavorable weather developments for two consecutive farm years, combined with the low yields, the attractiveness of corn farming in Bulgaria may decrease severely, and the area under this crop may be reduced substantially in the spring of 2024. During this year, corn required the highest costs for cultivation compared to other grains and oilseeds, and had the lowest profitability due to lower yields and prices, which makes a lot of farmers unwilling to continue to corn production. Along with that the abundant supply of corn in other Black Sea countries this year put additional pressure on Bulgarian farmers.

OILSEEDS DISRUPTIONS AND HUGE POTENTIAL AHEAD

For almost 10 years, the Bulgarian oilseed local production levels and feedstock needed from the processing industry have been substantially diverting and more than obviously the local processing industry is in heavy need for feedstock which is mostly covered by imports. However, the situation after the outbreak of the conflict in Ukraine has made this market quite intense in volumes and prices. The successful investments and vision of the oilseed processing industry have placed Bulgaria on the top spot for EU supplier of refined sun oil and placed the country on the way forward in the biofuels segment. Bulgaria continues to be the world leader in the export of sunflower seeds for the bakery industry and this is generating substantial added value to the oilseed processing segment in the country. For this year, the overall production of oilseeds in the country is estimated at 2.48MMT, mostly unchanged from the 2.45MMT of production estimates for the season. 

The adverse climate developments in the country led to a severe decrease in sunseed production this season which recorded a rapid decline on the total production for 23 growing season, sliding with 23% year-on-year, from 2.1MMT in 2022 to 1.6MMTat the end of the harvest this year with also quality with very low parameters, with oil content hardly reaching 40%. Overall, Bulgaria’s oilseed production in 2023-24 is expected to hold steady as average yields are expected for rapeseed and sunflower to be on par with the current season. 

On the rapeseed front, Bulgaria is recording some sky-high import flows due to the increased demand and glut for biofuels across the European markets and the potential of the country to further extend production facilities in this segment. Rapeseed production estimates for 2023 are standing at 275,000 tonnes, down from the 299,000 tonnes a year earlier. With the increasing demand of rape for biofuels, during the year rapeseed imports grew 86% as of Mid of the year to 96,000 tonnes from 52,000 tonnes in the previous season. 

During the last season, Bulgaria was the top EU importer of sunflower seeds from Ukraine in 2022-23, with a 38% share in total EU imports, but this flow was heavily disturbed by the ban that the Bulgarian government implemented for imports of grains and oilseeds from Ukraine. This decision which was not subject to any reasonable economic analysis and coordination with the local crush sector and processors, led to severe disruptions in the crushing and dehulling segments in the country, which both saw almost 40% drop in total processed volumes, both for oil and hulled seeds, mainly due the lack of adequate supply of raw commodity in the country. This tight supply led to increased local competition on the sunseed markets, which supported some elevated prices across Ukraine, Romania, Moldova and Turkey region also as the Bulgarian industry is a heavy buyer of the commodity. Normally, Bulgaria needs almost up to 1.8MMT of sunseed imports to cover its local crush capacity which was heavily developed during the last 15 years. This decision and the lack of clarity and communication between the government and local producers caused huge uncertainty for the farmers, which started to hold positions and further squeeze the local supply, putting pressure on locals to cash out and supply money for their next marketing season. Danube flows were also very restricted due to the lack of adequate logistical coverage from August to November, coming from the increased demand for barges to ship out of Ukraine to Constanta port and also the challenging levels of the Danube stream, which achieved to restrict for around two months the normal form, both up and downstream. 

Bulgarian oilseed processing sector has the huge opportunity in the upcoming years to extend in other oilseed processing, as the EU is on the way to implementing its EU protein strategy along with wit which will boost the incentives for local and regionalized production and processing of protein cultures, as soybeans and peas, as Bulgaria already saw some increased investment activities in those segments and current oilseed processors.

INFRASTRUCTURE GAPS FILLED IN BY PRIVATE CAPITAL 

On the infrastructure side, the Bulgarian government is surely not doing enough to fully utilize the available opportunities that were unlocked after the Ukraine conflict started. Lagging substantially behind Romania and Poland which both were able to negotiate quite substantial amounts for infrastructure spending for their port and logistics operations, Bulgaria is still lagging behind on this trend and the government ports of Varna and Burgas, along with the Danube river port and terminals, are not supported enough, so they can meet the growing need of export infrastructure in the country. Despite that, private capitals are very active in the infrastructure spending and projects of new export and operations facilities – both marine and river. The sector saw quite intense investment activities in the last 7 years in the grain storage and drying facilities, along with extended operational facilities for logistical handling and extension and modernization of grain infrastructure within the country. All this gave quite good incentives for farmers to extend operations and to be more present in grain trading and hedging activities.