Ukrainian agricultural market looks forward to the end of the war. At the same time, the market actively adapts itself to the changes. Total grain exports in the latter half of the 2022/23 season (January-June for wheat and January-August for corn) may reach 23 M mt. If so, the domestic grain stocks will decrease promoting upward correlation of the domestic grain prices, for wheat in the near term and for corn for May-June.
The world is changing. The war in Ukraine substantially adjusts the operation of not only the Black Sea grain market, but also the global one.
For instance, the global market has never before encountered such a grain pricing factor as the presence or absence of electricity in the Odesa port. The market seemed to already take into account the war factor and react much less to the events in Ukraine. However, mid-December showed that this was not the case. The missile attacks on the south of Ukraine again affected grain prices, confirming the importance of the Black Sea region for the global grain market.
December exports are roughly as high in November. 57 vessels carrying 1.65 M mt of agricultural products were sent through the grain corridor in the first half of December. A total 3-3.5 M mt will likely be exported in December, or a bit less than the October record of 4.1 M mt.
As of December 14, Ukraine had already shipped abroad some 60% of its estimated exportable wheat supplies. Nevertheless, wheat exports in December 2022 – March 2023 may reach 5-5.5 M mt. The domestic market is witnessing the first signs of a decline in supply and a looming rise in prices, especially for high quality wheat (12.5% protein). Now farmers prefer selling corn first because of high drying and storage costs. The share of corn in shipments through the grain corridor is gradually expanding, and this trend will intensify.
Corn export potential is much more uncertain than that of wheat. Despite a smaller corn harvest, high carryovers increase export potential up to 25-27 M mt of corn, of which just 30% has been shipped abroad by now.
Great export potential of Ukrainian corn, from one side, and considerable uncertainties, from another, are seen quite clearly if to compare UkrAgroConsult and USDA numbers. The December 2022 USDA estimation of Ukrainian corn exports is only 17 M mt. Possibly, the USDA considered much greater grain corridor’s risks, domestic corn consumption is also at high levels.
Anyway, by mid-December, 7-8 M mt of corn are left in the fields unharvested for weather and high harvesting costs. As these areas to be harvested in early 2023, the exportable supplies for December-August are estimated at 17-19 M mt of corn. What are logistics capacities to handle with such a volume?
The August-November 2022 data indicates corn exports at 2.2-2.5 M mt per month. The corn shipments were under pressure of competition with the export of other commodities of higher margins, such as the oilseed complex. If the above-mentioned export rates are stable at 2.2-2.5 M mt per month, corn exports for the next 7-8 months could reach 17-19 M mt. Another precondition for high exports is stable operation of the grain corridor, which accounts for some half the monthly exports. Otherwise, part of the corn may end up being carried over to next season.
In December, the grain corridor functioning arouses concerns. Over 80 vessels were waiting for inspection in the Bosphorus as of December 14. Remarkably, most of them were lined up to enter the Black Sea – this implies that grain loadings on vessels will be very slow in the coming 2-4 weeks. According to the market, it is necessary to inspect some 12 vessels per day, whereas just 3 are actually inspected.
Electricity outages also slow down the loading pace. However, thanks to the port and rescue services, the interruptions in the port operation are short and cause far fewer complaints than the work of the Bosphorus inspections.
Besides all mentioned, agricultural exports gradually grow with alternative exports outlets being more and more efficient. Ukraine will be able to export 3-3.5 M mt via the Danube ports, by rail and truck. Anyway, exporting through these outlets is usually more costly than shipping by sea. However, shorter payment delays for the delivered grain and the possibility to export small consignments of 100-500 MT result in fair margins of shipments through alternative corridors. For farmers in the western and central regions of Ukraine, exporting through the western land borders is more profitable than delivering the grain by rail/trucks to the Black Sea ports.
Ukrainian agricultural market looks forward to the end of the war. At the same time, the market actively adapts itself to the changes. Total grain exports in the latter half of the 2022/23 season (January-June for wheat and January-August for corn) may reach 23 M mt. If so, the domestic grain stocks will decrease promoting upward correlation of the domestic grain prices, for wheat in the near term and for corn for May-June.
The growth of the domestic grain prices / margins is essential for the 2023 grain production. Military actions are mainly in the eastern and southern regions of Ukraine, which are traditionally the main wheat producers. High risks have already reduced the winter wheat area to 4 M ha (-35% YoY). The increase in wheat prices came too late to encourage farmers in the western and central regions to expand wheat areas and to fill the gap of the declined production in the eastern and southern regions of Ukraine. The 2023 wheat harvest will be sufficient to meet both the domestic demand and export needs. However, decreasing wheat export flows from Ukraine will be replaced by alternative suppliers.
Now the 2023 corn areas/production are being decided, the corn area size in the 2023 spring is under consideration by farmers. The main corn producing regions are far from military risks. Farmers’ intentions on area distribution are determined by crop margins. Weak corn prices have already contributed to an unprecedentedly high share of unharvested fields. It means these unharvested areas will not be properly prepared for spring planting campaign, as responsible farmers usually do.
By now, UkrAgroConsult does not exclude the possible corn area cuts for the 2023 harvest. Corn prices/margins in the next 2-3 months may determine the total corn acreage.
Moreover, some areas may be left unsown. The main spring crops traditionally grown in Ukraine are barley, corn, sunflower and soybeans.
The spring barley attractiveness lies in the low cost technology and the rapid return on investment (4 months from sowing to harvest and marketing). However, in the 2023/24 season, exporters will have to intensify their search for new markets. Since 2015, Ukraine has been exporting an increasing share of barley to China, giving way to Russian barley to other markets, for example, the market of Saudi Arabia. And it will not be easy to come back to these markets again. At the same time, shipments to Southeast Asia, including China, are possible by large vessels, which are currently idle in lines in the Bosphorus. It increases the risks, delivery terms violations, and complicates logistics schemes.
European demand for corn is high, and this allows for farmers/traders to choose the transportation mode – to ship the corn by sea or by railway/trucks. However, there are still risks of lower European prices if European corn production recovers in 2023. High corn yields are achieved by the use of expensive agricultural technologies, the availability of such technologies in 2022 and 2023 in Ukraine is highly questionable. Low corn prices/margins can put farmers on the edge of bankruptcy.
Undoubtedly, small areas will be sown with niche crops, which are in good domestic demand. The main areas will be sown with oilseeds. In 2022, sunflower is the most profitable crop. Demand from domestic oil producers and exporters was strong, with a record high sunflower exports in 2022. Soybean and rapeseed oils and meals are in stable demand from the European market, too. In fact, it is oilseeds higher margins allowed farmers to finance the sowing and harvesting campaigns in 2022. Winter rapeseed area decreased to much less compared to the winter grain area, which confirms the intention of farmers to expand the oilseeds areas next spring.
As a conclusion, in the new 2023 we will face in Ukraine:
transition in farming practices from advance technology application to a cost reduction strategy
weather factor is not so important so far in favor of crops profitability in the area distribution
lack of long-term strategies - only short term steps.