As the corn-growing season approaches, a convergence of factors affecting the Ukrainian farming sector provides a case study in the complexity of world grain markets – and a reminder that on-the-ground promotion of U.S. commodities remains critical even when they are price-competitive.
Ukraine has increased its corn production over the past five years, becoming one of the top corn exporting countries. Last marking year, Ukraine exported 65 percent of its total corn production.
Following a year of political strife, however, the outlook for Ukrainian corn production is clouded, with the country projected to have the largest decline in its corn harvest since 2005. Production in Ukraine may fall as much as 19 percent to 23 million tons (905 million bushels), according to Daryna Kovalska, an analyst at Macquarie Group Ltd. in London.
The ongoing conflict with Russia has also contributed to the country’s high interest rates and a devalued currency, the hryvnia, which directly impact Ukrainian corn producers’ planting decisions.
To purchase inputs like fertilizers, pesticides and seeds, producers need to have large amounts of cash on hand. Soaring interest rates make borrowing costly and to have cash available for input purchases, Ukrainian farmers are selling their commodities at today’s prices in hryvnia rather than holding onto the grain as a hedge against currency devaluation. This translates into a lower FOB Odessa export price and higher exports of Ukrainian corn and wheat.
One export destination for Ukrainian corn is China, with sales based on a standing loan agreement between the two countries’ governments. This loan agreement is currently being renegotiated for the coming year and, according to Ukraine’s Food and Agriculture Minister Oleksiy Pavlenko, Ukraine wants a deal that could include a doubling in Ukrainian corn exports to China.
In turn, this will lead to less Ukraine corn available or priced at the levels to which buyers in the North African region have become accustomed, which will create opportunities for U.S. corn in the region.
“In recent years, Ukraine has been the main supplier of corn to the North African region,� said Cary Sifferath, U.S. Grains Council regional director of the Middle East and Africa.
“As Ukrainian corn continues to be exported to China, there will be a growing opportunity for other sources of corn, including the United States, in the North African region,� Sifferath said. “While U.S. corn will continue to receive competition from South American origin corn and other Black Sea producers, the region’s previous experiences with U.S. corn will help guide their decision making process in the coming year.�
As of March 5, the North African region had outstanding sales and accumulated exports of 1.2 million metric tons (47.2 million bushels) of U.S. corn, up from almost nothing just two years before.
“It’s not just price that causes that kind of shift, it’s the quality and reliability of the supply as well,� Sifferath said.
The Council’s previous work in the region and the current complexity have demonstrated the need to maintain a strong presence in this rapidly evolving market. Looking forward, the Council’s Middle East and Africa regional program in 2015 will focus on continuing the promotion of U.S coarse grains and co-product exports through both market education and customer servicing efforts.