February 28, 2014


Ukraine crisis threatens grains output



Ukraine's grains harvest may fall short of official hopes, although the appointment of an interim government and pledges by IMF of conditional financial support, will resolve problems including a rise in grain export prices, as exporters remove risk premium and farmers resume crop sales, Macquarie Bank said.


Ukraine growers have hoarded grains during the political crisis as a dollar-denominated hedge against a tumbling Ukrainian Hryvnia (UAH), similar to practices by their Argentine peers. Last week, farmgate prices of corn -Ukraine's main crop export-rose by UAH100 a tonne, about US$11, with soybean values gaining UAH100-200 as farmers "fear exchange rate fluctuations" and withheld sales, Agritel said.


However, FOB prices of corn, Ukraine's main crop export, have "come back since the beginning of the week", analysis group Agritel said, falling up to US$6 a tonne to US$222 a tonne in Odessa.


Such trends, which have underpinned higher-than-expected export demand for US corn, "are mostly of a short-term nature", Macquarie Bank said.


The bank forecast Ukraine's grains output falling by nearly 16% to 44.5 million tonnes in 2014-15 - well below the 51.4 million tonnes that the agriculture ministry has forecast, and reflecting in particular a lower forecast for corn production.


Macquarie pegged the Ukraine corn crop this year at 25 million tonnes, 5.2 million tonnes below the farm ministry forecast, reflecting in part ideas of a return to average yields after "perfect weather" boosted last year's output.


Also, low international corn prices will reduce the appeal of the crop, and encourage farmers to plant spring sown oilseeds such as sunflowers, rapeseed and soybeans instead.


The bank warned the crisis would wreak longer-term damage to Ukraine agriculture through a weaker Ukrainian Hryvnia, which would lift the cost of imported fertilisers, such as potash, and agrichemicals. The country lacks potash reserves but does possess a substantial nitrogen fertiliser industry.


"In the short run, devaluation of the hryvnia has a positive impact on the competitiveness of Ukrainian origin agricultural crop exports in the international market. However, longer-term, we believe that rising production costs will offset this advantage… due to rising domestic inflation and the fact that the majority of crop protection, fertilisers and other inputs, along with machinery, are imported."


Furthermore, the financial pressures caused by Ukraine's crisis could limit the availability of state support for farmers and access to loans for the agri sector.

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