June 8, 2010


Investors cautious over cut to Ukraine grain hopes



Ukraine talked down official forecasts for its grains crop just as leading private analysts added 1 million tonnes to their estimate for the harvest, prompting questions over the accuracy of data.


Ukraine's deputy farm minister Ivan Demchak said that a previous forecast of 46-48 million tonnes was possible if weather conditions are favourable. However, due to the recent poor weather conditions, the forecast is seen to be reduced to 44 million tonnes. Demchak noted that 900,000 hectares of winter crops were in poor shape.


The comments follow a warning two weeks ago by Viktor Slauta, Ukraine's deputy prime minister with responsibility for agriculture, that the wheat crop would fall by nearly 3 million tonnes to 18 million tonnes thanks largely to winterkill.


However, Monday's revision came as analysts lifted their forecast for Ukraine's grains crops to 45.3 million tonnes.


The revision by the Kiev-based consultancy reflected largely better prospects for wheat production which, following rains last month and decreased winterkill fears, looked on track to hit 19.1 million tonnes, 265,000 tonnes more than it had previously expected.


The divergence between official and private forecasts raised doubts among some investors, following concerns over recent downward revision to official grain forecasts in Black Sea states.


Rabobank last week reported that, in Black Sea states, while government figures are pointing to lower production, there is scepticism within the trade that winterkill figures and production declines are being inflated in order to support domestic prices and increase grower returns.


Analysts raised its forecast for the country's corn, of which Ukraine has become the northern hemisphere's second largest exporter after the US, saying the harvest would come in at 12.35 million tonnes.


The improvement of 650,000 tonnes reflected in part the early moisture for the spring-sown crop, but also its relatively low expense in Ukraine, where tight public finances have delayed repayment of some US$1 billion in VAT rebates to exporters, exacerbating in turn a cash squeeze on growers.


Meanwhile, corn will cost about UAH518 (US$65) per tonne to grow, compared with UAH746 (US$94) per tonne for wheat, according to the Ukraine Grain Association UZA.


Ukraine last week published a decree confirm it will repay the VAT through an issue of bonds, carrying a 5.5% coupon.