BiWeekly Update on UA - Midterm
Today the next three cargo ships left the port of Odesa with Ukrainian corn. Totaling 57 000 m.t. unofficial info says it is corn from the biggest Ukrainian holdings.
Earlier this week the first UA load of grain on the board of the ship Razoni arrived in Istanbul and was inspected by all the sides who are entitled to do so by the agreement. The ship departed port of Odesa and is howling 26000 m.t. of corn to Lebanon.
The remaining ~13 ships, which have been stuck in the ports since the beginning of the war, are expected to do the same soon. All they need to do is to register in the Coordination Council in Istanbul. Like the first ship, every next one will be accompanied by the caravan of military security.
20 mln m.t. of grain is currently stored at the farms; that to be added to the volume already in the ports. About 30% or 12 mln m.t. of the winter crops from 2021 are already harvested.
If the season is finished as expected, the new season will add another 50 mln m.t.
With the current export capacity, which excludes sea ports, we will need three years to export all that volume.
With so many difficulties and prolonged procedures, which include inspection of every vessel, it is very difficult to ensure a constant flow of UA produce to the world markets
The Danube river ports have increased their monthly capacity to 1.3 mln m.t., which is 3.7 times higher than in June. The total export capacity in July resulted in 3 mln m.t., compared to 2.2 mln m.t. in June.
Due to lower expected yields in Europe because of drought we do not expect competition from the flow of produce towards the ports from European farmers.
Compared to the previous year’s record harvested volume of over 100 mln m.t. of grain, oil seeds and legumes, this year we do not expect to be able to harvest more than 55-60 mln m.t. total. The domestic yearly consumption is about 20 mln m.t. in Ukraine.
However, the drought has touched upon Odesa and southern part of Vinnytsia oblasts, creating additional obstacles for the full-scale fall planting season.
With substantial losses in grain elevators and terminals as well as new harvest coming, we expect shortage in storage capacities for ag crops this fall.
As alternative storage solutions, grain tunnels and big bags are brought into the country by subsidizing programs. The price for purchasing these systems is subsidized, so additional costs to the price of commodities are not expected. Eg. Canada and FAO are providing $40 mln towards this cause. Each of the tunnel bags can hold 250 m.t. of grain and is worth about $1000.
The price for the commodities at the domestic market is not going to be changed radically, but it might cross the break-even point in the nearest future. Eg: On average between all the commodities the costs of production of 1 m.t. of produce equals 5000-6000 UAH; however, now it can be sold for only 3000-4000 UAH
Once the ports start working on a constant basis, the demand for ag commodities between traders will level up the overwhelming supply, thus resulting in the price approaching to the world one.
Out of the world price of $360, Ukrainian ag producer loses at least $200 for logistics.
An important additional pressure to the price is the insurance of sea transportation through the safety corridors.
The wheat futures for September have reduced for 2,4% on CBOT once the news about the ship leaving the port of Odesa was published.
The FAO Food Price Index from the United Nations averaged 154.2 points in June, up by 23% from the year-ago period.
Sources:
UkrInform – Interview with Denys Marchuk, vice head of Ukrainian Agricultural Council
