Sergey Feofilov: Comments on spring planting and price expectations

Traditional weekly interview with Sergey Feofilov, Director General of UkrAgroConsult, on the latest grain and oilseed market trends

UkrAgroConsult: What is the impact of the quarantine on planting in Ukraine? Are there enough resources for the entire set of operations and for a good crop in 2020?

Sergey Feofilov: Hello to everybody- be healthy and wealthy!

I am pretty sure the uncertainty right now still dominates all the markets, both global and regional ones. Quite clear it is seen in Ukraine with all those Government hesitations about emergency measures and deficit of their strong position for a long time. Yes, the Government needs to take care to escape from a labor shortage in the food industry; the money costs together with consumers’ spending are unclear; slowdown in logistics operations is unacceptable, but how to hit all these?

Anyway, the spring plantings started very well in all the regions of Ukraine. The rates are roughly as fast as last year, even slightly ahead of 2019, despite or owing to the early arrival of spring.

Availability of imported inputs is very essential for the plantings. Good news - key inputs were brought to Ukraine and purchased by farmers before the quarantine and hryvnia devaluated started. The negative impact on prime production costs is minimal as for now.

A positive is also that corn seeds are produced mostly within Ukraine. It is corn that will contribute the most for the spring planted area expansion.

Almost the same picture is in the plant protection segment: all needed products have been imported – but perhaps their line will be narrower than expected.

Another factors are playing in fuel market. Fuel supply is sufficient, the key intrigue is the price level. Fuel prices are expected to drop following the crude oil slump. On the other hand, fuel sellers seek to stabilize prices as UAH devaluation and a possible decline in supplies.

UkrAgroConsult: What are the forecasts for the grain crop and exports?

Sergey Feofilov: As a rule, March crop estimates varies greatly: currently from 67 to 75 MMT. UkrAgroConsult forecasts the 2020 crop will be lower than in 2019: 72-73 MMT of grains (50-51 MMT of exports) against last season’s 74.6 MMT (54-55 MMT of exports).

Moisture shortages in the south of Ukraine may keep wheat yield from reaching last year’s near-record level. We confirm our forecast even after recent snowfall. Meteorologists say no precipitation is likely to arrive in key growing regions until the end of March-early April.

Nevertheless, wheat yield will be at the three-year average. Traditionally, precipitation (or its absence) in April-May will force adjusting the forecast.

The early arrival of spring is a very important factor requiring thorough monitoring. In 2008 and 2013, the early onset of warmth provoked yield hikes – something of this kind may significantly modify Ukrainian and the Black Sea wheat S/D for next season.

The share of barley in spring plantings is expected to shrink in favor of corn. For most of the 2019/20 season, corn looked much more profitable. However, following the crude oil price decline and the decrease in corn demand from the bioethanol industry, the corn advantageous are no longer so evident now.

UkrAgroConsult: What might be expected in the grain and oilseed price behavior after harvest and later in the fall?

Sergey Feofilov: In fact, this question is about forward contracts and is vitally important for farmers: when to sell their grains – now (and fixing the price) or in 4-6 weeks? And I suppose is never answered properly.

We would advise to take into consideration uncertainty in both grain demand and supply – too many factors will change for the next 6-8 weeks.

The situation as of today: wheat sales have recovered, traders and exporters are receiving calls from farmers. The reasons include growth in FOB values and hryvnia devaluation.

We are sure that wheat prices keep climbing in the near term. In view of the coronavirus, demand for flour and groats has risen not only in Ukraine. Domestic demand in European and African countries is up as well. On the other hand, international logistics face problems. For instance, vessels visited Italian ports must be quarantined for two weeks. This reduces freight availability, hampering spot deliveries to the very Africa, and pushes prices up.

Pressure of fundamentals is also on the rise. U.S. winter wheat plantings are lower, crop conditions in Europe are relatively worse than averages. The interest in Black Sea wheat outlook is increasing, this might be long term trend. UkrAgroConsult thoroughly monitors global and regional wheat S/D.

A different situation is in the corn market, where prices are in many ways tied to crude oil values, indirectly through ethanol/biofuels. Next year Ukraine may expand corn acreage, but U.S. farmers are going to do the same. So what conclusions anyone might make considering these intentions?  Especially if crude oil remains cheap. A very similar situation was in barley market two years ago: strong prices promoted growing supply while market capacity/demand remained stable.

Thanks for your attention! We are waiting for your questions and suggestions.