The first half of 2016/17 corn marketing year, which began in September has already showed some intermediate results. The last time we spoke to the corn market actors in December and since then many interesting things have happened. First of all, gross yield evaluation of grain in Ukraine has been updated – if two months ago we predicted 26 MMT of yield, then the February ProAgro forecast rose to 27.4 MMT. This is #3 result in terms of volume during the history of Ukraine – domestic farmers only gathered more in MY 2013/14 and MY 2014/15. The upward trend of Ukrainian corn in the current month has been also corrected by USDA. If before this estimate was at 27 MMT level, in the February report it increased to 28 MMT.
Growth of estimates occurred because despite the onset of winter, farmers maximized their opportunities in order to gather remained crops on the fields. Therefore, in the beginning of December there were around 600 thousand ha and up to 3 MMT of corn, which were needed additional crop harvesting operations, and then today we are talking about approximately 500 KMT.
Together with the increase in gross yield assessment and forecast of grain exports also increased in the current season. In particular, the USDA predicts 18.7 MMT, which in our opinion can exceed 19 MMT if exporters manage to keep their interests in Ukrainian corn market in the second half of the season.
Corn exports are progressing faster pace last season. According to ProAgro, in September-December Ukraine supplied abroad 6 298,6 KMT of grain, which is 10.1% more than in the same period in MY 2015/16. Last month, the export of corn amounted to 2.3 MMT against 1.7 MMT a year earlier (official data).
Shift in export direction – is the second biggest surprise of the season. The fact that China will significantly reduce corn purchases from abroad (which were a great part of Ukrainian export) became clear after the country accumulated stocks that exceeded its annual domestic production. However, the most interesting fact was that Iran – country, which was under international sanctions for quite a long time, overtook Chinese role in purchases of Ukrainian corn. So to say, China bought a small amount of corn in Ukraine last month but, according to market experts, volume of exports to China will not even get any close to the results of the previous years. Instead, Iran, the EU, Egypt and the Middle East are planning to increase their purchases of Ukrainian corn.
March outlook is characterized by increased competition from suppliers from Brazil and Argentina, where the first stage of grain harvesting has begun. Obviously, this will have an impact on the prices that will be lower than the current, so traders believe that it is time, when farmers might sell their existing stocks with benefit.
Another issue, which will have to be dealt with, is probable deterioration in the quality of corn, especially if households were not able to thoroughly dry it before the storage. In such cases, grain get affected by fungal diseases, then it is only suitable for cattle feed, or at worst – for the manufacture of alcohol and ethanol. According to officials as of 1 December 2016, households kept 7.7 MMT of corn, which they couldn’t or didn”t want to store in silos or elevators due to the lack of available capacities.
However, we do not believe that competition on the world market or internal risks will seriously affect the prospects for the second half of the corn season. In the standard case scenario, almost all amount of harvested corn will be sold on the world markets with only 2-2,3 MMT of remainder will be left unsold, which is quite usual situation for the last seasons.
