Corn To Drive Long-Term Export Growth

BMI view: We see downside risks to our 2013/14 wheat production forecast for Ukraine as heavy rains across most of the country substantially delayed the harvest. On the other hand, we maintain our corn production forecast at 24.0mn tonnes in 2013/14 (another record), which will push grain exports higher, in spite of disappointing wheat output. This will limit the ongoing decline in the tonnage volume out of the country's main ports. Over the long term, we expect throughput and the value of the country's agricultural exports to improve significantly.

We see downside risks to our 2013/14 wheat production forecast for Ukraine as heavy rains across most of the country substantially delayed the harvest. We forecast wheat production to rise to 19.5mn tonnes in 2013/14, from 15.7mn tonnes in 2012/13. However, local industry sources are now concerned that production will fail to reach 15-16mn tonnes unless the harvest gathers pace very quickly over the coming weeks, and provided the damage made to the crop is only minimal. A recent shift in the weather towards warm and drier spells in October have given hope that an acceleration in the harvest could limit losses for 2013/14, but uncertainty remains over the actual production growth potential for the wheat crop this season.

We maintain our corn production forecast at 24.0mn tonnes in 2013/14 as we believe recent weather patterns could be actually beneficial to the corn harvest, which occurs later in the year than the wheat harvest (from September instead of from June). Our 2013/14 corn forecast implies a 14.0% increase in output on the 2012/13 level, which was already at a record high. We have revised up our long-term forecasts for the country's corn production and now expect output to grow to 25.4mn tonnes by 2016/17. This will come from increased investment in the crop, especially from large seed manufacturers such as Monsanto, which announced plans to pump US$150mn into building a seed production facility, and Dupont Pioneer, which started production at a US$40mn seed plant. This will ensure continuous progress in yields, as Ukrainian yields are still lower than other large producers (at 6.0tonne/ha, compared to 9.75tonne/ha for the US).

More Room For Yield Increase
Ukraine - Corn Area Harvested ('000 ha) LHS & Yields (tonne/ha)

BMI view: We see downside risks to our 2013/14 wheat production forecast for Ukraine as heavy rains across most of the country substantially delayed the harvest. On the other hand, we maintain our corn production forecast at 24.0mn tonnes in 2013/14 (another record), which will push grain exports higher, in spite of disappointing wheat output. This will limit the ongoing decline in the tonnage volume out of the country's main ports. Over the long term, we expect throughput and the value of the country's agricultural exports to improve significantly.

We see downside risks to our 2013/14 wheat production forecast for Ukraine as heavy rains across most of the country substantially delayed the harvest. We forecast wheat production to rise to 19.5mn tonnes in 2013/14, from 15.7mn tonnes in 2012/13. However, local industry sources are now concerned that production will fail to reach 15-16mn tonnes unless the harvest gathers pace very quickly over the coming weeks, and provided the damage made to the crop is only minimal. A recent shift in the weather towards warm and drier spells in October have given hope that an acceleration in the harvest could limit losses for 2013/14, but uncertainty remains over the actual production growth potential for the wheat crop this season.

More Room For Yield Increase
Ukraine - Corn Area Harvested ('000 ha) LHS & Yields (tonne/ha)

We maintain our corn production forecast at 24.0mn tonnes in 2013/14 as we believe recent weather patterns could be actually beneficial to the corn harvest, which occurs later in the year than the wheat harvest (from September instead of from June). Our 2013/14 corn forecast implies a 14.0% increase in output on the 2012/13 level, which was already at a record high. We have revised up our long-term forecasts for the country's corn production and now expect output to grow to 25.4mn tonnes by 2016/17. This will come from increased investment in the crop, especially from large seed manufacturers such as Monsanto, which announced plans to pump US$150mn into building a seed production facility, and Dupont Pioneer, which started production at a US$40mn seed plant. This will ensure continuous progress in yields, as Ukrainian yields are still lower than other large producers (at 6.0tonne/ha, compared to 9.75tonne/ha for the US).

Even with potentially lower wheat exports than currently expected, we expect overall grain exports to rebound year-on-year (y-o-y) driven by higher corn output and strong global corn demand. In fact, even with wheat exports at 9-10mn tonnes in 2013/14, total grain exports (including corn and wheat) are expected to reach around 27-28.0mn tonnes that season, compared to 19.6mn tonnes in 2012/13.

Collapse Behind Us
S&P GSCI Grains Index (weekly)

This will limit the ongoing decline in tonnage volume out of the country's main seaports in the coming months. In January-July 2013, total tonnage volumes at Ukraine's seaports declined by 6.8% y-o-y, corresponding to the lower grain output in the country (especially for wheat) and the supply trough in the run up to the 2013/14 harvest starting in July. For 2013 overall, BMI's shipping team anticipates that total tonnage volumes at the country's largest seaports (of Illichivsk and Odessa) will decline by an average of 11.0% y-o-y. This number will be dragged down by the drop in throughput at the country's largest port of Odessa to (decline in total tonnage at Odessa was recorded at 21.6%, implying a much smaller slowdown at Illichivsk, for which latest data is unavailable) as well as by a recent decision from Kazakhstan to transit of its crude and oil products cargos to Russian ports, away from Ukrainian facilities.

More Growth To Come
Ukraine - Agriculture Exports (US$mn)

Over the medium term, we expect investment in grain terminals at both ports, and especially at Illichivsk, will boost the share of grains (and especially corn) in the country's total throughput out to 2016/17. Our Shipping team forecasts total throughput at the country's largest ports to increase by 14.5% between 2013 and 2018. Also, our view for grain prices to steady and potentially rebound in the near term, after massive losses over the past months, will continue to encourage production and to boost the value of Ukraine's agricultural exports, that we forecast to reach US$5.5bn in 2018, compared to US$3.9bn in 2013.

Ukraine Wheat Production & Consumption
2012 2013 2014f 2015f 2016f 2017f
Notes: e BMI estimates. f BMI forecasts. Sources: 1 USDA.
Wheat Production, '000 tonnes 1 22,300.0 15,760.0 19,500.0 20,475.0 21,642.1 22,226.4
Wheat Consumption, '000 tonnes 1 14,950.0 e 11,960.0 f 11,601.2 12,761.3 13,386.6 13,962.2
Ukraine Corn Production & Consumption
2012 2013 2014f 2015f 2016f 2017f
Notes: e BMI estimates. f BMI forecasts. Sources: 1 USDA.
Corn Production, '000 tonnes 1 22,840.0 21,000.0 24,000.0 24,480.0 24,969.6 25,469.0
Corn Consumption, '000 tonnes 1 7,800.0 e 7,683.0 f 8,144.0 8,152.1 8,160.3 8,168.4

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This article is tagged to:
Sector: Agribusiness, Shipping
Geography: Ukraine, Ukraine, Ukraine, Ukraine
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