Commodity trends for the season

Volodymyr Konovalchuk, Ph.D. Head of Consulting, Co-founder, Bridges

Content

Global trends and position of Ukraine in international food markets

Commodity trends for the season: wheat, rye, corn, barley, soybeans, sunflowers

Agricultural policy issues and ways to improve

Global trends and position of international food markets

Developments in world food markets

• Higher demand: - Diet changes due to income growth – more meat, especially in

developing countries - Population growth - Expansion of biofuels production

• Inadequate supply: - Bad weather - Exporter policies (export quotas and other trade restrictions) - Competition for agricultural land - Increasing input (energy) prices - Agricultural land area is limited

Food prices are likely to increase in the future: Demand and supply are the major forces determining prices

Total world grain & oilseeds:Future increase in food production can only be

achieved by increasing yields

Agribusiness: A Global Industry • North America, South America and Eastern Europe are key global

suppliers• Asia is expected to remain a major importer of agri-commodities• Africa and Middle East will continue to depend on grain imports

33 33

Soybean and Meal Exports

57

75

131

54

Soybean and Meal Exports

2612

Corn Exports

Corn Exports

2011 2016

(36)(38)

Soybean and Meal Imports

2416

Wheat Exports

(31)(37)

Wheat Imports

(8) (12)

Soybean Meal

Imports

(28)

(57)

Soybean Imports

(3)

4Corn

Exports

2011 2016

Exports

Imports

Regional Imports and Exports of Selected Agri-Commodities (in millions metric tons)

Position of Ukraine:Leading world wheat producers

Position of Ukraine: Leading world barley producers

Position of Ukraine: Leading world sunflower seed producers

Main Types of Farms/Ag Main Types of Farms/Ag Producers in UkraineProducers in Ukraine

Agricultural Enterprises and agro-holdings, Some farm up to 500,000 ha Legal & organization status: joint-stock companies, limited

liability companies, private enterprises, etc. Private family farms Average size 45 hectares (vary from 2 hectares to 4,000

hectares), employ on average 5 workers Legal status: a private family-run ag. business/enterpriseSmall land plot holders Land shares received by former collective farm workers Average land share size is 4 hectares (varies from 1 to 8

hectares depending on region) Most of land plots are rented out to bigger agricultural

producers.

Present Environment in UkrainePresent Environment in Ukraine

Land of former collective farms was distributed among its members. Each member received “share” (or plot) of land that varied in size depending on the region. Average share size is 4 ha (or about 9-10 acres)

Currently there is a land sales ban (moratorium), so owners of land plots can not legally sell them.

The main method of agricultural land distribution is rent. Farmers and agricultural companies rent land from multiple plot owners.

Rent payments range between $20-60/hectare/year depending on the region

as of January, 2011

NUMBER OF PRIVATE FARMS BY OBLASTS

Odesa vs Ivano-Frankivsk oblast

Area of cultivated land is 4,1 times greater in OdesaThere are 13 time more private farmers in Odesa oblast.

Farm size is almost the same – about 40 ha

COMMODITY TRENDS FOR THE SEASON IN UKRAINE: WHEAT, RYE, CORN, BARLEY, SOYBEANS,

SUNFLOWERS

AREA PLANTED UNDER GRAINS AND LEGUMES IN UKRAINE FOR SUMMER 2012 CROP

Wheat supply and demand

Units: 1000 tons; yield: tons/haSource: USDA/FAS

Barley supply and demand

Units: 1000 tons; yield: tons/haSource: USDA/FAS

Marketing Year 2011/2012

(begins July 2011)

Marketing Year 2012/2013

(begins July 2012)

Area Harvested 3,684 3,300 Beginning Stocks 794 1,122 Production 9,098 6,600 TY Imports 35 30 Total Supply 9,922 7,752 TY Exports 2,300 2,500 Total Consumption 6,300 4,800 Ending Stocks 1,122 752 Yield 2.47 2

Corn supply and demand

Units: 1000 tons; yield: tons/haSource: USDA/FAS

Marketing Year 2011/2012

(begins Oct 2011)

Marketing Year 2012/2013

(begins Oct 2012)

Area Harvested 3,544 4,720 Beginning Stocks 1,121 866 Production 22,500 21,000 TY Imports 45 50 Total Supply 23,666 21,916 TY Exports 15,000 14,000 Total Consumption 7,800 7,300 Ending Stocks 866 616 Yield 6.35 4.45

Rye supply and demand

Units: 1000 tons; yield: tons/haSource: USDA/FAS

Marketing Year 2011/2012

(begins July 2011)

Marketing Year 2012/2013

(begins July 2012)

Area Harvested 280 300 Beginning Stocks 174 114 Production 579 650 TY Imports 0 0 Total Supply 755 766 TY Exports 11 15 Total Consumption 630 630 Ending Stocks 114 121 Yield 2.07 2.17

Production Highlights: 2011 MY VS 2012 MY

Production of major grain crops in Ukraine (1000 tons)

22324

15000

9,098

6,600

650

2100022500

579.0

0

5000

10000

15000

20000

MY 2011/2012 MY 2012/2013

1000

to

ns

Corn Wheat Barley RyeNotes: Total grain crop this marketing year is expected to be about 45-46 million tons (vs 56.7 million tons last year); The average total grain crop during 2002-2011 was 39.8 million tons

GRAIN CROP PRICE TRENDS IN UKRAINE, USD/ton

OIL CROP PRICE TRENDS IN UKRAINE, USD/ton

World marketsWheat and Barley price trends

Chicago Board of trade, USD/ton

COMMODITY TRENDS FOR THE SEASON:SOME KEY POINTS

• The total grain crop in Ukraine is above average but lower than last year’s record crop

• High world market prices• Ukraine has accumulated significant ending stocks of major

crops that should allow the country to fully satisfy its domestic consumption needs and to have some exportable surplus

• Wheat and barley production in MY 2012/13 is projected to decline compared to last year, mainly due to winter kill and anticipated lower yields than last year

• Marketing Year 2012/13 may well be called the year of corn in Ukraine, which was gaining popularity in the country in the last several years

• Increase in corn production is mostly attributed to the need to replant large areas of lost or damaged wheat and barley and some favorable market conditions for corn.

• Large supplies of corn may result in lower corn prices later in the season

CORN PRODUCTION, YIELD, DOMESTIC CONSUMPTION AND EXPORT TRENDS

While Ukraine is important world agricultural player, productivity of agriculture in Ukraine

remains low

Russia

India

Ukraine

Canada

Romania

Brazil

Argentina

1.8 1.2

2.0 0.9

2.5 1.4

3.0 1.9

2.9 1.5

3.2 2.8

4.4 2.8

Kazakhstan

EU-25 4.9 2.6

USA 6.4 2.6

2.1 4.6China

Oil crop yields, t/haGrain yields, t/ha

Source: UNDP reports

Yield comparisons across countries

Agricultural policy issues and ways to improve Ukraine’s agriculture

SOME POLICY DEVELOPMENTS DURING THE LAST YEAR

• The Ministry of Agriculture agreed with the traders that they will export no more than 19.4 million tons of grain, which includes only about 4 million tons of wheat.• Because the export limit for wheat has almost been reached, the government announced wheat export ban beginning in mid November. • There is lack of grain transporting railroad cars in Ukraine. Possible restrictions for wheat exports worsened the situation.• Another policy change affected planting seeds market. Beginning in the fall 2011 State Customs Service started requiring GMO test results for every single shipment of planting seed. • In MY 2011/12, the government introduced grain export tariffs starting July 2011 that were later lifted.• In spring 2012, the government revived the idea of bio- ethanol production from agricultural crops. Draft legislation is considered for adoption.

Agricultural land sales ban (or moratorium) may be lifted in the future

What is going to happen? What will be the agricultural land price in Ukraine?

FORECASTED VALUE OF AGRICULTURAL LAND AFTER LIFTING THE LAND SALES BAN, UAH/HECTARE ($1=8 UAH)

After lifting the agricultural land sales ban expected value of

agricultural land in Ukraine will range $190-690/hectare

Challenges to achieve full potential for Ukrainian agriculture

Lack of working capital in agribusiness Lack of new technologies, inefficient land

use and input use, thus a lower productivity Poor supply chain logistics and

infrastructure Undeveloped farm credit system

How to exactly resolve these challenges?

Lift agricultural land sales moratorium (currently the major way of land re-distribution is lease).

Improve agricultural education Reduce government bureaucracy and

intervention (obey WTO rules, remove export quotas forever, reduce tariffs and other non-tariff barriers)

Enforce property rights and protect investors

Some of the most important measures include:

Thank you!