Ukrainian market of soybeans in 2017/18 MY — severe competition rates

Source

APK-Inform

1360

The first half of 2017/18 MY for the Ukrainian market of soybeans was rather dynamic. In terms of reducing of the supply, traders and processors undertook severe competition struggle for the raw materials base that contributed to the record growth of the export and processing volumes. At the same time, the unexpected decision of the Verkhovna Rada of Ukraine to cancel the VAT refund for soybean exports also made its significant adjustments to the operation in the Ukrainian oilseed market segment.

 

Reduction of soybeans production in 2017

Due to rather good global prices, soybeans are quite popular among Ukrainian agrarians. For 10 previous years, the harvest volumes of soybeans continued steadily increasing, and in 2016 the figures reached record levels for all contemporary history of Ukraine. In 2017, Ukraine continued increasing the planted areas — up almost 7%, while the average yield decreased to 2.1 t/ha, as opposed to 2.34 t/ha in the previous season, due to adverse weather conditions. Due to lowering of the yield figures, and despite increasing of the planted areas, in the current season the general harvest of soybeans in Ukraine was estimated at 4 mln tonnes (down 9%). Nevertheless, it became the second largest harvest after the previous year record.

It should be noted that the estimation of the global soybean production also lowered to 340.9 mln tonnes (USDA), mainly due to Argentina. As a reminder, Ukraine took the 8th position in the global production of the oilseed.

 

Severe competition among traders and processors

Ukraine exports more than 60% of the produced soybean volumes, but after commissioning of new facilities for oilseed processing (Victor and K, Kirovohrad oblast, PE Agroprodservice, Ternopil oblast, LLC D-Mix, Lviv oblast), soybean processing volumes in Ukraine also continue growing. In the current season, the forecast of soybean processing totals 1.25 mln tonnes, up 8.6% compared with the figures in 2016/17 MY, which will become a record. Therefore, in September-February period Ukrainian processing enterprises broke a record in soybeans processing — nearly 600 thsd tonnes, up 8% compared with the same period last season.

 

 

In addition, in the first half 2017/18 MY Ukraine changed its rating of soybean processors.

 

 

In the first half of 2017/18 MY, the company Mironivsky Hliboproduct (MHP) took the 1st position in the rating of the largest companies-processors of soybeans in Ukraine with the oilseed volumes of 134.3 thsd tonnes (hereinafter — APK-Inform estimations) at LLC Katerynopilsky Elevator, and moved Globino soybean processing plant to the second position. MHP increased its soybean processing capacities, due to the benefits of closed processing cycle at the enterprise.

In the reporting period, Globino soybean processing plant of the company Astarta processed 104.3 thsd tonnes and dropped to the second position in the rating of the largest processors of the oilseed in Ukraine.

Pology Oil Extraction Plant took the 3rd position in the rating, with soybean processing volumes in the first half of the current season at 78 thsd tonnes, up 2.4 times compared with last year.

The oil-pressing plant of the company PromTechAgroTorgStep took the 4th position in the rating with soybean volumes at 34.6 thsd tonnes, which almost corresponded to the last year's level.

In September-February, the company Protein Production took the 5th position, and processed 34 thsd tonnes of soybeans. The growth of soybean processing developed due to the give-and-take basis processing for another company in the reporting enterprise.

The oil-pressing plant of the company Thegra Ukraine LTD took the 6th position, and processed nearly 31 thsd tonnes of soybeans. It is worth noting that the company increased its processing volumes of soybeans compared with last season, despite the unfavourable price situation in the segment of soybean meal.

In the first half of the current season, the company Viktor and K took the 7th position, after launching of its oil-extraction plant for soybeans processing in November 2017. The processing volumes totaled almost 30 thsd tonnes. Taking into account that the nameplate capacities of the plant total 600 tonnes per day, there is a possibility of its further improving in the rating.

In the first half of 2017/18 MY, PJSC Vinnitsa oil seed crushing factory processed the oilseed for three months only, and managed to reach the 8th position in the rating, while the processed volumes totaled 15.5 thsd tonnes of soybeans.

Also, the TOP-10 of largest soybean processors included two oil-pressing companies — Vidrodzhennya and Yavir-Invest.

At the same time, the reporting rating can somewhat change by the end of the season. So, in the third ten-day period of March 2018 the company Oliyar (Lviv oblast) switched to soybean processing. Previously, the company mainly worked with rapeseed and sunflower seed processing.

 

Cancellation of the VAT on Ukrainian soybean exports

Despite the high demand rates for soybeans on the global market, in 2017/18 MY in Ukraine the forecast for the oilseed exports reduced to 2.45 mln tonnes (down 15.6%). The bearish trend mainly developed, due to a decline in soybeans production in the country. At the same time, in September-February of the current marketing year soybean exports from Ukraine reached a peak of 2 mln tonnes, up 5% compared with the previous record figures in the same period last season.

  

In the reporting period, the following countries became the main importers of Ukrainian soybeans: Turkey — more than 500 thsd tonnes (up 2% compared with last season), Iran — 310 thsd tonnes (down 17%), Egypt — 240 thsd tonnes (down 47%), the Netherlands — 190 thsd tonnes (no exports), Belarus — 154 thsd tonnes (up over 2.4 times). APK-Inform analysts forecasted a significant decline in the oilseed exports in the second half of the current season, due to active domestic processing of soybeans and high competition rates for oilseed raw materials between processing enterprises and exporters, which contributed to a rapid decline of the available stocks.

In early December 2017, the Verkhovna Rada of Ukraine voted for a draft law of Ukraine "On amendments to the Tax Code and some legislative acts to ensure the balance of budget revenues in 2018". The people's deputy of Ukraine V.V. Sidorchuk introduced the amendment #180 to the draft law, which provides cancellation of the budgetary repayment of the VAT on oilseed crops exports (soybeans, rapeseed and sunflower seed) since March 1, 2018.

As a result, large-scale traders on the Ukrainian export market of soybeans who kept large volumes of soybeans at grain elevators for its shipment on the foreign market in February-March, started actively selling the oilseed with much earlier delivery time — in December-January. Therefore, in January 2018 Ukraine demonstrated record soybean exports (up 44% compared with January 2017), which was atypical for the reporting period. At the same time, in terms of increasing of the oilseed supply the export market faced a bearish trend.

Agrarians and traders were outraged by adoption of the draft law, because soybean is one of the most profitable crops in the Ukrainian agriculture, and appealed to various branch associations with a request to cancel the decision of the Verkhovna Rada.

So, on December 21, 2017, the Ukrainian Parliament registered a draft law #7403-1, which proposes to resume the VAT refund on the exports of soybeans, rapeseed and sunflower seed since March 1, 2018. At the same time, in early January new regulations came into force in Ukraine providing cancellation of the budgetary compensation of value added tax in soybean exports — until September 1, 2018. The law "On amendments to the Tax Code of Ukraine and some legislative acts of Ukraine on ensuring the balance of budget revenues in 2018" was published on January 2 in the newspaper "Holos Ukrayiny", which is the official voice of the Verkhovna Rada.

Also, the people's deputies provided the draft law #7403-2 dd. December 29, 2017, which makes cancellation of all amendments. In March 2018, agrarians made several protest campaigns, demanding to make early consideration of the draft law 7403-2.

In turn, 16 oilseed processing enterprises sent a letter to the Government of Ukraine with an appeal to save changes made to the Tax Code of Ukraine, which allow domestic enterprises to temporarily work in the conditions ensuring the maximum processing rates of soybeans on the domestic market.

 

Global impact on the price dynamics

In the first half of 2017/18 MY, after reports of a severe drought in Argentina and significant reduction in the forecast of soybean production in the country (down nearly 16 mln tonnes, according to Oil World), there was observed a steady growth of soybean price quotations at the CBOT, which contributed to the upward price dynamics on the Ukrainian market of soybeans. For 7 months of 2017/18 MY, prices for Ukrainian soybeans increased by 15% — to 420 USD/t CPT. Ukrainian agrarians received a good opportunity to sell their crop at attractive prices with rather high margin.

 

Short- and long-term forecasts

According to APK-Inform figures, as of April 1 the carry-over stocks of soybeans in Ukraine totaled 1.1 mln tonnes, down 18% compared with the same date last season. The oilseed stocks declined due to the active export and processing rates in the first half of the current season. In the second half of 2017/18 MY, Ukraine will decrease the export rates, while the volumes of domestic processing will continue growing.

Next season, Ukraine will keep its significant potential in soybean processing, due to launching of new and existing multi-crop enterprises. Also, a number of processing enterprises which previously worked with sunflower seed, started seriously considering to moving to soybean processing in the new season. But if the draft law #7403-2, which provides the VAT refund on soybean exports, will again come into effect, it will reduce the attractiveness of the reporting plans.

At the same time, the VAT refund measures in the new season will support on expanding the planted areas under soybeans in 2018, taking into account the rising demand of the global market. In addition, market participants are monitoring developments in trade relations between the USA and China, because the possible imposition of the import limitations on the supply of US oilseeds to China may open a new market of soybeans and soybean meal.

 

Viktoria Zelenaya, APK-Inform Agency

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