CURRENT GRAIN MARKET SITUATION:

CHALLENGES AND SPECIFICS

Guljahan Kurbanova,

Economist

FAO UN

Regional Office for Europe and Central Asia

Budapest, Hungary

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..........................................................................................October 16-17, 2012, Kiev

OUTLINE

Current Situation

Challenges and Driving Forces

Regional Specifics

Ukraine as a player in the global and

regional markets

Conclusions and recommendations

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МАКРОЭКОНОМИЧЕСКИЕ УСЛОВИЯ

Темпы роста мировой экономики понижены с 2.5 до 2.3 %в 2012 и с 3 до 2.5% в 2013, рост концентрируется в растущих экономиках

Замедление роста численности населения в течение следующих десяти лет

Рост урбанизации и устойчивый рост доходов (Китай, Индия, страны Латинской Aмерики) стимулируют спрос на продовольствие и сельскохозяйственные товары

Aктивизируется участие и конкуреннтоноспособность менее затратных стран (Аргентина, Бразилия, Россия? и Украина)

Долговой кризис Европы, бюджетный дефицит США, проблемы банковского сектора Китая оказывают давление на

а) мировую торговлю

б) продовольственные цены в связи с сокращением производства

в) колебание курса валют

г) цены на нефть

3 *World Bank, www.worldbank.org; IMF, www.imf.org

MACROECONOMIC CONDITIONS

Slowdown of the world economy growth: downward from 2.5 % to

2.3 % in 2012; from 3 to 2.5 % in 2013* with concentration in

emerging markets

Over the next decade world population growth is expected to slow

Increasing trend on urbanization and strong income growth in China,

India and Latin America stimulating demand for food products,

and agricultural commodities

In the export market: expected an expansion of low-cost exporters

such as Argentina, Brazil, Ukraine, and Russia ?

Concern on debt crisis in Europe, budget deficit in the USA,

problems of the banking sector in China

Impact on the world trade

Pressure on food prices due to shortfalls in the production

Exchange rates fluctuation

Energy prices

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*World Bank, www.worldbank.org

IMF, www.imf.org

CURRENT SITUATION: CEREAL MARKET (1)

Global cereal production in 2012: 2.6 % down from the previous year’s record crop, close to the second largest in 2008

Further tighten supplies in 2012/13

Wheat

Demand for wheat is driven by food use (72% of all wheat) and global wheat imports are on increase

Coarse grains

Coarse grain prices are likely to be boosted by increasing demand for feed and ethanol production.

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Current situation: Cereal Market (3)

MAIN TRENDS IN SUPPLY AND DEMAND (1)

Decline of cereal stocks:

cereal stock-to-use ratio: 20.7 % in 2012/13

22.8% in 2011/12

19.2% in 2007/08

wheat stock-to-use ratio: 24.8 % in 2012/13

28.1% in 2011/12

21.9% in 2007/08

coarse grains stock-to-use ratio : 13.1 %in 2012/13

22.1% in 2011/12

rice stock-to-use ratio: 34.5%, or 10 % higher than in 2007/08 (24.5 %)

Wheat export availabilities are anticipated to be sufficient for the reduced world import

requirements (a decline from the Black Sea region to be covered by North America and the

EU.

The world cereal trade contraction is expected by 4.8 percent (291million tonnes) on

account of falling wheat and maize flows:

a weakening of import demand due expanded production in importing countries

high international prices

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MAIN TRENDS IN SUPPLY AND DEMAND (2)

Wheat crops in 2013 are encouraging with wheat planting in the northern hemisphere under generally favorable weather conditions

Stagnation of cereal utilization in 2012/13 on reduced industrial use

The decline in maize consumption due to anticipated contraction in industrial usage of maize

World rice utilization is set to increase by 1.2 percent to 474 million tonnes, resulting in stable per caput food consumption

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FAO FOOD PRICE INDEXES

The FAO Food Price Index:

216 points in September

2012, up 3 points (1.4

percent) from August due to

increase of dairy, meat, and

cereal prices.

The FAO Cereal Price Index: 262 points in September, up 2 points (1 percent) from August as small gains in wheat and rice offset a decline in maize. It is up 7 percent y/y basis;

4 percent below the peak of 274 points registered in April 2008.

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CEREAL PRICES: CIS & WORLD *

Wheat: $/t- 372

Change: (1 mth, 1 yr) +3%

+13%

Peak: March 2008 - $482

Maize: $/t -323

Change: (1 mth, 1 yr) -2%,

+8%

Peak: July 2012- $ 330

Rice: $/t 602

Change: (1 mth 1 yr) +3%

-3%

Peak: May 2008- $963 10

Source: GIEWS Global Food Price Monitor, October 2012

REGIONAL CEREAL PRODUCTION

CIS plus Georgia: a decline around 24-25 %: Russia’s wheat output is down some 30 % from 2011

Ukraine - a decrease of about 33 % from 2011

Kazakhstan’s cereal output is to be just half of last year’s good level

EU: the aggregate output is down by 2.6 % (in some central and southeastern countries)

In the other Asian sub-regions: record crops have been gathered in the Far East, namely, China and India;

in the Near East – mixed results: good crops in Afghanistan and the Islamic Republic of Iran; outputs were down elsewhere ( dry conditions and/or civil disturbances)

In North Africa the 2012 harvest results mixed: production recovered in Algeria, sharply reduced in Morocco due to dry conditions

In South America: the aggregate wheat production is forecast 12 % down from the previous year and below average

In Oceania, prospects for the wheat crop: mixed in Australia; overall output is forecast down by about 24 % from last year’s record crop

In the United States, this year’s wheat production – up by 13.4% to an above-average level of 61.7 million tonnes. In Canada, output is up above average and almost 7 % higher than in 2011.

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VOLATILITY: PRODUCTION, YIELDS, AND EXPORTS IN THE

SELECTED COUNTRIES OF THE REGION

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0

10000

20000

30000

40000

50000

60000

Production

Yields

Export

Ukraine

0

5 000

10 000

15 000

20 000

25 000

30 000

Produciton

Yields

Exports

0

20 000

40 000

60 000

80 000

100 000

120 000

Production

Yields

Exports

0

5 000

10 000

15 000

20 000

25 000

30 000

Kazakhstan

Russia

Ukraine

Russia

UKRAINE: KEY FACTORS OF PRODUCTION AND EXPORT

Favorable factors for production and export

Agricultural machinery fleet replaced

Agrochemical technology improved

Micronutrient fertilizers along with traditional mineral fertilizers used

New innovation technologies implemented (No-till or zero-till technology)

Private investments in infrastructure

Problems

Strong dependency on weather conditions

Agricultural producers are not able to forecast due to risks of uncertainty

application of innovation technologies not fully used by all farmers and regions

crop insurance system is still weak

political decision limiting the sale of the produced products

quality of wheat or maize

Logistics

Geography of wheat export by regions

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26%, Africa

46%, Asia

20% EU

1% CIS 7%.

others

Africa

Asia

EU-27

CIS

Others

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CHALLENGES AND OPPORTUNITY

1. Challenges

Uncertainty and volatility of yields and production

Contradictions between short term and long term

policies and excessive state interventions

Disorganized market

2. Opportunities

higher prices can increase cereal production and

improve an access…

Strong demand outside

if policy actions do not create

market distortions

PRIORITY TARGETS FOR REGIONAL CEREAL

MARKETS

Notification on trade policy changes in advance

Development of regional market information and knowledge sharing system

Provision of stable export by:

Setting up joint infrastructural facility

Developing routes (especially for grain) for the reduction of the costs

Creating joint market place for grain trade based on transparency and mutual agreed rules (partnership)

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Transparency and Rational Policies.

Challenges

Role of

government

International

Considerations

Role of Producers

and Traders

Market trends

and

information

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THANK YOU FOR ATTENTION!