Bloomberg News

Ukraine Corn Exports Surge Capping Price Rally as U.S. Bakes

September 02, 2011

(Updates prices in the fourth paragraph.)

Sept. 2 (Bloomberg) -- Corn exports from Ukraine will almost double in the 12 months from July 1, easing a shortage of the grain and capping a 67 percent price rally in the past year as heat erodes prospects for the U.S. crop, the world’s biggest.

Ukraine is poised to overtake Brazil as the third-largest corn exporter after the U.S. and Argentina, shipping abroad 9.25 million metric tons of the grain this season, 81 percent more than last year, according to the median estimate of 10 analysts and traders surveyed by Bloomberg News. Ukraine exported 5.1 million tons of corn in 2010-11, making it the fourth-biggest supplier, according to the International Grains Council.

“The market hasn’t priced in yet the coming crop in Ukraine, which would be a record high,” said Pierre Begoc, general director of the Kiev branch of Agritel, a Paris-based consultant to 2,000 farmers. “Once we get closer to the harvest, with confirmation of this potential yield in Ukraine, it could limit the upside of the U.S. corn, if there is any upside left.”

Corn prices surged as U.S. crop conditions fell to the lowest level since 2005 after the hottest summer since 1955 in Iowa and Illinois. Corn for December delivery climbed 22.25 cents, or 3 percent, to $7.6075 a bushel by 4:25 p.m. London time on the Chicago Board of Trade.

Crop Size

Ukraine’s corn crop will come to 16.8 million tons this season after farmers planted more seeds and favorable weather boosted yields, according to the median of 12 estimates in the Bloomberg survey. Last year’s 11.9 million tons is Ukraine’s record, according to the national State Statistics Office.

About 54 percent of the U.S. crop was in good or excellent condition as of Aug. 28, the lowest for any week since September 2005, according to the government data. Corn crops continue to be affected by dry weather in the Midwest, the U.S.’s largest growing region, with rains below normal, Telvent DTN Inc. said in a bulletin on Aug. 30.

U.S. corn exports will be 45 million tons this season, the IGC said last month, lowering its estimate from 49 million tons in July. The estimate for Ukraine’s exports was raised by 1 million tons to 8 million tons in the IGC report.

Corn production in the U.S. may total 328 million tons, 4.1 percent below its July estimate, the U.S. Department of Agriculture said Aug. 11. Rabobank International forecasts a 18.7 million-ton global shortage this season.

Pricing in Ukraine

“The corn market potentially wouldn’t be as tight as many people think,” said Peter Biermann, general manager of export operations at grain trader Aston FFI in Lausanne, Switzerland, who forecasts exports may be as high as 14 million tons.

“The market isn’t pricing in Ukraine yet, and there is a good corn crop in Romania, too. These two suppliers can absorb a lot of demand which normally goes to the U.S. and South America.”

Romania may export about 1.7 million tons of corn in the current marketing year, while Russian deliveries may be about 850,000 tons, and sales from Ukraine 9.6 million tons, according to Kiev-based agriculture researcher UkrAgroConsult. Additional supplies from the Black Sea region may meet demand from Egypt and north Africa, Biermann said.

Ukraine’s Agriculture Ministry estimates the corn harvest at 18 million to 20 million tons.

‘Very Favorable’ Conditions

“Conditions are very favorable for corn this year,” Anatoliy Rozgon, head of the ministry’s agriculture markets department, said by phone yesterday. “The main concern is that rains do not affect harvesting and quality, while there are also issues with drying, storing and exporting the grain.”

While a 20 million-ton crop allows for 12 million tons of exportable surplus, the country’s tax on exports may undercut sales, according to Nikolay Vernitsky, director of the Kiev- based agriculture researcher ProAgro. Ukraine started taxing its grain exports on July 1 to boost budget revenues by $220 million this year. The tax, 12 percent for corn, 9 percent for wheat and 14 percent for barley, is in force through Dec. 31. Ukrainian grain exports fell to a record in July.

Still, with prices for the new crop in Ukraine expected to be about 25 percent below global levels, exports will be profitable even with the government’s 12 percent tax, according to Vernitsky.

Corn in Ukraine is usually harvested from late August through the end of September. With silos filled by wheat and barley harvested earlier, storage for corn will be limited, forcing exports early in the season, according to Agritel’s Begoc.

“With the corn coming in, there won’t be enough storing and drying capacity for corn, which means we are going to get a lot of corn on the market during the harvest,” Begoc said. “There is no time to lose to export in Ukraine.”

-- Editors: Sharon Lindores, Dan Weeks

To contact the reporters on this story: Kateryna Choursina in Kiev at kchoursina@bloomberg.net; Maria Kolesnikova in London at mkolesnikova@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.


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