Ukraine's Agriculture Ministry announced on April 23 it was considering abolishing any limits on wheat exports in the current marketing year. This would potentially free up half a million metric tons of grain to be exported, bringing in much needed revenue to the cash-strapped country.
In 2012 Ukraine
harvested some 47 million tons of grains, broadly in line with historical
averages but considerably less than the 2011 bumper crop of almost 57 million
tons. One of the consequences was a memorandum capping wheat exports at 4.5
million tons, later increased to 6.6 million tons.
The ministry
argues that ample reserves now allow for an additional 0.5 million to be sold
by the end of the 2012/2013 marketing year on June 30, a commonly used schedule
for agrarian companies. This, however, will depend on the condition of the
winter wheat crop, which accounts for some 95 percent of Ukraine’s total wheat
output.
According to
Dragon Capital, this could potentially bring wheat exports to 6.8 million tons,
marking an increase of 31 percent on the previous year.
“Definitely its
positive news for agricultural companies,” said Alexander Paraschiy, head of
research at Kyiv-based investment bank Concorde Capital.
While a
cash-strapped budget is a major motivation, Paraschiy explained, the government
clearly calculated how much it could boost exports now without risking a
shortfall later in the year – and found stockpiles would be enough to cover the
additional 500,000 tons of exports. At current prices, this could go for
upwards of $110 million
“Of course, for
Ukraine now the key question is to maximize export revenue,” Paraschiy said,
adding that wheat market is one of the most promising options in this regard.
While most
commodity markets have seen prices fall substantively, driven by lower expected
growth this year, wheat at least is holding up for the moment.
The same cannot be
said about Ukraine’s economy. Particularly worrying, is the widening current
account deficit or excess of imports over exports. It stood at a record high
8.4 percent in 2012, exceeding even the 7.0 percent level of 2008, which
preceded a 15 percent GDP collapse, according to the World Bank.
The situation is
unlikely to get much better in 2013, with the World Bank forecasting another,
high 7.4 current account deficit. Meanwhile, the economy is in recession and
consumption is projected roughly flat this year.
“Ukraine is on the
brink of a balance of payments crisis,” London-based Capital Economics recently
wrote.
This has taken its
toll on Ukrainian companies, and not just within the country’s borders. On the
Warsaw Stock Exchange, which hosts most of Ukraine’s foreign listings,
agricultural companies took a serious hit last week.
The most
noticeable was sunflower oil producing giant Kernel – one of 20 biggest
companies on the Warsaw Stock Exchange – which brought the whole market down
with an almost 8 percent fall on Friday, April 19, following the publication of
disappointing results. This brough the stock’s weekly result down 18 percent.
According to
Paraschiy, this drop is much more than would be expected from a relatively
moderate downgrade of forecasted results. While Polish investors have had more
than a few scares over the past year, starting from auditing problems last year
to failure to seal a new loan deal with the International Monetary Fund more
recently, the current reaction is irrational.
“It’s not a normal
reaction, it’s a nervous reaction. Kernel is a very good company, they just
acquired some assets that will considerably improve their business,” he said.
Kyiv Post editor Jakub Parusinski can be
reached at [email protected], and on Twitter at @j_parus.
