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Ukraine crisis poses long-term threat to farming

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Ukraine's political stability, for now, has not ended the fallout to agriculture markets from the unrest which prompted the ousting of President Viktor Yanukovych, Macquarie said, forecasting that the country's grains harvest may fall well short of official hopes.

The appointment of an interim government in Ukraine, and pledges by the likes of the International Monetary Fund of conditional financial support, will resolve problems such as a rise in grain export prices, as exporters remove risk premium and farmers resume crop sales, Macquarie said.

Ukraine growers have, aping Argentine peers, hoarded grains during the crisis as a dollar-denominated hedge against a tumbling local currency.

However, fob prices of corn, Ukraine's main crop export, have "come back since the beginning of the week", analysis group Agritel said, fallings up to $6 a tonne to $222 a tonne in Odessa.

Last week, farmgate corn prices rose by some 100 hryvnia a tonne, about $11, with soybean values gaining 100-200 hryvnia as farmers "fearing exchange rate fluctuations" withheld sales, Agritel said.

'Rising inflation'

Such trends, which have underpinned higher-than-expected export demand for US corn, "are mostly of a short-term nature", Macquarie said.

However, the bank warned the crisis would wreak longer-term damage to Ukraine agriculture through a weaker hryvnia, which would lift the cost of imported fertilizers, such as potash, and agrichemicals.

"In the short run, devaluation of the hryvnia has a positive impact on the competitiveness of Ukrainian origin agricultural crop exports in the international market.

"However, longer-term, we believe that rising production costs will offset this advantage… due to rising domestic inflation and the fact that the majority of crop protection, fertilisers and other inputs, along with machinery, are imported."

The country lacks the potash reserves of neighbouring Russia, but does possess a substantial nitrogen fertilizer industry.

Downbeat on corn

Furthermore, the financial pressures caused by Ukraine's crisis could squeeze the availability of state support for farmers.

"The access to loans for the Ukrainian agri sector will be tougher as the squeeze in the financial market in Ukraine makes loans more expensive," Macquarie said.

The bank forecast Ukraine's grains output falling by nearly 16% to 44.5m tonnes in 2014-15 – well below the 51.4m tonnes that the agriculture ministry has forecast, and reflecting in particular a lower forecast for corn production.

Macquarie pegged the Ukraine corn crop this year at 25m tonnes, 5.2m tonnes below the farm ministry forecast, reflecting in part ideas of a return to average yields after "perfect weather" boosted last year's output.

Also, low international corn prices will reduce the appeal of the crop, and encourage farmers to plant spring sown oilseeds such as sunflowers, rapeseed and soybeans instead.

The comments come as farmers are beginning spring sowings in the southern Crimea region.


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