Sergey Feofilov: In a context where everything is risky, Ukrainian grain sector continues to operate successfully

The general director of UkrAgroConsult, a Kyiv-based firm specializing in agricultural trade in the Black Sea area, told LA NACION that Russia’s attempts to stop Ukrainian exports so far “were in vain.”

From February 24, 2022, Ukrainian farmers must not only deal with the direction of grain prices, the weather or the cost of inputs. The war with Russia tested the resilience of the entire sector, from those who work the land to those who must get the production of a country that leads sunflower oil exports, is the fourth largest supplier of corn and the sixth largest supplier of wheat to the world.

“In a context where everything is at risk, Ukrainian farmers and fieldworks continue to operate successfully. And when I am asked how this can be possible, the answer I find is that Ukrainian agriculture has a unique format and design. It is a combination of large producers with medium and small farms”, Sergey Feofilov, General Director of UkrAgroConsult, a consulting company specialized in agricultural trade in Ukraine and the Black Sea area based in Kyiv, which is celebrating 30 years of activity, told LA NACION.

Complementing his remarks, Feofilov said that in Ukraine it is usual to see a farmer with 100/500 hectares near a company with 10,000, 50,000 or with 120,000 hectares. “On average, in the European Union only 4% of farms are larger than 100 hectares and produce 53% of arable land. In Ukraine, 44% of farms exceed 100 hectares and generate almost 96% of production. This combination, which can also be seen in Russia, undoubtedly increases the competitiveness of grains produced and exported by both countries,” he said.

-What impact did the war with Russia have on corn, wheat and sunseed production?

-After the outbreak of the war, production decreased due to the loss of territories. In 2022 the total grain harvest reached the lowest level in a decade. Wheat and sunflower crops, which were largely grown in the east and south of the country, declined particularly significantly. However, grain yields continued to increase. This is due both to the increase in the share of corn in total gross yields and to the adaptation of technologies. We now see that sunflower is recovering quite rapidly, as it is a crop that provides more stable yields.

After harvesting 21.63 million tons of wheat in the 2023/2024 season, forecasts for the new cycle in Ukraine range from 20 to 21 million tons.

-How is the agricultural sector financed in times of scarce resources?

-The Ukrainian agricultural sector depends very little on state support and loans. Most of the work is financed by farms from their own resources. The main change in financing since the beginning of the war was that traders stopped entering into forward contracts with farmers. Whereas before the war there was mainly a sellers’ market, with the outbreak of the conflict and the blockade of maritime exports a buyers’ market developed. Then, in a context of overstocking and huge supply, forward contracts were simply not necessary. Now, with the restoration of cargo flows, the situation is normalizing. We are already seeing a resumption of forward contracts, but so far only in their commodity segment, i.e. supply of inputs in exchange for future crops.

-What are the prospects for the new wheat crop and for corn planting?

-Amid an adjustment in planted area, the wheat crop is expected to decline in 2024, with yields returning to trend compared to the 2023 record. Overall, crop condition is good. With sufficient fertilizer application and good weather conditions, production will range from 20 to 21 million tons, versus last year’s 21.63 million tons. As for corn, expectations are improving. Some surveys show that a portion of farmers are willing to plant even more than in 2023. So far, planting is progressing at a pace that exceeds the 5-year average. We attribute this fact to two main reasons: the upward trend in prices, which is conducive to attractive margins for the farmer, and the intention to make the most of the current soil moisture. The baseline forecast for the crop today ranges from 27 to 29 million tons, compared to 31 million tons in the previous cycle. It should be noted that the expansion of oilseeds does not leave much room for corn. Stabilization of the cereal area at last year’s level or its expansion can only occur if the sunflower area does not grow or if it decreases. The latter scenario is not yet ruled out.

-How are agricultural exports evolving?

-If we look at the dynamics of grain exports by season, we do not see significant declines. As before the war, Ukraine still exports 45-50 million tons of grains per season (in addition to corn, wheat and sunflower oil, the country exports soybeans, rapeseed and barley). In the 2021/2022 cycle this was possible because before the war we managed to export most of the available wheat, barley and rapeseed. In the 2022/2023 and 2023/2024 seasons, despite lower harvests, sales remained high due to the liquidation of record corn stocks. The market will not see the full impact of the war and reduced harvest in Ukraine until the 2024/2025 marketing season. Grain stocks at the end of the current season will fall to the minimum and the harvest, while expected to be good, will still be below the level in place before the war, which together will reduce grain export potential by 7 to 9 million tons from the usual volumes.

-Is the intensification of Russian attacks on ports aimed at affecting the inflow of foreign currency into Ukraine?

-In fact, this may be an attempt to harm agricultural exports, but as evidenced by the 7 million tons shipped in April, these attempts so far were in vain. But it must be understood that, if the attacks continue, they could hamper exports in the near future. For example, if the energy sector continues to be targeted, blackouts in autumn and winter will cause problems for grain loading at ports, as connecting diesel generators is a less efficient and costly option.

-What were the consequences of the collapse of the grain agreement last July and the new safe corridor over the Black Sea designed by the Ukrainian government?

-The new Ukrainian sea corridor had a positive impact on export dynamics. In seven months Ukraine managed to ship 28.70 million tons of agricultural products, with a monthly average of 4.10 million, compared to 2.90 million averaged during the validity of the proposed UN corridor. Now the prolonged inspections by Russia and the blockade of exports from the port of Pivdennyi that were suffered under that agreement are over. It should be noted that not only agricultural products leave Ukraine’s seaports, which also has a positive impact on the country’s economy as it defends itself in the war against Russia.

-What is the condition of Ukraine’s export infrastructure today?

-The elevator infrastructure was quite affected in 2022, but the decrease in the harvest compensated for that. As for the ports, those in the Mykolaiv region are still blocked due to the proximity to the zone of increased hostilities. Before the invasion, up to one third of agricultural exports passed through these terminals. However, the deep-water ports of Greater Odessa are operating at full capacity. The smaller terminals on the Danube River – Reni and Izmail – also handle their share of grain for export and have so far compensated for the lack of operation at Mykolaiv.

Tags: crop forecast, Ukraine, Black Sea grain corridor, corn, UkrAgroConsult, export, grain, soybean, Sergey Feofilov, wheat, sunseed, Black Sea Grain