ANALYSIS: Ukraine's farmers face cash flow crisis ahead of winter planting

Ukraine could face new challenges in its upcoming winter sowing campaign as high stocks, a shortage of storage together with tight and expensive logistics mean current domestic prices are already close to the cost of production before the harvest has even reached its active pace.

That means the question of financing the next crop is increasingly a major concern, as farmers - who would normally use revenues from the previous production to finance next year's production - are already close to the point of working at a loss. 

While the main Black Sea ports are blocked and have been attacked by Russian missile strikes, export flows have been forced to switch to moving mostly by land, by trains and trucks, as well as through the river ports of Reni, Kiliya and Izmail.

However, all those other forms are non-traditional for Ukraine and the situation has led to the formation of major bottlenecks on the country's borders with European neighbours.

That also leads to a significant increase in logistic costs, which makes it impossible to keep Ukrainian grain and oilseeds prices at the same elevated level that the rest of the world's grains command, as the increased logistic costs need to be factored in if Ukrainian grains are to remain competitive enough to attract demand.

All these factors combine to put extreme pressure on domestic prices and raises questions over the viability, desire and capacity of farmers to manage the further winter sowing campaign.

"Currently they offer to sell my barley for $160/mt on a DAP basis, while the production cost of this cargo was several dollars more expensive. In such conditions, how should I plan the next sowing campaign?" a farmer from the Mykolaiv region told Agricensus.

Barter programs with producers and distributors of seeds, fertilizers and crop protection products also don't solve the current issues, but simply shift it from the farmer to the supplier as an intermediary.

"Production costs and logistics prices are rising, while prices for grains are falling on the local market. In such conditions, at least, I will be forced to use the cheapest possible agri solutions for the next sowing campaign... It goes without saying that will not improve the yield," a farmer from the Vinnytsia region said.

That means farmers are likely to have to economise on use of crop protection products, seeds, fertilizers, and machinery ahead of the new season. 

The estimated costs for wheat production stand at around the $150-180/mt level, at around $130-180/mt for corn and around $155-175/mt for barley according to the trading sources, meaning any sale levels below that threshold are unsustainable for the farmer.

Even those figures should be considered only as a ballpark idea, as the level of costs depend on a wide variety of many factors, such as yield level, input price, transport, salaries, storages, etc.

Domestic prices

Currently, domestic prices have already been declining since before the Russian invasion started and have now moved to the point where corn purchasing bids are heard at around $195-200/mt basis the port of Reni port.

However, prices are markedly lower in other Ukrainian regions that are further from the western borders with the EU or further from the shallow water ports and therefore have to factor in much higher transport costs.

The domestic price for the barley has even been rumored to be as low as around $70/mt in some Ukrainian regions, versus levels still heard at around $115/mt in the port of Reni, while the 11.5% wheat domestic price was heard at around $205/mt in Reni.

And that’s at a time when the harvest is not yet at an active point - before harvest pressure lands and likely depresses prices even further.

Alongside that, with the recent massive drop on world markets, Ukrainian prices will be under additional pressure as well, as logistic costs are not expected to drop while Ukrainian grains delivered to EU ports still have to be competitive.

“The risk for bankruptcy for farmers is now really big. For example, our farmers started the harvest of barley and the average yield is about 2.5 mt/ha, while the price on EXW for the moment is about $100/mt because logistics now cost 2-3 times more expensive than the price of grain,” Mykolay Gorbachov, president of the Ukrainian Grain Association (UGA), said during the Fastmarkets Grains and Oilseeds MENA event held in Cairo earlier this week.

“For example, delivery of the grain from the central part of Ukraine to Constanta will cost about $150/mt,” Gorbachov continued.

He and all the trade sources that have been asked by Agricensus said that the only possible way to “give air” to farmers and potentially secure the coming winter planting would be to find some way to open the deep-sea ports of Ukraine.

Ukraine is among the key grain, oilseeds, and processed goods producers and exporters of the world – covering the import needs of a huge list of countries, with China, Egypt, EU, Turkey, and India among the biggest buyers of Ukrainian produce.

As such, it is vitally important to find a solution to find ways to secure the country’s production and export surplus and thus to make sure the next crop will be planted.

Even with the Russian invasion, the USDA is forecasting Ukrainian wheat production of 21.5 million mt, 25 million mt of corn, 5.7 million mt of barley among grains.

For oilseeds, the USDA expects 9.5 million mt of sunseed, 3.2 million mt of rapeseed and 2.8 million mt of soybeans, all of which would be at risk in the 2023/24 season.