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22 May 2018

Olga Kharabara

In order to support the internal processing of soybeans, it is first necessary to solve livestock problems, which is one of the main channels for the further marketing of finished products.

World market conditions

The reduction of foreign exchange earnings from soybean exports, the profitability decrease of crop production and sown areas and land degradation are just the tip of the iceberg called «soy amendments».  Taking into account the full chain of production and sales of any crop, it is obvious that domestic soybeans have only two sales channels - sales to foreign markets and domestic consumption. With the gradual increase in the production of soybeans, Ukraine is actively entering the world market and expanding its exports each year. If in 2013/2014 MY the export of soybeans totaled 1.2 mln tons, then in 2016/2017 MY this figure increased to 2.9 mln tons. Ukraine has managed to enter the global market, which is growing at a fast pace and obtain the status of a reliable supplier. Analyzing the data of USDA, it can be concluded that the soybean market is the most promising given its growth rate - the world oil production for four years has increased from 282.7 mln tons to 351.3 mln tons, the average annual growth of production for the specified period was 16%. Ukraine has achieved high results in a relatively short period of time due to the annual growth of demand for soybeans by importers. Growth in soybeans consumption by EU countries, China, Mexico, Japan, Egypt and Turkey provides stable import demand and supports world prices for this oil crop, despite record production volumes. The world soybean trade in 2016/2017 MR reached record levels and totaled 147.2 mln tons, and given the forecasts of USDA, this figure will already be 180 mln tons in 2026/2027 MY.

 12018-01-24_125819

The prospects of the world market for soybean processing are not so good. The dynamics of world production of vegetable oils in the past few years in general shows a significant decline. If in 2013/2014 MY their production was estimated at 200.4 mln tons, then by 2016/2017 MY this indicator decreased to 188.5 mln tons. There are several reasons of reducing production. First, slow growth in consumption, and secondly, a significant profitability decrease of production due to price lowering, which was facilitated by large transitional stocks by the end of the year.

As the market of soybean processing is sufficiently narrow, the world trade in soybean oil and meal is estimated at 11.3 mln tons and 64.4 mln tons in 2016/2017 MY, respectively. The market niche is occupied by such giants as Argentina, Brazil and the USA, which cover 70% of global demand for soybean oil and 86% for meal. The share of Ukraine in world trade in soybean oil at the end of 2016/2017 MP totaled 1.5%, meal - 0.4%.

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Assessing the volumes of the world market for soybean processing products, Ukraine's volumes are extremely scanty, and the increase in the volume of soybean processing inside the country by non-market methods can lead to a significant reduction in both the profitability and the emergence of problem in the search for markets, which according to USDA are limited and show low growth rates compared with the soybean market.

Domestic market

Low chances of entering the global market for soybean processing products leave one of the sales channels for the processing companies - the domestic market. In 2016/2017, Ukraine consume 350 thous. tons (production of 750 thous. tons) of soybean meal and 8 thous. tons (174 thousand tons) of soybean oil. The prospects for the growth of soybean oil market in Ukraine are extremely low, because we do not have a culture of consumption of this product. The main consumer of soybean meal is stockbreeding, which also doesn’t show the high rates of consumption. Significant reduction in the number of cattle (-15%), dairy herds (-18%) and pigs (-14%) show the negative tendencies in livestock production in 2011-2017.

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The natural growth of soybean processing volumes in the short term would have a better effect, as Ukraine would slowly develop new markets and, at the same time, actively work on the growth of livestock breeding. Instead, deputies put the livestock breeders in even more difficult conditions of existence by the adopted amendments to the Tax Code of Ukraine – agrarians will reduce the sown area of ​​soybeans if the production profitability will decrease, which in turn will lead to the production reduction of soybean meal and increase in its value. It is impossible to bring cheaper soybean meal from other countries to Ukraine due to the import prohibition of goods containing GMOs, and most of the producers of meal grow the soybeans with GMO.

Recall that on December 7, 2017, the Verkhovna Rada of Ukraine introduced amendments to the Tax Code and canceled VAT refunds for the export of soybeans, sunflower and rapeseed from March 1, 2018. On December 21, 2017, the Verkhovna Rada of Ukraine adopted amendments that temporarily exempt from VAT the export operations from the customs territory of Ukraine in the export mode: from September 1, 2018 to December 31, 2021 on soybeans, from January 1, 2020 to December 31, 2021 on rapeseeds. VAT refunds for sunflower exports remain.

The data of the USDA and the State Statistics Committee of Ukraine were used in preparing the material.




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