Ukraine: 2009/10 Crop Production Estimates and Trip Report
Analysts from the USDA Foreign Agricultural Service, including the U.S. agricultural attaché in Kyiv, conducted April crop-assessment travel in Ukraine in order to assess 2009/10 production prospects for grains and oilseeds and examine the likely impact of the current credit crisis. The team met with agricultural officials, independent commodity analysts, and directors of agricultural enterprises throughout the main crop-production region in central and southern Ukraine and drew the following conclusions:
- Tight credit and high interest rates had minimal impact on spring planting decisions because most enterprises do not rely extensively on bank credit to finance spring sowing operations.
- Deep cuts in State support for agriculture combined with farmers’ efforts to offset higher production costs will likely reduce the use of fertilizers and plant-protection chemicals by roughly 20 percent.
- Persistent dryness and two frost episodes in April likely had a negative effect on both winter and spring crops but damage was neither severe nor widespread.
The USDA estimates total Ukraine wheat production for 2009/10 at 19.0 million tons (compared to 25.9 million last year), barley at 9.5 (12.6) million, corn at 8.5 (11.4) million, and sunflowerseed production at 5.5 (6.5) million tons.
Winter Grain Area and Early Spring Conditions
Winter grains were sown on a reported 8.25 million hectares (against 7.98 million last year), including 6.50 (6.66) million wheat, 0.49 (0.47) million rye, and 1.27 (0.85) million barley. Winter wheat usually accounts for about 95 percent of Ukraine’s total wheat output, while winter barley comprises only 10 to 15 percent of the country’s barley production. Virtually all of Ukraine’s rye is winter rye. Winter-grain planting begins in early September and is nearly finished by the end of October. Harvest occurs during July and August. (See February report on Ukraine winter grains.)
The team observed winter grains to be in very good condition throughout central and southern Ukraine in early April with little evidence of winterkill or damage from two episodes of March frost. The Hydromet Center of Ukraine and the State Statistical Committee both estimate below-normal winter losses. March weather was cooler than average, which affected winter-grain development and spring planting. Winter grains in southern Ukraine broke dormancy and resumed vegetative growth around April 1, two weeks later than usual. Despite the cool weather, farm directors and specialists indicated that the early-spring conditions were similar to last year’s outstanding conditions.
Spring Sowing Campaign
The cool weather also delayed the launch of the spring planting campaign. By the beginning of April, the sowing of early spring grains (chiefly barley) was only 20 percent complete compared to 50 percent by the same date last year and the average of about 35 percent. Dry April weather enabled planting to accelerate, however, and by mid-April sowing was on roughly the same pace as last year. The planting of sunflowers began in early April, and corn in mid-April. As of May 19, according to data from the Ministry of Agrarian Policy, spring grains had been planted on 7.25 million hectares or 97 percent of the official forecast (compared to 7.14 million sown by the same date last year), including 2.16 (2.30) million corn, or 90 percent of the forecast. Sunflowers were planted on 3.35 (3.34) million hectares, or 95 percent of the forecast. Planting of both crops is not yet complete.
April Frosts and Dryness
The month of April was marked by persistent dryness and two episodes of frost. The crop damage resulting from the frosts is likely to be localized and limited chiefly to winter rape. Daily weather data indicate that only in eastern Ukraine did minimum temperatures fall low enough to cause possible injury to winter wheat. Winter rape was considerably more vulnerable due to its lower frost tolerance and more advanced stage of development. Frost damage is difficult to determine, however, and early damage assessments are frequently overstated. The persistent dryness, meanwhile, could have a significant negative impact on early spring grains like barley. Topsoil was excessively dry for four consecutive weeks in April during the period of crop emergence and establishment, when developing crops depend exclusively on surface moisture for survival and growth. Winter grains, which were already fairly well established in southern Ukraine, were likely able to tap into subsurface moisture reserves and avoid irreversible damage.
Satellite-derived vegetative indices (NDVI) indicate fairly good winter-crop conditions in central and southern Ukraine on May 8. (Persistent early-May cloudiness in eastern Ukraine interfered with the collection of satellite data.) The NDVI for Nikolayev are fairly representative of the main wheat-production region: conditions deteriorated slightly in mid-April, due probably to dryness, but rebounded following beneficial early-May rain. Note that the NDVI reflect the outstanding conditions and high yields in 2008 as well as severe drought in 2007. In 2006, excellent May and June weather compensated for unfavorable fall and early-spring conditions. The late-May or early-June NDVI will provide a better indication of potential 2009/10 wheat yield. (See Ukraine: Estimated Wheat Yield Based on Satellite-Derived Vegetative Indice, June 2008 .)
Tight Credit and Reduced Subsidies
According to farmers and commodity analysts, banks are not eager to lend to agricultural enterprises this year. (Some observers maintain that banks were never eager to lend to agricultural enterprises.) Interest rates are high, ranging from 24 to 35 percent compared to 16 to 22 percent a year ago, but the high rates are really not a major issue because credit is largely unavailable. Agricultural enterprises also face deep cuts in State support. According to a report from the U.S. agricultural attaché in Kiev (see Grain and Feed Annual), total government spending on agricultural programs for 2009/10 is slated to be cut by almost 50 percent from last season. Other sources indicate that grain and oilseed producers could see a 75-percent reduction in direct subsidies and an 80-percent reduction in funds for the reimbursement of commercial-credit interest, which in previous years could cover as much as two-thirds of the interest on commercial loans.
Interestingly, the tight credit and high interest rates had little effect on farmers’ spring planting decisions. (The fall planting campaign for winter crops was already largely complete by the time that Ukraine’s economy began to unravel.) Many farmers, in an effort to wean their enterprises from reliance on bank credit, had in recent years begun to establish alternative sources of operating capital or had become largely self-financing. Furthermore, enterprises have benefited from high revenues for the past two years due to high commodity prices, State intervention purchases, and high exports for 2008/09. (Government-imposed export quotas limited exports for 2007/08 and 2006/07.) According to an extensive survey conducted by APK-Inform, one of Ukraine’s leading independent commodity-analysis groups, nearly 70 percent of Ukrainian agricultural enterprises do not rely on bank loans to finance their spring sowing operations. Almost all observers agreed, however, that the tight credit situation will have a significant impact on large purchases like machinery or capital improvements.
In 2008, fertilizer-application rates reached the highest level since the breakup of the Soviet Union and the sudden loss of generous State subsidies to the agricultural sector. According to data from the State Statistical Committee of Ukraine, per-hectare application rates have tripled since 2000, and the share of cropland receiving mineral fertilizer has increased from 21 to 69 percent (compared to about 85 percent during Soviet times). Although weather remains the main determinant of yield, the improvement in applied agricultural technology has been steady and significant. The expected loss of the direct government subsidies in 2009 likely had a modest impact on the application of fertilizer, herbicides, and pesticides, especially for smaller or less affluent farms. The subsidies in previous years were not especially high – about $20 per hectare for wheat, for example – and fertilizer, seed, and chemicals together account for about half of the typical $250-per-hectare production cost. On larger or more affluent enterprises, the loss of direct subsidies is unlikely to significantly affect input use. According to the APK survey, only about 25 percent of Ukraine’s agricultural enterprises reduced fertilizer application on winter crops this season.
Higher Production Costs
Some producers stated that they reduced input use not as a direct response to tight credit or decreased State support, but rather as a way to offset the overall increase in the cost of production. Most (but not all) grain producers and independent analysts indicated that prices for fuel, fertilizer, seed, and chemicals have all increased since last year. The increases stem from higher domestic prices or, in the case of fuel and imported hybrid seed and chemicals, the falling value of the Ukrainian currency. Some farmers said that they will trim production costs by focusing on the most profitable crops, or by focusing on particular fields. A specific field, for example, will receive adequate application of fertilizer, insecticides, and fungicides with the goal of producing milling-grade wheat, while a neighboring field will receive minimal inputs with the expectation of yielding lower-quality feed-grade wheat.
Private-industry estimates indicate that rapeseed has been the most reliably profitable crop over the past five years (in terms of dollars per hectare), followed by sunflowerseed. Estimated rapeseed area decreased sightly for 2009/10, from 1.40 to 1.35 million hectares, but this was due to weather-related delays during the fall sowing campaign (most rapeseed in Ukraine is winter rape). Rapeseed has become a major oilseed in Ukraine, with output increasing from less than 0.2 million tons five years ago to a forecast 2.2 million for 2009/10.
Most commodity analysts are expecting a second consecutive year of below-normal grain quality, due to likely reductions in the use of fungicides and insecticides. (Last year’s low quality was attributable chiefly to excessive wetness throughout the growing season, which boosted yield but reduced grain quality.) Furthermore, the generally mild winter could result in increased disease problems for the 2009/10 crop. One weather-related factor, however, could benefit grain quality this year: winter crops resumed vegetative growth later than usual, which typically contributes to higher quality (but lower yield). This occurred in 2006, for example, when winter crops broke dormancy later than usual and spring development was significantly delayed. Final yield was below average despite subsequent favorable weather, but the share of 6th-class (poorest-quality) wheat was extremely low.
Current USDA area and production estimates for grains and other agricultural commodities are available at PSD Online. The contribution of Oleksandr Artyushin, agricultural specialist at the U.S. Embassy in Kyiv, is gratefully acknowledged.