Export constraints and price falls push Ukraine grains towards cost of production levels

Uncertainty over potential export paths for Ukrainian agricultural products combined with a wider fall in grain prices have created a situation where Ukraine's farmers are being forced to sell at levels close to the cost of production, trade sources said during a panel discussion at the Grain Ukraine conference in Kyiv.

The Ukrainian trade has faced several simultaneous difficulties amid the ongoing war, including the grain corridor which offers only limited options for the trade despite recently being extended – as in practical terms it is only really open for spot dates and then only for vessels that have been already been inspected and cleared at the entrance.

The situation on the border with the EU is also uncertain, as, despite the bloc's governing body extending the duty-free import of Ukrainian goods, five bordering countries are continuing to uphold their current temporary ban on imports.

On top of that, the permitted transit through those borders also does not currently work well, with trade sources reporting a very slow checking process at the borders.

That all comes as world grain prices have been falling consistently since June 2023 - largely in line with the establishment of the grain corridor deal - meaning that to stay competitive Ukrainian traders have had to further reduce their prices compared with other origins, and thus also pay less to the producer.

"Without the open access of the grain to the foreign markets there is no guarantee that the farmer will sell at an adequate price. You have the estimated cost of production and transport costs, but you also have to fit in the global market price," Igor Mazepa, CEO and Founder of investment company Concorde Capital said during the panel.

He also said that the Ukrainian farmer receives a price of $70-80 per tonne lower compared to the levels paid for grains in Romanian ports, a level that is also around a third of the current costs of production.

"With low prices, high logistic costs, and no forward sales, the product cost of production is close. But if the price keeps falling, for some farms the price will drop below the cost of production, which already was the case last year," Maria Osyka, agrarian investments director of NCH, told delegates.

The prices on CPT basis for corn and wheat have already dropped below the levels seen in June 2022, before the corridor was opened.

Thus, buying ideas for corn in the ports around the Danube and Odesa currently stand at a $165-175 per tonne range, compared with $195-200 per tonne seen a year ago at around the same dates.

Milling 11.5% wheat prices are now seen at $180-182 per tonne CPT Danube ports, while year-ago trades were heard at $205 per tonne for the same basis.

This comes as the production costs were said to be around the same as last year or only slightly lower because fertilizer prices have dropped.

The costs of production are highly variable depending on the region, the inputs and fertilizers used, but as an indication, trade sources estimate that for corn it can be in the range from around $150 per tonne to $175 per tonne and in the range from $148 to $195 per tonne for milling wheat.