Memorandum lifts outlook for Ukrainian wheat to China

The prospects for increased Ukrainian wheat exports to China have been lifted by a new memorandum on strategic bilateral co-operation and agricultural development, signed between the Ukraine grain association (UGA) and China's association of small and medium-sized enterprises (CASME).

The memorandum follows a surge in China's grains consumption demand this year and efforts to diversify its supply chain because of ongoing trade tensions with its traditional grain supplier, Australia.

Ukraine has benefited from these tensions, already upping its barley shipments to China to 2.8mn t this year, from less than 1mn t a year earlier. The country now accounts for more than two-thirds of China's 2020-21 barley imports, with China applying an import duty on Australian barley and refusing to purchase the crop this season.

Meanwhile, Ukraine government data show corn shipments to China have risen to 7.34mn t October-April, from 5.5mn t shipped during the full October-September period a year earlier, with strong Chinese feed demand from a resurging swine-breeding sector largely ignoring multi-year highs in fob Ukraine corn prices.

"The memorandum between UGA and CASME could further accelerate Ukraine's grains exports to China by two or three times, and open China's market for Ukrainian wheat and sorghum once the relevant interstate phytosanitary protocols are agreed," president of UGA Mykola Gorbachev said.

The memorandum includes an agreement to establish a Chinese-Ukrainian council for international co-operation to implement joint agricultural projects, which will aim to develop modern agricultural trade, as well as joint industrial parks.

Ukraine's wheat exporters are well placed to cover a larger share of China's purchases next year, with the US Department of Agriculture's Foreign Agricultural Service (USDA FAS) projecting Ukraine's exports of the crop rising to 18.5mn t for 2021-22, up by 3mn t a year earlier from stronger domestic production.

China has already diversified its wheat imports away from Australia this year, and secured most of its June-May deliveries from Canada and the US — at 33pc and 28pc, respectively. Last year, Australia was among China's top two suppliers, while the US accounted for less than 5pc of its wheat receipts.

Next year, China's wheat imports are projected at 10mn t, down by 500,000t on 2020-21, but still outpacing 2019-20 by 4.72mn t, as buyers seek to replenish thin inventory levels despite higher domestic production, according to latest data from the USDA's World Agricultural Supply and Demand Estimates report.

By Andrew Kanyemba