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Published March 20, 2014, 02:26 PM

Funding crunch could cut Ukraine corn crop by a third

Ukraine’s coming corn crop could in the worst case drop by a third to 20 million metric tons as the current crisis prompts banks to reassess risk, making it hard for farmers to get funding for seeds and other necessities, traders and analysts say.

By: Sarah McFarlane, Reuters

GENEVA — Ukraine’s coming corn crop could in the worst case drop by a third to 20 million metric tons as the current crisis prompts banks to reassess risk, making it hard for farmers to get funding for seeds and other necessities, traders and analysts say.

Russia’s moves to annex Ukraine’s Crimea peninsula has turned a confrontation with Europe and the United States into the biggest crisis in East-West relations since the Cold War.

The tension has weakened Ukraine’s hryvnia currency and forced some banks to cut lending.

The U.S. Department of Agriculture has pegged Ukraine’s previous crop (2013 to 2014) at a record 30.9 million metric tons.

“There’s risks on production and on execution of exports because of access to money and of course weather,” says Dan Basse, president of consultancy AgResource Co.

“If mother nature is kind to Ukraine, they may be able to make up for some of the losses caused by the lack of funding. However, if mother nature is less than kind, the losses could easily equate to a third of the corn crop.”

Ukraine imports around 50 percent of its corn seed and although larger farmers were expected to have already purchased their needs, those who hadn’t were expected to find it difficult to get financing, as banks become increasingly cautious.

“In terms of banks cutting exposure, our bank has kept (credit) lines open but we’re looking more carefully at inland financing in terms of storage and logistics for transporting goods to ports,” says Karel Valken, global head of trade and commodity finance at Rabobank.

“We continue under the existing agreements, so far we have not been looking into increasing exposure, but we have not been approached to do more.”

Exports continue

Grain export activity has continued unabated, although traders said they were monitoring the situation closely and switching the focus to plantings as the end of the 2013 to ’14 export campaign nears.

“Ports have been open and exports have been continuing. Having said that, there might be some concerns down the road on the spring crop and the ability for farmers to finance inputs. This might have an impact on the volume of the spring crop but it is a bit early to tell,” Rabobank’s Valken says.

“This will depend on the liquidity of the local banks because they are the ones most of the farmers are relying on.”

With normal weather, Ukraine’s corn crop should be in the ground by the end of April.

“Seed companies are asking for upfront payment and they have stopped the practice of payment after harvesting,” says Noel Fryer, analyst and founder of the Fryer report.

“I do not believe this is a business as usual situation.”

Traders and analysts were unanimous in their view that the 2014 to ’15 corn crop would be smaller than the previous year, although some were more optimistic than others.

Russia’s Institute for Agricultural Market Studies (IKAR) estimates Ukraine will produce around 25 million metric tons of corn in 2014 to ’15, attributing the fall on year to a combination of reduced area — with farmers switching into barley and soybeans, plus, to a lesser extent, financing problems.

“Definitely there are some interruptions with financing but sowing is mostly already taken care of and most farmers already have their fertilisers for spring works,” says Dmitry Rylko, the head of IKAR.

Rylko says the big uncertainties were around farmers’ ability to buy pesticides and afford the costs associated with harvest including fuel, spare parts for harvesting equipment, hiring additional trucks and labor.

“It’s not a critical time right now, the critical time will be in June when they start harvesting winter barley,” Rylko adds.

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