FEATURE: Ukraine sunflower oil market remains under pressure from Russia invasion

The effects of the Ukraine-Russia conflict continue to be felt in sunflower oil markets, as farmers and crushers are faced with production and logistical issues while diminished supplies have sparked a downturn in demand.

"The usual market in Ukraine was the prominent sunflower oil price-making origin. Now, there are smaller origin markets in Bulgaria, Romania and Poland and prices are scattered," a market participant said.

Prices for sunflower oil spiked following the launch of Russia's invasion on Ukraine Feb. 24, as FOB Black Sea peaked at $2,600.50/mt March 11, up 75.7% from the pre-war price at $1,480/mt on Feb. 23. The cost of sunflower oil has since fallen, closing at $1,300.50/mt July 5, down 12.1% from the pre-war level, as Ukraine companies with plentiful supplies of sunflower oil have been selling at a discount, looking to recoup revenue on old stocks.

Production challenges

One of the immediate impacts of the invasion was felt in Ukraine's sunflower planting capabilities, as Russian troops quickly entered high-production regions in the east of the country such as Kharkiv and Luhansk, disrupting sowing and limiting seed availability to crushers.

The Ukraine Ministry of Agrarian Policy and Food announced the end of the spring sowing season on June 17, with official figures for total sunflower planted area at 4.7 million ha, while the latest forecast from the USDA sees production at 9.5 million mt, down 46% year-on-year.

"Only small companies are now operating in Ukraine and the economy is not working well so businesses are shifting from legal to illegal," a Ukraine-based source said. "Farmers don't want to sell legal seeds with VAT so they're selling for cash to receive immediate payment and producers don't want to buy legal seeds with VAT."

A more recent problem is an overproduction of sunflower meal from crushing, with producers finding themselves with too much to hold and demand at very low levels.

"The problem is that there is not any storage for meal," one source said. "People in Ukraine are ready to sell meal at a big discount -- they are ready to give away or even burn it. The production is too much and [crushing] factories are stopping as they have nowhere to store it."

Logistical woes

On the logistics side, Ukrainian agricultural exports have suffered with the abrupt closure of Black Sea ports such as Chornomorsk and Odessa, which were major exporting hubs for sunflower oil.

The ports of Reni and Izmail along the Danube river to the south of Ukraine have been the main destination for seaborne shipments to leave the country, though the limited loading capabilities and high demand to export produce has caused severe delays and congestion.

"Bottlenecks remain in place at Izmail and Reni," a market source said. "The market also says the logistical issue will get worse in the next 2-4 weeks when Ukraine starts winter wheat harvesting, as ports will be overloaded with grains, oilseeds and vegetable oils."

Exports of sunflower oil from Reni and Izmail are being transshipped through other European ports, such as Gdansk in Poland and Constanta in Romania, contributing to extended shipping times, the same source added.

Little improvement is to be found in land routes out via the western border, as the stress placed on under-developed railway systems is creating queues to leave the country.

"There are normally more than 38,000 wagons on the railway at any one time. Now, there is around a 20-30 day line to cross the border by rail, about seven days by truck," a market source said, adding that a lack of investment in the railway and previous reliance on Black Sea port logistics was creating such large delays.

Dampened demand

Beyond internal issues in Ukraine, a drop in buying interest has pressured the sunflower oil market, as regular customers in India and China have sought alternative oils with current outflows from Russia and Ukraine unable to cover their needs.

India and China together made up nearly 38% of global sunflower oil imports in the 2020/21 marketing year, according to USDA data.

With demand so low, small crushing companies have been forced to heavily discount volumes of sunflower oil, desperate to attract some buying interest and bring in revenue on old stocks, sources have said. One destination that has taken advantage of falling prices is Turkey, which has historically imported crude sunflower oil and re-exported the refined product.

"Turkey's grain board is in the market for 18,000 mt of sunflower oil, as well as the private sector," one source said.

"Turkey is mostly enjoying the discounted prices," another source said. "They are sending diesel to Ukraine and loading these barges for the return journey with sunflower oil at a discount price. Europe will not allow this because of health standards from mixing crude oil with vegetable oil but for Turkey, that's not an issue."