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Production
Estimates and Crop Assessment Division |
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Production
Estimates and Crop Assessment Division |
May 23, 2003
Analysts from USDA's Foreign Agricultural Service traveled through southern and central Ukraine during late April to examine winter grain conditions and to meet with farmers, local agricultural officials, and independent analysts to assess 2003/04 grain production prospects. Field observations and interviews confirmed reports of remarkably high levels of damage to winter grains caused by low December temperatures and persistent ice crusting during February and March. According to the State Statistical Committee of Ukraine, 59 percent of the winter grains, including an estimated 55 percent of the country’s winter wheat, and over 90 percent of the winter barley, were destroyed by inclement weather.
In its initial forecast on May 12, 2003, for the new crop year, USDA estimated 2003/04 Ukraine wheat production at 9.5 million tons, down over 50 percent from last year and the lowest output in forty years. Area also is estimated at a forty-year low: 4.1 million hectares against 6.8 million last year. Barley area is forecast to increase 16 percent to 4.8 million hectares following the extensive use of spring barley for reseeding of dead winter crops. Barley production is estimated at 10.5 million tons, up only 1 percent from last year despite the higher area because of lower forecast yield. Corn planting is underway and typically continues through May. Output is forecast at 3.8 million tons, against 4.2 million last year, with area unchanged at 1.2 million hectares.
Winter wheat is Ukraine’s chief grain crop, typically comprising about 50 percent of total grain output. This year’s crop has suffered from a string of unfavorable weather events. Fall sowing was delayed, and in some cases prevented, by wet weather. This resulted in late emergence and establishment, and the crop was not sufficiently “hardened” prior to the arrival of bitterly cold weather in December. (Hardening is the process by which winter grains gradually acclimate themselves to decreasing temperatures and prepare to enter dormancy.) Because of the late establishment, the winter grains were unable to withstand temperatures that a fully hardened crop would have survived. According to some estimates, 20 percent of Ukraine’s sown winter grain area of 8 million hectares was destroyed by the December frost. Damage was especially severe to winter barley, which is less cold-tolerant than wheat. Nearly 0.7 million hectares of winter barley, or 90 percent of the sown area, perished during December.
In February, repeated cycles of thawing and re-freezing led to the formation of an ice crust in the topsoil, to a depth of three inches in some areas, throughout the prime wheat production zone in central and southern Ukraine. The ice crust persisted from forty to ninety days; crops begin to suffer damage after only twenty days. By the time the crust thawed in March, an additional three million hectares of winter crops were destroyed, smothered by the ice. According to a May 8 report from the State Statistical Committee of Ukraine, a staggering 59 percent of sown winter grain area was destroyed by the combination of December frost and subsequent ice crusting. Even rye, the toughest of all Ukraine's winter grains, suffered severe damage from the ice. According to analysts at the Hydrometeorological Center in Kiev, roughly 30 percent of Ukraine's rye perished during the winter.
Unusually cool weather delayed the resumption of tillering of winter grains. In southern Ukraine, winter crops typically break dormancy around March 23, but this year crops did not resume vegetative growth until mid-April, according to a farmer in Odesa oblast. The abbreviated growing season will likely have a negative effect on winter grain yield potential, but farmers warn that increased weed infestation poses an even greater threat to yield. Many “surviving” winter grain fields suffered up to 50 percent damage and are marked by extensive patches of bare soil. Weed control will be especially difficult this year, even for farms that can afford plant-protection chemicals. Because of the low plant density of grain fields following the high winter damage, effective weed control will likely require more than one treatment with herbicides – an unlikely prospect for most farms, who are already operating under severe financial constraints. According to one agricultural official, the yield potential of the surviving winter grains could be reduced by as much as 50 percent due to the combination of reduced plant density, shortened growing season, and increased weed problems.
The late spring also hampered spring grain planting, and the extra reseeding necessitated by the high levels of damage to winter crops placed an additional burden on the spring sowing campaign. A reported 3.6 million hectares of destroyed winter crop fields required reseeding this year (compared to less than one million last year), in addition to 9.4 million hectares of planned spring crops. Farmers complained that after the snow finally melted the soil became extremely wet, making it impossible to take machinery into the fields and delaying spring field work by 15 to 20 days. As of April 1, less than 100,000 hectares of spring crops had been planted, compared to 3.6 million last year (an unusually early spring) and an average of roughly one million. The planting pace accelerated as the sowing campaign advanced, and the planting of early spring crops was essentially complete by the end of April.
The weather-induced sowing delays encouraged many farmers to replant with crops other than the traditional spring barley, chiefly later-seeded crops like sunflowers, buckwheat, and millet. The stated planting intentions of some farmers suggested that the planted area of sunflowers, a popular cash crop, could increase significantly this year. Despite the setbacks encountered by farmers, including skyrocketing prices for spring-crop seed, the USDA forecasts that spring grain area will jump by about 25 percent this year, to roughly 7.1 million hectares (including 1.0 million hectares of buckwheat, pulses, and miscellaneous grains not included in the official USDA estimate).
The government of Ukraine has extended the policy of subsidizing roughly half of the interest rate on commercial loans to farms. For many farms, however, obtaining commercial credit remains difficult. Loan requests are reviewed carefully by commercial banks based on the farms’ credit history and access to collateral. Many farms are already heavily in debt to banks or to suppliers of fertilizer and plant-protection chemicals. Land cannot be used as collateral, nor can most farm machinery because it typically is old and of little value. The difficulty of farms in obtaining anything other than short-term loans at interest rates of roughly 25 percent places severe constraints on their ability to invest in long-term capital improvements, such as agricultural machinery or grain-storage facilities.
In many cases, the best option is for a farm to attract an investor who can provide operating capital and collateral to enable the farm to secure loans. This can be an attractive arrangement for the non-agricultural investment partner also. A company can be registered as an agricultural enterprise if at least fifty percent of its income is derived from agricultural operations. The income of registered agricultural enterprises – including income from the company’s non-agricultural activities – is taxed at a lower rate than for other, non-agricultural businesses. The potential “down side” of investor arrangements for farms is that directors to some extent lose control of farm operations. Often the investment companies, frequently referred to as “holding companies,” insist on maintaining control over every aspect of production and essentially takes over the farm, equipment, and land. Farms are forced to enter into extended leases of five to ten years, sometimes longer, because they depend heavily on cash from the holding company.
