With grain harvest in Ukraine now well under way, Kernel is pleased to provide the Company’s estimate of production levels in the country and export potential.

Overall, Ukraine is expected to produce from 48 to 50 million tons of grain, and between 11 and 12 million tons of oil-bearing crops, making season 2011/2012 one of the best agricultural seasons on record. Such production will provide the country the potential to export in excess of 20 million tons of grain, 3 million tons of rapeseed and soybean, and close to 3 million tons of sunflower oil.

The latest estimate and general consensus puts total 2011 grain production in Ukraine in the range of 48 million tons, compared to 39 million tons in 2010, equivalent to a 23% year-on-year increase in grain production. Up to 90% of wheat and barley has now been harvested and is safely stored in silo. While barley production will remain flat year-on-year, reflecting the generally lower profitability of this crop, wheat production is expected to increase from 17 million tons produced in 2010, to, possibly, over 21 million tons for the current season, a 23.5% year-on-year increase. The corn harvest is still a month away, but the general consensus forecasts production in a range from 16 to 17 million tons, compared to 12 million tons in 2010, a 37% year-on-year increase. Naturally, the increase in both wheat and corn production is expected to boost the grain export potential of Ukraine for the season 2011/2012. Together with a large carry-over of 5 million tons, as compared to 3 million tons of carry-over stocks entering season 2010/2011, we estimate the total wheat, barley and corn export potential to be in excess of 20 million tons, compared to circa 11 million tons exported over season 2010/2011. This very positive scenario for the current season could nevertheless be revised downwards if adverse weather conditions negatively impact the expected corn production in the country and, consequently, the amount of corn available for export.

Total production of rapeseed, soybean and sunflower seed is expected to be in the range of 11 to 12 million tons. Production would therefore be broadly in line with last year, establishing another record year and confirming the growing importance of oil-bearing crops in Ukrainian agricultural production. Rapeseed, harvested at the same time than wheat and barley, is now largely in silo and is expected to come at 1.4 million tons, the same level of production as last year. With most rapeseed produced in Ukraine being exported, we expect the export of rapeseed to be in the range of 1.3 million tons over season 2011/2012. Soybean and sunflower are mostly harvested in the month of September, therefore weather conditions could still affect the size of both crops. As they stand today, both soybean and sunflower seed production look quite promising. The consensus forecast is for soybean production to increase from 1.6 million tons in 2010/2011, to 2.0 million tons harvested in 2011, and export to grow from 900 000 tons to 1.2 million tons. Sunflower seed production is expected to exceed 8 million tons, which would make season 2011/2012 the best season on record for sunflower seed in Ukraine and provide Kernel with a comfortable supply of feedstock for the company’s increased crushing capacity.