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Published: Saturday March 8, 2014 MYT 1:36:02 AM
Updated: Saturday March 8, 2014 MYT 1:36:58 AM

Cash flow crisis forces Ukrainian farmers to sell grain

LONDON (Reuters) - Ukrainian farmers are selling grain again to address cash flow problems after a hiatus in recent weeks triggered by the local currency spiralling lower and political turmoil.

Global grain prices, along with domestic ones on Ukraine's physical market, have rallied this week on the rising tensions in one of the world's top grain exporters.

Farmers are feeling the effects of Ukraine's desperate financial position, which has deteriorated in the two weeks since pro-Western protesters in Kiev brought down Moscow-backed president Viktor Yanukovich, prompting Russian forces to seize control of Ukraine's Crimea peninsular.

"A lot of the farmers are selling, you've got to assume there's going to be problems in liquidity and cash flow and that's pushing these guys to sell," a trader at an international commodity trade house said.

Global corn prices have jumped by around 8 percent since the start of the week, while wheat has risen around 9 percent, supported by the political instability in Ukraine.

A cash flow crisis this week overtook farmers' desire to hold their stock as a security against a rout in the local hryvnia currency and an uncertain future.

The liquidity crunch was also expected to impact spring plantings.

"Mid-sized and smaller farmer groups of 50,000 hectares or so definitely face problems getting financing and there could be less spring plantings than initially thought," said a trader specialising in Ukrainian grain.

"We won't know for another couple of weeks because if they don't get the financing in time then it will be too late for buying the seed. They have to get the financing within two weeks."

Traders said international banks with local units in Ukraine were cancelling existing credit lines to traders and part of that finance would usually go into crop financing.

"All of the international banks, European banks, active in Ukraine are reducing their exposure drastically," the Ukrainian grain trader added.

CONTRACTS REJIGGED

Traders said some contracts were being renegotiated after the rally in prices.

"Some contracts are being renegotiated for later delivery or shipment periods," said Swithun Still, Director of Solaris Commodities.

"Due to the rally in prices and delays, I would expect there to be a few defaults coming and that GAFTA will be getting a few arbitrations in the next couple of months."

The Grain and Feed Trade Association (GAFTA) provides contract templates and arbitration services.

Traders said contract renegotiations in a rising market are more common in the Black Sea region than in some other grain producers.

"It's quite common in Ukraine that if prices go up that sellers pull out and try to renegotiate," said the trader specialising in Ukrainian grain.

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