For many Russian companies the previous year was rather challenging. Market players faced lots of problems, such as the devaluation of rouble, rapid price increase, financing problems, increase in tariffs for railway services etc. Dmitriy Korablyov — te manager of grain department of ADM ltd. - told us about the situation on the market.
Reference
ADM ltd. is a successful Russian grain company. Since December 1994 it has become the member of GAFTA (London, UK). In November 1996 the company came into the Russian Grain Union. The list of company's partners include F.J.ELSNER & CO, RAIIFFEISEN (Austria), BUNGE, LOUIS DREYFUS NEGOCES S.A. (France), TOEPFER, NIDERA and others.
- Has the activity and structure of your company changed during last years?
- The main company activities are grain and oil storage and trade at domestic and export markets. However over the last years our company focuces more on the domestic market of Russia. Higher profit and domestic money turnover increase became the main reasons for refocusing. As a rule, when concluding export contracts more norms are kept, meanwhile the profit is not always higher, especially it concerns transactions with Iran. Also it should be mentioned that the competition on export market has notably increased, but the margin is decreasing. We need to look for new ways of cost saving and improving of company effectiveness.
- What was the year 2014 for your company? Did market conditions change? What problems did your company face?
- The previous year was rather difficult for our company and for other market players. I would like to mention that farmers try to exclude elevators and be more independent, providing themselves with their own storage facilities. Processers, in their turn, focus on grain purchase from agrarians not using elevators. Thus elevators become less demanded.
I would like to emphasize that availability of own transport due to considerable logistics appreciation encourages good work under present market conditions. In spite of fuel price increase, motor transport is more preferable than railcar supplies. We refused to use railcars due to rapid increase in tarrifs for railway services in favor of motor transport.
- For most export companies the second half of 2013/14 MY showed unusually high export supplies volumes. How did your company work at this time?
- Generally, our company was selling grains from ex elevator during the period of active exports. However the exporters were highly interested in the purchase of main strategic crops.
- Did you face with the problem of wheat quality during this season?
- There are almost no problems with wheat quality in the current season. There are 70% of milling wheat that is a good index for our region. It was the first time when wheat by its qualitative indicators was impended to the first and second class. Meanwhile, there is little feed wheat of good quality and with corresponding GOST indicators. Thus in Volga region the demand for feed wheat is much lower.
- The first half of 2014/15 MY was rather difficult for most market players of Russia. What were the key factors that influenced price increase? How this trend influence your company functioning?
- Actually, the price increase became the primary trend in 2014/15 MY. Despite record bulk yield of grain, even in the beginning of the season when the prices were the lowest, it was visible that agrarians were holding the grain disposition. However high demand of refining and export companies motivated market to raise. At this time since October 2014 volatile situation on the exchange market has become the main factor that influenced price increase. In this case, we can unjderstand agrarians as they faced and will face considerable price increase for seed material, fertilizers, PPP, petroleum, oil and lubricants and for farm equipment. At the same time, they who wanted to make money, did this and even benefited. In the current situation, for farmer it is better to sell grain only on as-needed basis when working capital financing.
- Is there any connection between rapid price increase in the first half of the current MY and unsatisfactory condition of winter crops? Will it influence pricing in future?
- Price increase trend and winter crops condition are not connected directly. The situation on the exchange market is the key factor of pricing. It may be noted that price for wheat raise proportionally depreciation of the rouble. It may happen that in future unsatisfactory condition of winter crops can complicate price situation in the Volga region.
- Do you expect further appreciation of main grain crops providing depreciation of the rouble to USD?
- The current price situation is in direct relationship to currency rate. If the government does not take measures regarding rate stabilization and price adjustment, brisk growth of prices is inevitable.
- How does geopolitical situation influence export and domestic markets?
- Political factor does not have big impact on export market. The main exporters of Russian grain remain Egypt, Saudi Arabia, Iran and Turkey. Thus these countries do not have relation to sanctions imposed against Russia. Sanctions influenced economical situation and national currence devaluation.
- How can limit on exports of grain imposed by Rosselkhoznadzor influence the market?
- Likely certification regulations will be tightened. This will complicate the work of many export companies. The stored grain sooner or later will come into market. Now the high demand of exporters influence the domestic price significantly.
- How do you forecast the price development in the second half of 2014/15 MY?
- It depends on the exchange rate and on the government. If the rouble remains undervalued, prices for grain will grow by the late winter. By March-April farmers will start selling, prepare for sowing season and clear out stocks. However price stabilization after New Year holidays is unlikely as it depends on several factors.
- Can state intervention mechanism stabilize the work of domestic market of Russia?
- The only possible way to stabilize domestic prices is the range of exports limits. As for interventions, this mechanism is not effective as state prices remain lower that market's despite their growth. As a result, it will be hard to purchase at such prices as agrarians are not ready to sell grain at minimal prices.
- What are your company plans for future?
- Our company constantly develops new strategies to hold a position on the market and push the boundaries. We are interested in attrection of new clients who are involved in purcahse and sell of agricultural products. Also we plan to continue investing in elevator capacities. Probably we will begin produce grain and oil crops. In general, our plans are large enough and we will make best efforts for their implementation.
