It is wrong to say that the season 2014/15 was boring and average for the Russian market. Despite the export tax imposition the country exported the record volume of grain and is able to set the new historical maximum. We interviewed the Director of the Analytical Center Pro Zerno Vladimir Petrichenko on the current price situation and the prospects of 2015/16 MY.
- Please give your estimation on the previous season in general and the Russian wheat export tax imposition introduced on February 1, 2015
In the validity period of export duty which was officially canceled on May 15, 2015, but in reality due to the technical features – on May 23, 2015, Russia underexported 1.5-2 mln tonnes of wheat. However it is in theory because we now live in the offered circumstances. The export duty introduction negatively influenced the export volumes and price formation for the agricultural producers, though note the global market faced the bearish tendency in the stated period. Meanwhile, within the duty the country exported nearly 1.9 mln tonnes of wheat with the budget being received nearly 80 mln USD. But these are facts of direct impact, the grain industry lost much more due to the prices decrease on the market in general. By the way, the grain society (Grain Union first of all) offers the money and the future customs incomes to return into the grain production.
- How negative will the new export duty impact in 2015/16 season not only for export direction but for the Russian agriculture in general?
It is rather hard to forecast it because there is the component being unknown to us and uncontrolled by us – the national currency Ruble exchange rate to the USD and other currencies, due to the duty size is mostly dependent on it. To date the exporters are careful by purchasing grain for future, because, being aware of the price they do not know the duty size. Considering the forecasts of the Russian economists are true and the exchange rate is calm and to be within 55-57 RUR/ USD and wheat price not to exceed 240 USD/t the duty impact will be moderate. Note, the Russian economics condition is not the major player in the stated issue because we do not know the Greece situation development, meanwhile it is the major factor forming the exchange rate.
- While export duty introducing there was barley and other niche crops exports significant increase. Is there chance that agricultural producers will decrease wheat planted areas for crop 2016 in favor of other crops?
I would not unite the barley exports increase in 2014/15 MY with the duty. Indeed last season Russia exported the record volume of barley – 5.3. mln tonnes and we entered the TOP-3 of the grain exporters. It is historical record but it is due to the fact you have somehow to use crop of over 20 mln tonnes and still the carry-over stocks increase. Unfortunately other crops which in theory could also be exported did not face a good harvest result. Besides in February and March when the wheat export duty was introduced the exporters turned to other crops which is normal reaction.
As for the agrarians to decrease wheat areas, to date there are no pre-conditions for it. Probably when the export duty impact is understandable and visible it will have some impact on 2016/17 MY and probably may become the factor. But by that time I hope the grain society will convince the government not to let it happen.
- Do you expect early grains qualitative parameters decrease in the regions due to the harvesting campaign delay caused by rains?
To date the weather factor in Russia has the local character: that is drought in the Volga region and rains in the southern oblasts of the country. According to the crop harvested in the South it is worth to note rains did not impact it. According to my forecasts, the grain qualitative parameters to exceed average ones.
- To date market operators cannot form start prices for new crop wheat and even if they do the range is rather wide. What is the reason of it?
As for export prices for 4 grade wheat 12.5% protein content – the range was rather small – 190-195 USD/t, and the market tendency is upward. Note the global market appreciation influenced prices rise up to 200 USD/t and more. Meanwhile RUR prices faced the opposite situation due to the duty as I mentioned above. Thus the absence of its being understood and drought in the Volga region get us back to the crop 2014 prices.
- In the beginning of the previous season the Russian wheat forward purchasing prices exceeded the level of 200 USD/t meanwhile in 2015 the prices are lower. Can you explain the tendency?
In 2014 on the FOB deep water ports basis the wheat forward purchasing prices were are the level of 250 USD/t facing a decrease to 236 USD/t in the period of July-October, 2014. As of to date the prices are lower. Note any comparative analysis of July, 2014 prices with the July, 2015 prices and even with December, 2014 prices is incorrect due to the USD exchange rate. In July, 2014 USD index to six world currencies was 80-82 units, meanwhile to date it is 95, and within the stated period used to reach 100 units. So it is possible to state the USD exchange rate strengthened from the stable condition in July, 2014 by 15-20%. So it is correct to state the start prices of 2014/15 season are equal to the current 210 USD/t considering the USD exchange rate strengthening. On my opinion the contract price being discussed at the level of 200-205 USD/t FOB Black Sea with September delivery is not bad, and due to the situation in Greece the USD may reach a parity rate with EUR so it will be 200 UER unlike of previous 200 USD which is absolutely different money. Besides note that the softness of the national currencies of Russia and Ukraine to USD shows the grain prices in those countries will be higher.
- As of beginning of 2015/16 MY in Russia there are rather high carry-over stocks of grain. Have the regions enough facilities for new crop storing?
I have to admit that facilities numbers in Russia are hard to be defined due to the rather big range of volumes – from 110 to 130 mln tonnes. Russian agricultural enterprises continue large-scale stores building for own needs, so still there is the shortage of grain storing facilities. Of course if the agricultural crops harvest to exceed 120 mln tonnes the problems may appear however those things do not happen unexpectedly. There should be the appropriate infrastructure which would allow to plant such areas, harvest the crop and only after to place it.
- Will there be any change in the export supplies geography in the new season?
I would say that according to the previous season result there is no place where the Russian grain would not be supplied. We have own favorite partners and directions whose positions have improved and those are Turkey and Iran. Besides, note that Kazakhstan grain exports decrease to the countries as Iran, Azerbaijan and Georgia allowed us to increase supplies to the mentioned directions, but even if those volumes to return the Russian supplies to remain at the high level. Beside the North Africa countries being the constant importer of Russian wheat the country significantly increased exports to the Black Africa countries (Sudan, Nigeria, South Africa, Tanzania, Kenya). Note that Russian grain was imported to the countries of Central and South America, as, for example Mexico imported nearly 0.5 mln tonnes. It is possible for Russia to enter the Chinese market and to continue the tendency of supplies increase to the countries of Indian ocean, to Indonesia and Bangladesh first of all, but most of it – to Korea.
- What is your forecast on grains crop and exports in Russia?
According to the data of Pro Zerno, in 2015 Russia including the Crimea data to harvest nearly 103.9 mln tonnes of grains as opposed to 105.3 mln tonnes in 2014. Thus, wheat crop to reach 60.55 mln tonnes, barley – 17.6 mln tonnes, corn – 12.1 mln tonnes.
As for exports in 2014/15 MY Russia supplied nearly 31.2 mln tonnes of grains (pulses and rice included). Note that nearly 0.5 mln tonnes of the volume was exported to Kazakhstan, so non Customs Union supplies reached 30.72 mln tonnes of grains, which is the historical record. In the new season the export potential is estimated at the level of 34 mln tonnes despite the harvest decrease owing the carry-over stocks rise. In particular, wheat supplies to reach 25.1 mln tonnes, corn – 4.7 mln tonnes and barley – 3 mln tonnes. It is worth to underline that due to the wheat export duty introduction it is only the export potential and what volume the country will export is the matter of time and market.
Interviewed by Evgenia Severina
