General estimation of the Russian grain market in 2016/17 MY is positive - ProZerno

Source

APK-Inform

2066

 

 

2016/17 MY became rather multivalued for the grain market of Russia. On the one hand, the season demonstrated record indicators of production and exports, on the other – it still has an impression that the reporting results could be even higher, especially for exports. We managed to talk with Vladimir Petrychenko, one of the leading analytics of Russia and the General Director at the company ProZerno LLC, about the main tendencies and results of last season.

 

- Vladimir Viktorovich, first of all, I would like You to estimate briefly the main results of 2016/17 MY for the Russian grain market. What key regularities and features would You distinguish?

The general assessment of last season, of course, is positive as many records were reached in many production indexes – as for the harvest volumes of sunflower-seed, soybeans and flaxseed, as well as record export of grains, wheat bran, flaxseed and sunflower oil are expected by the end of new season. It should be noted that during four recent seasons the declining price tendency dominated in all grains and vegetable oils having reached the bottom in 2016/17 MY. At the same time, despite low prices on the global market in 2016 Russia exported agricultural products and food at 17.1 bln USD.

By the way, price growth is continuing for sure as only during 4 months of 2017 (January-April) Russia exported 5.805 bln USD that is 12.9% higher than the same period of last year. And the total growth of agricultural production in 2016 totaled 4.8%.

 

- Now let’s talk about the highlights of last season. First of all, concerning the harvest – in what extent has it met Your expectations?

In 2016 Russia produced the record grain harvest – 120.7 mln tonnes with the highest indicator that for wheat - 73.3 mln tonnes. The harvest volumes of corn and pulses totaled 15.3 mln tonnes and 2.94 mln tonnes, respectively. Thus, the initial expectations were met, such development of situation has been put in forecasts though it is necessary to tell that sizes of records on wheat, and especially for corn, have surpassed all estimates both early, and late.

 

- How far did the Russian Federation succeed to realize it’s grain export potential in 2016/17 MY?

The export potential was not realized completely though the records have been set up. More details you may see in the following diagram.

 

 

The results of export turned out lower than actually were expected at the start of the season. We believed the grain export could actually got the amount of 42 mln tonnes (including rice and other crops), but, unfortunately, it totaled just 36.2 mln tonnes that is also a record indicator, but nevertheless, for various reasons it haven’t been exported for about 5 mln tonnes of grain, first of all wheat. This fact leads Russia to the beginning of new season with very high carry-over stocks of 22.3 mln tonnes that means the additional export potential in 2017/18 MY.

Let me also note that the Russian grain is delivered practically to all countries of the world. The largest volumes in 2016/17 MY were exported to Egypt – more than 7 mln tonnes (also local record), Turkey - more than 3 mlnn tonnes, and Bangladesh - nearly 2 mln tonnes. Morocco and Vietnam are becoming the new large importers of the product and also the shipments to South Korea are constantly growing, while deliveries to Japan reached 0.4 mln tonnes.

 

- What are the main reasons of unrealized export potential?

The reasons of such situation were in a wide range. First of all, in the start of the season the export duty slowed down the trade process, and only in October the situation has changed when it was succeeded to nullify it. Secondly, the "sluggish" environment with low global prices resulted in unprofitable ratio of domestic and external prices for exporters and low margin, but at the same time the state carried out interventional purchases of grain truing to stabilize the price situation on the domestic market.

Occasionally there were some problems with the main buyers also slowing down the trade process. Firstly, Egypt in August, 2016 entered a zero norm of ergot contents in wheat. Though, the requirement was cancelled in a month as sales stopped this led to declining of import of about 0.5 mln tonnes of the Russian wheat. Then on March 15 Turkey ceased to grant licenses for supply of the Russian agricultural products (grain, oil, meal) without payment of duty that actually was obstructive. Negotiations fallowed operatively, but two months were lost, and only at the beginning of May it was decided to lift trade limits, but there was a new problem: informally Turkey began to set quotas for the Russian wheat. This problem was solved in a week.  Generally, it cannot be said about supportive tendencies for the Russian agricultural products on the global markets last season, export took place in rigid and uncompromising fight, but all the same growth and records are available.

Besides, there were minor problems: weather in the Black Sea ports in January-February was uniquely unfavorable for any shipment, and export actually stopped…

 

- Concerning the state regulation, why did the government fail to cancel the export duties on grains for a long time in terms of such high export potential of wheat in the season-2016/17?

First of all, we would like to be convinced of insignificance influence on the rate of inflation. But the speed of decision as for Turkish export duty I would estimate as very dynamic for our state structures.

 

- One of key indicators of the grain harvest is quality, and there were some moments in 2016/17 MY when it was told about possible deficit of high-quality wheat. How far have these fears been proved?

The quality always was, is will be the key factor of the grain industry, and, indeed, the wheat harvest of 2016 was difficult in the context of quality. Rather high was the share of feed wheat – 28.7% against average 23.4%, while milling wheat totaled 71.37% against 76,3% on average. However taking into account record wheat harvest of 73.3 mln tonnes the volume of milling grain hasn't decreased, but even grown in comparison with last year, totaled 52.3 mln tonnes against 49.5 mln tonnes in 2015. At the same time, the main part of milling wheat was of 4-grade grain (49.1%), and the share of 3-grade grain has made only 22.27%. It has caused a certain alarm of the Russian millers concerning security with high quality wheat at the first half of the season. However, as it often happens, it has vanished by itself after The New year.

 

- As it was already mentioned, 2016/17 MY ended with very high carry-over stocks. How much are they significant, and what are the solutions of this problem?

As I have noted earlier, ending grain stocks in the Russian Federation in 2016/17 MY accounted 22.3 mln tonnes while the beginning ones of 13.2 mln tonnes. It has been the result not only of the record harvest, but also low growth of domestic consumption and insufficient export. But right here there is also a recipe of "fight" against it – the higher export in the new season. By the way, the south of Russia has the biggest excess of grain stocks in comparison with the same periods of last year.

As for June 1, 2017 the grain stocks in Southern Federal District were 54% higher, than year ago, and in North Caucasian – in 41.2%, thus it was the main Russian export platform to have an additional export potential. And as for other problems with overstocking and the other financial troubles caused by this phenomenon, strangely enough, but the grain market worked during this period rather good. That means that Russia have learned to store grain and to diversify it’s stocks and commodity portfolios. First of all, at the expense of oil-seed crops.

 

- The change by months of shipments dynamics became the remarkable feature last season. What has it been caused by?

Yes, usually about 70% of Russian grain is exported in the first half of a season, while other part is realized after The New year. However, about 57% of grain were exported at the beginning of last season and other 43% in the second half. That was caused by above-mentioned factors and problems on start of the season, such as insufficient export, high ending stocks, etc.

 

- How does the existing grain infrastructure cope with the increased export volumes, and whether any "bottlenecks" were noted here in 2016/17 MY?

It is always possible to find some bottlenecks in any infrastructure, especially, such big and wide on geography, as Russian. For example, if it talked about export, the Novorossiysk port shipped more than 13 mln tons of grain in 2016/17 MY. It was the record, but it would be higher if it hadn’t been for weather in January-February, 2017 that occasionally prevented from the operation of terminals. To our general assessment, the capacities of Russian export transshipment are at the level of 48 mln tonnes per year.

 

- 2016/17 MY has also laid the foundation of the next season harvest. How could You estimate the results of the planting campaign, and whether it already gives the chance to forecast the key factors & tendencies of 2017/18 MY?

The planted areas of 2017 harvest was rather high – 17.38 mln ha that is the second largest indicator since in 2010 (17.96 mln ha). The preservation of crops is very good, and the death of winter grain is no more than 4.8%. As a result, about 16.6 mln ha of winter crops can be harvested that is 3% more than that of last year.

The planted areas under summer grain can reach 30.89 mln ha that is 0.3% above last year. And in general, the planted areas under grain crops of 2017 harvest in Russia can grow by 0.7% - up to 47.45 mln ha from 47.11 mln ha in 2016.  However, the average yield of grain in 2017 can totaled 2.42 t/ha what is 5.5% below the record 2016 (2.56 t/ha). It does difficult to repeat the records yields without interruption…

 

 

As for crops estimates of 2017 harvest, we expect for decreasing for practically all crops, except oats and buckwheat. At the same time, speaking about the last season, it should be noted rather high planted areas under it – 1.5 mln ha. Separately, I would also note, that, total assessment of Russian corn harvest in 2016 (15.31 mln tonnes) is a bit overestimated, approximately by 1 mln tonnes. Therefore, the forecast of 15.12 mln tonnes for 2017 corn production can show some growth, but not decrease. More detailed our estimates of crops forecasts for 2017 are given in the table.

 

 

Production volumes of grain crops, and forecast of ProZerno (June) for 2017, `000 tonnes

 

2011

2012

2013

2014*

2015*

2016*

2017* (forecast)

Changes in 2017 to 2016

Changes in 2017 to 2016, %

Wheat

56 240

37 720

52 091

59 711

61 786

73 295

69 330

-3 965

-5,4

Barley

16 938

13 952

15 389

20 444

17 546

17 993

16 596

-1 397

-7,8

Rye

2 971

2 132

3 360

3 281

2 087

2 541

2 510

-31

-1,2

Triticale

523

464

582

654

565

619

563

-56

-9,1

Oats

5 332

4 027

4 932

5 274

4 536

4 761

4 860

99

2,1

Millet

878

334

419

493

572

630

594

-36

-5,7

Buckwheat

800

797

834

662

861

1 186

1 272

86

7,2

Corn

6 962

8 213

11 635

11 332

13 173

15 310

15 115

-195

-1,3

Rice

1 056

1 052

935

1 049

1 110

1 081

980

-101

-9,4

Pulses

2 453

2 174

2 037

2 196

2 357

2 943

2 857

-86

-2,9

TOTAL

94 213

70 908

92 385

105 315

104 786

120 672

114 867

-5 805

-4,8

* Taking into account the Crimean figures

 

- And in conclusion of our conversation, please, specify the main "boundaries" of 2017/18 MY.

Now I assume that high grain export potential will be the main feature of the new season. Probably, it will increase from 36.1 up to 41 mln tonnes in 2017/18 MY, including wheat – 31 (26.9) mln tonnes and corn – up to 5.6 mln tonnes, against 5.08 mln tonnes a year ago. As a result, both crops will be record. Also voluntary reorganization of new work rules the charter of exporters which obliges to avoid cooperation with unfair intermediaries with payment of the VAT, for certain, will positively affect activity of the grain market. Many exporters already buy grain directly from producers and/or is accurate with/without the VAT. This process started in June and will be recustomized for some months, but it will contribute the grain export potential of Russia in the new season to be realized completely.

 

Interviewed by Alexander Pryadko, APK-Inform Agency

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