Agricultural Investments

May 16, 18:51 Source: APK-Inform Views: 80

Black Earth Farming cuts plantings to help profits

Black Earth Farming followed the likes of Agrokultura in revealing a "shrink to victory" strategy as it unveiled a wider first-quarter loss, with the rouble's plunge hitting the farm operator's plans to return to profit.

The Russian farm operator revealed that it planned to sow 185,000 hectares with crops this year, an area which, while large by Western standards, represents a cut of 40,000 hectares year on year, an area bigger than that of Dublin, Honolulu or Taipei.

The decline reflects in part the sale of last month of 27,754 hectares of land, plus facilities for storing 29,000 tonnes of crop, to Avangard Agro, the Russian agricultural giant which already controlled more than 300,000 hectares of land, and harvested 1.27m tonnes of crops last year.

Black Earth Farming expects to book a $5m after tax profit on the $21.1m sale of land from a region the group highlighted has historically produced below-average results.

Indeed, the group's chief executive, Richard Warbuton, said that it had decided "not to crop land with lower expected yield potential" in other parts of its empire too.

'Shrink to victory'

The decision echoes that from peers such as Black Sea peer Agrokultura, which has also reduced its area to the best-performing areas in an attempt to boost its fortunes, a plan one City analyst described to Agrimoney.com as a "shrink to victory" strategy.

However, Mr Warburton, unveiling Black Earth Farming's 1.46bn-rouble loss last year, highlighted that the group's "yields were too low, the costs were too high".

He said on Friday that the group was focusing on "continued operational improvements to lower cost per tonne in our core business".

Rapeseed out, corn in

The biggest cutback in sowings has come in winter wheat, for area is down some 60% at 30,200 hectares, although that also reflects a poor sowing period, with persistent rains hampering plantings.

Among spring-sown crops, rapeseed area is being cut by 44% to 17,700 hectares, with barley and soybean sowings reduced too.

But the group's corn area is expected to soar 52% to 55,800 hectares, echoing the grain's increasing popularity in the region, first in the Ukraine, which has emerged as a major world exporter, and now Russia - a trend fuelled by improved seed, some imported from Canada.

Russia's corn harvest will hit a record 12.5m tonnes this year, thanks to a rise in area to an all-time high of 2.60m hectares, the US Department of Agriculture forecasts.

Loss widens

Black Earth's comments came as, in its first results reported primarily in dollars, it unveiled a 41% rise to $19.6m in losses for the January-to-March period.

Although revenues rose 28% to $25.4m, a 9% weakening in the rouble against the dollar over the quarter caused an $8.2m loss during the period in "foreign exchange translation and transaction effects".

Black Earth Farming shares, which are listed in Stockholm, stood 1.7% lower at SEK5.90 in morning deals.

 

Source: agrimoney.com

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