Next season Russia to likely increase the export volumes of grains – Artis-Agro Export

Source

APK-Inform

2461

 

  

               During several last seasons Russia has been staying on the forefront of global grain exports due the growth of production which contributes to the further development of exports and extends the territory of supply. Proceeding from the current rates, APK-Inform Agency estimates grain export in 2016/17 MY at the level of 35 mln tonnes (+2% to 2015/16 MY), including wheat export at 25 mln tonnes that is 3% higher than the previous year. Daniil Tikhonov, grain trader at LLC Artis-Agro Export, told APK-Inform journalists about features of the current season, key problems and development prospects of the reporting market segment.

 

- Daniil, how do You estimate the results of the first half of 2016/17 season in sector of main grain crops? What tendencies could be marked?

Among main properties of the current season, it should be noted, first of all, the record grain harvest for all the post-Soviet history, which exceeds 120 mln tonnes (with 73 mln tonnes accounted for wheat) according to Rosstat. However, despite ambitious plans for grain export (in particular, 40 mln tonnes according Ministry of Agriculture), it is obvious that this potential won't be realized fully. That is due the fact that bumper crops were harvested not only in Russia but in many other great producers such as the USA, Australia and Argentina. As a result the global market remained under pressure of the excess grain supply in terms of a deficit for new drivers demand.

 

- What crops and to what destinations does Your company export? Whether the export geography has changed for several recent seasons?

As for the main directions of grain export in the current season, it should be noted the increase in a share of unconventional directions, in particular export to the Far East which has never been heavy buyer of Russian grains. On the one hand, it’s caused by the necessity of the expansion new markets, and with another – the purchasing uncertainty of rather traditional directions (such as Turkey, Egypt). For example, total volumes of wheat deliveries to Bangladesh grew in comparison with the previous season by 51%, to Indonesia – by 47%, also, there were some shipments to Vietnam (while last season wheat export to this country has not implemented at all). The similar "Far East break" occurred also in the corn sector: thus, supply volumes to Japan rose from 13 thsd tonnes to 235 thsd tonnes and Vietnam became the second export market in the current season while last season it hasn’t bought Russian corn at all. It has imported 649 thsd tonnes of Russian corn and has bypassed South Korea in purchasing amount. However, you shouldn't be under a delusion with separate figures. From the second half of a season the Russian grain lost it’s competitiveness in the direction of the Far East. In the segment of wheat Russia was forced out by Australia (which harvested the record crop for all the history and has consumer preferences in respect of quality as well as benefit on freight cost). And while talking about corn, the market was occupied by Argentina and Brazil. In the first half of the season, Artis also made some shipments to Malaysia, the Philippines, Indonesia, etc. However, at the moment the export turned back to the traditional destinations (Egypt, Yemen, Nigeria, etc.) that reflects the increased competition from the countries of the Southern hemisphere in the new markets.

 

- What impact does the strengthening of Russian ruble have on the export potential of Russia in the current season?

Strengthening of ruble against dollar became one of the key factors which seriously complicated activities of the export-oriented companies. Since the beginning of the grain season ruble exchange rate increased almost by 13% that led to rise in price of the Russian raw materials in dollar terms. While the previous season high competitiveness of the Russian grain was provided also by expense of weak ruble, in the current one the currency factor plays against the Russian exporters.

- At the expense of what, in Your opinion, high competitiveness of the Russian Federation is provided on the global market? And whether Russian exporters are able to ship record volumes of wheat on foreign markets taking into account seasonal decrease in demand?

The indisputable factors which maintain demand for the Russian grain, including wheat during all the season are production decrease as well as quality degradation of grain in the main competitors -- EU countries, in particular France. Due to that factor Russia significantly increased the exports to such countries as Morocco (from 119 to 676 thsd tonnes). Besides, decrease in the export potential of Europe allowed Russia to rise significantly sales through the Egyptian state agency GASC: if in 2015/16-season Russia accounted for 47% of purchases, and France – for 14%, thus in the current season the share of Russia constitutes 69% whereas France delivered only 3 cargo (that made 3% of GASC purchasing volume).

Thus, increased competition and fall of external demand, obviously, won't allow exporting all the available surplus of grains. If in the beginning of the season most analysts were enthusiastic announcing grain export potential at 40-42 mln tonnes (including 30-31 mln tonnes of wheat), the forecast of 37.5-38 mln tonnes for grains and 27-27.5 mln tonnes for wheat looks much more realistic now. Limited export demand in combination with a record harvest resulted to the largest carry-over stocks of grains since 2009 which will constitute, by different estimates, from 18.5 to 23 mln tonnes. Considering the first (even very preliminary) grain forecasts of more than 100 mln tonnes for the next season, it is impossible to talk about essential bearish tendency in the market. More surprising seems the position of grain holders, preferring to restrain it’s products despite approach of a new harvest. Indeed, only some natural cataclysm in one of the manufacturing countries can change the market picture, however substantial weather risks aren't predicted in the nearest future.

 

- What factors do provide the key impact on pricing in the sector of main grain crops to date?

Importers and grain traders in the international market understand clearly the fact of great ending stocks in Russia, and also consider the account of good prospects for the new season harvest. For this reason the "turned" price picture of FOB quotations in the ports of the Black Sea is observed. Traditionally, if the contract for each next month of grain supply is traded more expensively (in view of grain storage expenses), now it costs cheaper than previous one: wheat quotations of 12.5% protein content FOB basis at ports of the Black Sea for April are 190 USD/t, while the demand for May doesn't exceed 185 USD/t, and wheat for July delivery is offered by 170 USD/t.

The ruble which strengthened to the record level since 2015 as well as harder line of agrarians, strongly intended to hold the grains until the last momentum, has led to the fact that Russian grain isn't the cheapest one in the world any more (on the FOB basis), losing the market to the US wheat SRW. Russia still keeps a benefit at the expense of cheaper freight in the traditional markets however the spread between the Russian wheat and the US SRW reached the minimum values (3-5 USD/t in favour of Russia in converting to Egypt). In this regard it will be interesting to observe the participants of the next GASC tender among which the US wheat can appear in quite competitive prices.

 

- How much do the relationships of Russia with main countries-importers influence the exporter’s activity in the current season?

The current season turned out to be reach with some unpredictable political actions which affected the operators of grain market. First of all, certainly, it’s been remembered the recent stop by Turkey the issuance of licenses for duty-free import on Russian grains. In the view of import restrictions, implemented by Turkey in relation to Russian grains, about 1.1 mln tonnes of wheat and 150-200 thsd tonnes of corn won’t be shipped to Turkey. As a result, these volumes will increase the large carry-over grain stocks even more since it’s not easy to find quickly the substitute of Turkish market despite official assurances of the Russian officials.

With variable success there are also deliveries of wheat to Egypt where in view of contradictory interests of some ministries extreme inconstancy in requirements to the imported grains and absolutely free interpretation of tender specifications is observed. 

- What markets, in Your opinion, are perspective for the Russian agricultural products, and what are the tendencies for next season?

Considering market prospects for future, it should be noted that Russia has all the chances to keep, and likely to increase the volumes of grain exports due to number of reasons. Thus, despite poorer harvest in comparison with the record index of 2016/17 MY, combined with higher beginning stocks general resources of grains on the market will be comparable with indicators of the current season (the first forecasts of the wheat harvest in 2017/18 MY constitute 66-68 mln tonnes). On the other hand, IGC analysts point out the decrease of production in other manufacturing countries. In particular, in view of reducing sowing acreages in the USA, the harvest of wheat may fall to 50 mln tonnes, against 62.9 mln tonnes in the current season. Australia will probably return from the record harvest of 35 mln tonnes to the average volumes of 28 mln tonnes.

In this way, there is a high possibly Russia will come back to the Asian markets (at least, before new Australian harvest entry the market in November-December). However, recovery of grains in the EU which can replace Russian deliveries to the Turkish market is quite possible. By the way, nearly 300 thsd tonnes of the Lithuanian wheat have already been declared for shipment into Turkey in spite of the fact that Baltic wheat at the moment is 6-7 USD/t higher than the Russian one.

Thus, we are approaching the new season with some contradictory baseline data. On the one hand, the strengthened ruble ceased to maintain the appeal of Russian grains for exports in case of the current price ruble levels. The export potential to the main destinations in habitual volumes is much more doubtful. On the other hand, in case of decreasing supply in the main producers, Russia has a chance to build up grain shipments in new directions. Either way, the final scenarios will become clear after the forming of harvest potential in the Northern hemisphere with crucial period in April-May.

 

Interviewed by Polina Kalayda, APK-Inform Agency

 

Reference

Artis group of companies begins it’s history since 1991. Originally, the company was engaged in the exports of various food products such as vegetable and animal oils, cheeses to Russia. However, as the domestic production started recovering and the own need for agricultural raw materials was completely covered, the issue of surplus realization by means of access to the global market became rather actual. As a result, in 2000 the company launched the exports of grains, vegetable oils and oilseed crops. In addition to Artis-Agro Export, Artis group of companies includes several enterprises with a common sphere of activity, which work for supplying of foodstuffs to consumers, and have common goals and values. To date, Artis-Agro Export is included into the list of 500 largest companies of Russia (by the rating of RBC). The headquarters are located in St. Petersburg, with the regional branch in Krasnodar. Nowadays the company covers 2.9% of Russian grain exports and 4.5% of Russian sunflower oil exports.

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