It is necessary to take a balanced approach to the estimation of own risk appetite for profitable trading – Daniel Trading SA
In the current difficult conditions developed in Ukraine, the role of agrarian and industrial complex is really shouldn’t be overestimated, as the currency profit from the export potential sales continues annually increasing and filling the budget of the country. At the same time, the deficit of competent management and discontinuity in reforms quite often leads to failures in the adjusted work of the Ukrainian export market of agricultural products that is absolutely unacceptable in terms of the high global production and rapidly developing technologies.
Hereinafter, the Director of the company Daniel Trading SA, Elena Neroba kindly agreed to tell us about the milestone events, major challenges, and the main results of the Ukrainian and global export markets of agricultural products in 2017, and forecasts for 2018.
- How would You characterized the work of the Ukrainian grain market in 2017?
To date, the economy of Ukraine significantly depends on agrarian and industrial complex. The export of agricultural production gives more profit to the country, than metallurgy or mechanical engineering. Partly it is a disturbing signal. The world prices continue to move in the descending trend, and Ukraine is one of key players in the global food market. Nevertheless, the country still can't substantially influence the balance of power and somehow dictate the prices. The centers of influence are still far from Kyiv not only in economic, but also in the political plan. The lack of complex sate participation in the formation of agrarian policy and contribution of export is partially compensated by the expansion of large national companies – producers, processors and traders. Progress of the Association “Community Of Pulse Producers And Customers Of Ukraine” or Nibulon cooperation with the UN on food security of Egypt can be a striking example of it. The lack of a considerable stream of investments and problem with logistics only aggravate the situation when the profitability falls in terms of global overproduction and reduction of prices.
The macroeconomic tendencies of last years were furthered in 2017. Devaluation of hryvnia, though not so essential as earlier, also constrained investment moods, and the increase of the domestic prices was contrary to global trends. Surprising is an absence of our own exchange market. In spite of the fact that CME announced reincarnation of the Black Sea futures, and the Ukrainian exchange have even traded the pilot contract for wheat, the Ukrainian grain still is trading "alive", out of any exchange.
In 2017, more than ever eyes were turned towards meteo-charts. Weather forecasters became nearly market makers. Owing to dry and hot weather, the market geography also changed a little. The Ukrainian farmers got good profit on cultivation of barley. Russia "filled up" the buyers with wheat. Thus, the Black Sea region came to the leading positions of the market of leguminous.
- Did the Government of Ukraine manage to undertake real reforms in the sector of agrarian and industrial complex, and improve the business climate in the country?
All positive undertakings remained on paper. The main actions for the advance of Ukraine on the global agrarian scene were carried out by the non-state branch unions and committees and also business representatives. The attempt of the VAT return cancellation when exporting oilseeds became a final chord. Partially thanks to the fuss over this question in the press the norms will come into force later, than it was planned: on soybeans – since a new season, on rape-seeds – since 2020. Surely, the formation of additional cost within the country will provide not only the loading of already existing capacities, but also will fill the coffers, reduce unemployment rate and social load of the budget in the state. But the method chosen by the Verkhovna Rada of Ukraine is an example of unfair competition and, in fact, becomes an export duty. Processors were given chance to increase their volumes and expand the export geography, but producers of the raw materials have been taken it away.
A number of scenarios are unpredictable, up to reduction the areas under the crops which export falls under the new law.
The issue of the land market opening remained in the plane of populism and ingratiation with electorate and creditors.
The problems with logistics (the shortage of grain carriers and locomotives) and a constant debate of exporters and AMPU have also negative effect on export. The situation is aggravated by bureaucratic delays and the complicated document flow. It demands additional investments into formation of own park of coaches from producers and traders. The logistics on the river seems to be an alternative to car and railway transportations. But it also requires big capital investments. Thus, the circle is meanwhile shorted on negative investment climate.
The ports can’t do without state support. If private investors cope with accumulation of transshipment capacities and port infrastructure, then the question of dredging and a weight supply needs the state support. If Ukraine declares the growth of grain crop and reports about plans of markets’ extension, we are stimulated to compete with the southern and North American panamaxes. And the price is the single mechanism which will allow the Ukrainian exporters to trade with profit that will allow generating the funds for subsequent investments into the branch.
So far the Ukrainian startups play with drones which are actively used around the world, Google and IBM are already working on application of an artificial intelligence in agribusiness. New blue ocean – ag tech – along with a block-chain and big data have already became a mainstream. DuPont company, for example, decided to buy the Granula companies, the supplier of the agricultural software and analytical tools from San Francisco. By the way, completely robotic farm which is partially financed by the government already functions in the UK.
- From the point of view of global environment what factors, in Your opinion, provided the key impact on the Ukrainian export market of agricultural products?
I think that we shouldn't come back once again to the weather factor as it had been much told already about. It is undoubtedly a circumstance which is stronger than us.
Political aspects have also affected trade. From the nearest of them to Ukraine is "tomato" war between Turkey and Russia, games with the requirement to wheat quality of Egypt, protectionism of India and other requirements of the certain importers.
Besides, a number of the states, pursuing the geopolitical aims or protectionist moods, creates obstacles in the form of requirements to quality, processing of grain or import quotas.
In September 2017, the European Commission raised taxes on the import of corn, sorghum and rye in 2.12 times. The rates of duty on the imports of corn, rye and sorghum increased from 5.16 to 10.95 EUR/t. Initially, the duties returned in August 2017, after almost three years' duty-free imports of the grain. However, the key Ukrainian Ministry considers that return of the import duty for corn won't exert impact on the annual quotas of duty-free imports within the FTA. Therefore, regarding tariff quotas, it won't influence the Ukrainian exporters in any way.
Some hope for revival of market tendencies is given also by attempts to bring the Black Sea grain out of the plane of trade in raw materials to the plane of exchange transactions.
- There were many personnel and structural changes in the large-scale multinational companies in 2017. What were the most important ones? Did they affect the market work?
2017 was very eventful on news about transactions of M&A: COFCO has finished process of acquisition the rest stocks of the Nidera Capital B.V. On July 3, the Archer Daniels Midland (ADM) company declared completion of acquisition the French company Chamtor. The same day Danone has concluded the binding agreement with Lactalis about sale of Stonyfield for 875 mln USD in Paris. The Chinese state chemical company ChemChina has attracted 20 bln USD for financing the purchase of Syngenta and has got approval on completion the purchase of WhiteWave mainly by issue of termless bonds. However, the first transaction was a little bit saddened by the legal claim from the American farmers who insisted that they have lost entry into the Chinese market because of actions of Syngenta. DuPont and Dow have finished merge. COFCO International has agreed to sell it’s division on seeds production to Syngenta (and Syngenta as I have already said, was bought by other Chinese giant). Besides, CFIUS has finished the review of Bayer and Monsanto merge.
Each of these transactions as well as personnel shifts in LDC indirectly affect global trade of grain, and thus, the pricing, openness and ease of an entrance for these or those regional markets.
- Share, please, the plans of the company for 2018, and expectations concerning development of the market situation in the second half of 2017/18 MY.
Daniel Trading SA strengthens it’s the presence in the markets of the EU, Turkey and Israel. The company has already the number of direct buyers including transnatsional, and works on CIF basis, delivering corn, soybeans, cakes to end users. Following the results of negotiations of the second half of 2017 we have received contracts for a number of goods, new to us, and in 2018 we will actively master one more niche. I don't want to reveal all the secrets in advance, I will specify only, that we continue to work with producers of compound feeds. The last report of the USDA in 2017 hasn't met expectation of exporters a little. In particular, increased forecast of initial stocks of corn and soybeans, increased forecast of corn and wheat production, and especially – the insignificant growth of consumption of corn in comparison with November data has given the mass of questions. We expect a price turn in the market of corn and soybeans after growth of oil cost and increase in of bioethanol production.
It will be interesting to watch the market of barley. As a result of intense grain balance, barley has stopped to be an outsider. The demand for it remains above average in view of sharp reduction of production due to cut acreages in the previous periods and weather influence.
We aren't distracted by speculative transactions and we work at the cash market with real producers and processors. Therefore the estimates of consumption dynamics of each of the countries the Daniel Trading SA is trading with is very important as well as their trust to the quality of the Ukrainian production. We don't allow default transactions or problems with quality, therefore it is difficult today to speak about contracts more deeply, than a spot or 1-2 months.
Anyway, the market is a self-regulating mechanism, and we, as well as many other export-oriented companies, look for balance points.
- Being the director of young and dynamically developing company, share, please, the means You are guided not just to resist, but to improve the indicators and, respectively, profit.
There are three main keys - reputation, development and reaction. Dinosaurs have died out because they couldn't adapt to new climate. The speed of reaction to the market changes guarantees the positive result. To be reoriented quickly on the new markets, to find buyers and to improve business relations with them during a short period of time will allow the exporter not to lose profit. Naturally, it is impossible to do without faultless business reputation. We live in the world where information extends instantly, and "memory" at search engines is long. For example, the USA closes the department of grain export lobby in Egypt in view of considerable reduction of export volumes to the Egyptian market. In particular, in 2016/17 MY Egypt closed the fourth dozen of the list of buyers of US wheat, whereas in 2012/13 MY the country entered the TOP-5 in the rating. To date, the Egyptians give preference to the Russian and European grain and also expand own planted areas under wheat. Besides, it is necessary to take a balanced approach to the estimation of own risk appetite for profitable trading. The combination of long and short positions has to be followed by use of hedging instruments.
Interviewed by Anna Tanskaya, APK-Inform Agency
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