The dynamic export of the key grains and oilseeds, the high prices and of course the logistical troubles - this list of market challenges of the current season in Kazakhstan is far from being complete.
Thus, we decided to sum up the results of the FH of 2018/19 MY, to evaluate the prospects of the grains and oilseeds sectors of the country and to sort out the problematics of the agricultural area of Kazakhstan with the help of Evgeniy Karabanov, the founder of the group of companies Severnoe Zerno, the member of the experts union of the Grains Union of Kazakhstan.
— Evgeniy, the first half of 2018/19 MY in the area of the main grains in Kazakhstan has finished. What peculiarities would You emphasize?
The feature of the season is the drastically increased export of wheat, barley and linseed in terms of the same dramatic increase of the prices for these crops.
The pace of export of wheat (despite the small decline of wheat flour export), barley and oilseeds reached the record figure in 3 years despite the deficit of the grain cars in October-December of 2018.
This situation is based on the both the increase of the traditional importers of grains and oilseeds and the appearing of the new consumers of the Kazakh products.
Wheat and flour
One of the main importers of Kazakh wheat are the countries of Middle Asia - Uzbekistan and Tajikistan. The importers from these countries for the last 3 seasons steadily increase the purchases of Kazakh grain. Last season Uzbekistan imported 2.2 mln tonnes of wheat and Tajikistan – 1.1 mln tonnes from the total 4.9 mln tonnes shipped from Kazakhstan. The share of Uzbekistan in the total wheat export from Kazakstan in 2017/18 MY totaled nearly 45%. For the 5 months of the current season this country imported more than 40% of the total export of wheat from Kazakhstan. Based on the growing export of wheat to Middle Asia the import by Uzbekistan and Tajikistan is steadily declining. This is connected with the new grain processing plants in these countries. Uzbekistan recently has become the leading exporter of flour to Afghanistan. The country is becoming the large processing hub in the Central Asia, same as Turkey in the Middle East. Herewith, the both countries that do not have the sufficient amounts of own-grown grain for the processing and export are the netto-importers of the grain.
Turkmenistan also can be named as one of the active buyers of Kazakh grain and oilseeds this season. After the drought the country have significantly decreased the own-production of wheat. For the 5 months the export of Kazakh grain to Turkmenistan totaled 222.5 thsd tonnes (according to updated figures) which is the largest volume of the purchase by Turkmenistan for the last 15 years. In the previous seasons the importer was buying not less than 40 thsd tonnes. Moreover, Turkmenistan has become the active buyer of Kazakh flour.
So, the TOP-5 of the Kazakh grain importers for the 5 months of the current season included Tajikistan – 522.2 thsd tonnes, Afghanistan – 211.6 thsd tonnes, Azerbaijan – 179.4 thsd tonnes and China - 172 thsd tonnes.
Thus, according to the updated figures, for the 5 months of the current MY Kazakhstan exported 4,1 mln tonnes of wheat and flour (grain equivalent) which is 11% higher year-on-year and amounts to 50% of the total volume of export (8.2 mln tonnes) of 2017/18 MY.
The export of wheat totaled 2.7 mln tonnes (2.05 mln tonnes in September-January, 2017), the export of flour totaled 1 mln tonnes (1.19 mln tonnes y-o-y). It should be noted that this result is the highest for the last 8 years.
The wheat export in 2018/19 MY is forecasted at 5.2 mln tonnes.
Speaking of market of flour, for the last 3 years it is traditionally occupied by Afghani importers. More than 72% of flour and wheat are shipped to this country. Moreover, the export to other countries declines - to Uzbekistan and Tajikistan.
The flour export this season is forecasted at 2 mln tonnes.
In 2018/19 MY the total volume of the export of wheat and flour is forecasted at 8 mln tons.
The volume of grain harvested in 2018 stays the largest for the last 24 years. Based on the increase of the production (up to 4 mln tonnes according to Statistics Commission of Kazakhstan) the demand on the grains increases too, first of all from Iran.
The main importer of barley is Iran. The share of exported grain does not decline lower than 90% for last three seasons and for the 5 months of the current season shows more than 92%. The demand on this crop does not decline which is proven by the growing prices which are also the highest in 3 seasons. Taking into account the high dynamics, the export volumes of barley in 2018/19 MY can become the largest in modern history of Kazakhstan (since 1991). The factors contributing to this are:
- The large production and the total supply of the crop;
- The high demand of Iran and Central Asia (Uzbekistan, Tajikistan, Afghanistan) after the drought in Summer, 2018;
- Two grain terminals at the Aktau port with the all-year navigation and the high loading capacity;
- Ministry of agriculture of Kazakhstan and the General Administration of Quality Supervision, Inspection and Quarantine of China in December of 2018 signed the protocol on the phytosanitary specifications for the export of barley from Kazakhstan to China with the corresponding accreditation of the Kazakh plants.
For the last 5 years the production of oilseeds constantly increases. This season is not an exception. In 2018 Kazakhstan harvested the record 2690,6 thsd tonnes of oilseeds (according to Statistics Committee).
The agriproducers understood the high marginality of the oilseeds and started to «divide» for the diversification by means of the arable areas increase. If in the previous seasons they were attracted by the subsidies, this season they need not them. Apart from the increase of areas, the production grows also because of the improvement of the machines and the practical experience. The export also grows.
The absolute leader in terms of export for the recent seasons is linseed. Second season in a row Kazakhstan is becoming the global leader in terms of production of flaxseed. The Kazakh oilseed is of high demand by buyers in Belgium, Poland, Afghanistan and other. For the 5 months of the current MY the export of linseed totaled 256,4 thsd tonnes or 69% of the annual export of the previous season. The main buyer of Kazakh linseed in 2018/19 MY is Belgium - 49%, Poland - 26%, Afghanistan - 14%, Mongolia - 3%.
By analyzing the dynamics of the linseed export in the current MY, we can forecast that the total export will surpass the result of 2017/18 MY and reach the new record.
Speaking of export of other oilseeds, apart from the traditional sunflower seeds we should point out the export of mustard. The regular buyers of this crop are Germany, Mongolia (for China), Poland and starting this year Ukraine. Sunflower and safflower seeds are traditionally imported by Uzbekistan, Lithuania, China, Switzerland. Also, Mongolia continues to be the main buyer of rapeseed that re-exports the crop to China. Also, this crop was exported to Poland, Latvia, Iran.
The export of oilseeds this season is forecasted to reach 1 mln tonnes, including linseed - 490 thsd tonnes, sunflower seeds - 290 thsd tonnes, rapeseed - 136 thsd tonnes.
— The top problem of the agricultural sector of Kazakhstan this year is again the logistical issue. How do agrarians manage to work in such conditions? What difficulties would You note?
The start of this season, as well as of previous one, was characterized by the certain problems in terms of provision by grain cars and the congestions in the main transport routes (Aktau port and Tashkent station). Partially, the problem of the grain cars lack arose not only because of the large shipments this autumn, but also due to the prolonged return of the empty cars. So, if in the Aktau port the problem has been solved during October, in Uzbekistan rail roads this problem was long overdue (from October to mid-December). The reason for the congestions was the large consignments of grain and flour, including the transit to Afghanistan and Tajikistan, and also the lack of the train traction for “Ubekistan Temir Yullari”. Moreover, last year and this year the Aktau port is a hub for large shipments of Russian barley to Iran, especially in winter period, when the navigation via the Volga Don basin was closed and in Astrakhan it was limited.
As usual, the shipment of grain via the Russian ports in Black Sea, Azov Sea and Baltic Sea was an intractable problem. Despite the significant declined of the Kazakh cargo traffic via this route compared to the previous season, not many were able to ship their cargoes via the Russian ports.
Also, amid the prolonged return of the empty grain cars the owners of the wagon fleet preferred not to give it for the transportation via the problematic routes or increased the rates for the use of the grain cars.
Thus, the exporters “returned the 60th“ and partially returned to the shipment of the grains and oilseeds by the covered versatile grain cars, both in bulk and packed. So, the extra expenditures for the wagon arrangement, the prepacking of the products in sacks and big-bags (at the buyer’s request), and the expenditures for the loading of wagons are covered by the lowering of the rate for the shipment of the product in such a type of wagons compared to the use of the grain-cars, especially for the remote destination. Earlier such approach of the transportation was used only for flour, bran, and for the shipment of grains and oilseeds to Afghanistan and China. If we analyze the shipment of grains and oilseeds this season we could see that the shipment by covered wagons totaled: 35% to EU via Belarus and Russia, 17% - to Tajikistan, 25% - to Uzbekistan, 15% - to Turkmenistan, and 10% - transportation across Kazakhstan. In general, through the use of the covered wagons, Kazakh exported managed to significantly increase the volumes of the export.
— Speaking of the marginality of the grains and oilseeds, and also of the products of their processing, in Your opinion, what product was more profitable to export? What crops are of higher interest for the exporters this season?
The feature of this season lies on the higher demand on all grains and oilseeds. However, if we estimate the growth rate of the export prices, 3-, 4-grade wheat and barley are of higher interest. The growth of the export prices for these grains from September 2018 to January 2019 totaled 19% and 16% correspondingly. For the same period the export prices for linseed increased by 13%, for sunflower seeds – by 12%. If we estimate the growth rate of the domestic prices, since the start of the season the prices for barley accelerated by 31%, soft wheat – by 19% and linseed – by 35%! Sunflower seeds went up by 21%. The price dynamics for durum wheat and rapeseed was rather flat.
If we evaluate the profitability in terms of the investments, the leading position will go to 4-grade soft wheat, followed by barley, 3-grade soft wheat, linseed.
Apart from the mere figures, it is necessary to evaluate the logistical problems in terms of the product delivery to the buyer, risks of quality losses, the difficulty of the documents execution, the number of buyers, etc. With such parameters, I believe that 4- and 3- grade wheat, barley sunflower seeds and linseeds are in the lead. Of course, every trader has its own preferences and favorites both among the crops and the destinations. In recent years, the majority of traders don’t obsess with some particular crop and export destination and trade several crops in different directions.
— For the last several seasons Kazakhstan increases the export of durum wheat. One of the main buyer of this crop last MY was Italy. Do You expect the increase of the export of Kazakh durum this season, including to Italy? What quality parameters of the grain are of most priority of the Italian consumer?
The weather-climatic condition to the north of Kazakhstan are almost ideal for the production of high quality durum wheat – the raw material for the production of macaroni and pasta.
For the last 4 years the production of durum in Kazakhstan grew by 82% - from 401.5 thsd tonnes in 2015 to 731 thsd tonnes in 2018. The export of durum wheat increased by 65% - from 394.2 thsd tonnes in 2015/16 MY to 6500.4 thsd tonnes in 2017/18 MY.
For the 5 months of the current MY the export of durum wheat totaled 132 thsd tonnes, and by the end of MY can reach 450 thsd tonnes. The reasons of the decline of the export this season are the low quality owing to the weather conditions and the unattractive price conjuncture in the main importing countries in terms of the more expensive logistics.
The structure of main importers of Kazakh durum wheat also changed. 6 years ago in 2013/14 MY 67% of this grain was exported to Russia, whereas last season this the share of exports to Russia totaled less than 14%, and the export of durum to Italy for the last 5 years increased from 4% in 2013/14 MY to nearly 50%. The share of Turkey also increased – from 20% to 24%.
Among the other countries importing Kazakh durum wheat we can note some randomly appearing countries such as Sweden, Finland, Poland, Afghanistan, Tajikistan, Uzbekistan, Kyrgyzstan, Azerbaijan, and Tunisia.
The total volumes of the import of durum wheat by Italia (according to DG TAXUD) in 2016/17 MY (July-August) totaled 2126.2 thsd tonnes, including from the EU – 697.2 thsd tonnes and from other countries – 1429 thsd tonnes. In 2017/18 MY the import totaled 1919.3 thsd tonnes, including 713.3 thsd tonnes from the EU, and 1206 thds tonnes from other countries. The main suppliers of the crop from the EU are France, Greece, Hungary. The suppliers from other countries are Canada, the USA, Australia, Kazakhstan, Russia.
For the 3 season (July-August), from 2015/16 MY to 2017/18 MY according to DG TAXUD, the import pf Kazakh durum wheat by Italy increased almost 3,4 times- from 82.4 thsd tonnes to 277.4 thsd tonnes, and the share of the Kazakh durum in the total import to Italy accelerated from 4.5% to 14%. The difference of the Kazakh statistics and of European is based on the MY period consideration: September-August in Kazakhstan and July-June in the EU.
However, Kazakh durum wheat is trading in Europe with higher discount – 10-15 USD/t to Canadian and European durum wheat. There are several reasons: unstable and incoherent quality of the grain, delivery turmoil, the difficult and high cost of the logistics.
— Taking into account the geographical position of Kazakhstan and the logistics, what are the prospects of the widening if the markets for the main grain and oilseeds this season?
We have already mentioned the logistical problems of the previous and the current season, that are absolutely identical. And if in terms of soft wheat, barley and oilseeds trade all the issues have been resolved for the time left – more than 50% of the export potential has been exported, the issues of durum wheat and lentils export are not solved. In order to sell these crops, it is necessary to involve the seaport infrastructure in Russia and transportation in containers via the recently opened route – Baku - Akhalkalaki – Kars. Moreover, in terms of the shipment to the transcaucasian countries the ferry service is actively used – Caspia - Kuryk (Kazakhstan) – Alyat (Azerbaijan). This allows to decline the cost of shipping to the buyers from Azerbaijan, Georgia and Turkey owing to the absence of the transit though Russia. In Spring and Summer period the use of this route is seen even more actual due to the favorable weather conditions.
— In conclusion, I would like to thank You for the informative talk and I also would like to ask You about Your plans for the sort-term perspective.
The group of companies “Severnoe Zerno” this year will celebrate the “adulthood” – 18 years since the founding. There are plans for the further increase of the volumes of trade of grains and oilseeds (soft wheat, durum wheat, barley, linseed, rapeseed) to regular buyers and to the new ones. In December of 2018 the elevator LLP “Tyr Zher”and our trade companies amongst the 11 enterprises of Kazakhstan have received the accreditation to export barley to China. The elevator and the companies have already obtained the same accreditation for wheat. In Spring we expect to sign the approval protocol of the phitosanitary requirements between General Administration of Quality Supervision, Inspection and Quarantine of China and Ministry of Agriculture of Kazakhstan on the export of linseed and rapeseed to China. After the signing we hope to receive the accreditation for these crops. Also, in the coming season we expect to ship to China not only wheat but also barley, rapeseed and linseed.
Interviewed by Polina Kalaida, APK-Inform Agency