growing importance of russian milling wheat worldwide turkey...
TRANSCRIPT
1
Growing Importance of Russian Milling Wheat Worldwide
Sergey Chumak
Solaris Commodities S.A.
Turkey & Russia – Symbiotic Relationship of Milling Wheat
Trading
Table of Contents
Page 3 – SOLARIS company Bio
Page 4 – Russian wheat – Synopsis of presentation
Page 5 – Russia & Farming
Page 6 - Russian Land
Page 7 – Russian Agricultural Sector
Page 8 – Russian Grain Area Growth
Page 9 – Wheat producing regions Russia + Kazakhstan
Page 10 WINTER WHEAT growing regions
Page 11 SPRING WHEAT growing regions.
Page 12 Russia – Importer to Exporter
Page 13 – Winter vs Spring Wheat Area %
Page 14 –Winter vs Spring Wheat Production (MMT)
Page 15 – Net Wheat Trade – Russia
Page 16 – Wheat Exports – Russia
Page 17 – Total Wheat Supply - Russia
Page 18 – Russia Wheat Harvested Acres & Yields
Page 19 – Wheat Production & Exports – Russia
Page 20 – Wheat Production – Russia
Page 21 – Wheat S&D – Russia
Page 22 – Sale of Wheat – Russia
Page 23 – GOST Standard
Page 24 – Export Quality
Page 25 – Top 10 Importers of Russian wheat
Page 26 – Destinations of Russian Grains
Page 27 – Worlds Top Wheat Exports
Page 28 – World Wheat Yields
Page 29 – Russian Wheat Exports – Growing Share
Page 30 – GASC Volume by Origin 2016/2017
Page 31 – Russian Wheat Yield and Carryout
Page 32 – Production Costs
Page 33 – Income & Production Costs of Wheat
Page 34 – Average Prices of Land
Page 35 – Future for Russian Wheat
Page 36 – Points to Watch
Page 37 – Russian Loading Ports
Page 38 – Exports of grains from Russian Ports
Page 39 – Turkey’s Wheat Imports and Production
Page 40 – Turkey’s Wheat Imports by origins
Page 41 – Quality of Russian Wheat
Page 42 – Average Quality Parameters of Russian Wheat
Page 43 – Main Factors of Quality
Page 44 – Shares by Class
Page 45/46 – Fusarium in reality
Page 47 – Preventive Measures
Page 48/52 – 5 questions to Turkish millers and answers
Page 53 – Conclusion
Page 54 – Useful links
2
3
Solaris Commodities S.A. started trading in Feb. 2012
See WWW.SOLARIS-CH.COM
Traded 1.6 Million MT of Russian grain last season
Largest trader of Russian corn in 2015/2016 season
Export partner of MIRO GROUP RESOURCES, based in
the grain heartland of southern Russian, Krasnodar.
Exporting from 3,000 MT coasters from Azov Sea to
63,000 MT Panamax size + containers.
.
RUSSIAN WHEAT – SYNOPSIS OF PRESENTATION
1. Overview of agricultural sector in Russia.
2. Where wheat is grown in Russia
3. Winter/ spring wheat production/yields.
4. Production and Export statistics.
5. Cost advantages of growing wheat in Russia
6. Quality of Russian wheat vs. other origins.
7. Export destinations.
8. Challenges and future potential.
9. Conclusions on the first part of presentation.
10. Main Russian export hubs of grains and capacities.
11. Turkey’s milling wheat imports.
12. Quality of russian milling wheat and seasonal factors.
13. Fusarium in reality.
14. Advantages of Russian Milling Wheat for Turkish millers.
15. Conclusions and questions.
Russia and Farming
During the Soviet period farms
were collectives, called ‘Kolkhoz’ -
‘Sovhoz’
USSR ended in1991 and farms were
privatised.
Cash is king. Sale of wheat
domestically is in roubles and
include 10% VAT, which is
reimbursed to the exporter
between 2-6 months after export
5
Russian Land
Russia has 10% of all arable land in the world and 40% of
what is known as “Black Earth” (3% of the arable land in
Russia) which are in an area called the “Kuban” Krasnodar
/ Stavropol regions)
Yields for wheat in the Kuban are often over 7 tonnes per
hectare as opposed to the Russian average of 2.5 tonnes
per hectare.
6
Russian Agricultural Sector
The Russian agricultural sector employs around 7 million
people or 9% of the working population and produces 5%
of the gross national product of Russia
The Russian agriculture sector has 124mln ha (of which 44
mln ha are set aside for grain production, of which
29mln ha of wheat (15mln ha winter wheat / 14mln ha
spring wheat)
In 1990 there were around 25,000 “collective” farms. In
2015 there were 285,000 private farms, which generally
have between 10 and 100 hectares, but there are 40 huge
agri-businesses in Russia with over 100,000 hectares 7
Source:AEGIC
Russian Grain Area Growth 2017 Russian wheat area to be 7% higher than
2016 and is the 5th consecutive year of annual
growth.
This represents the largest area since 1990
The total area sown to grain & oilseed crops in
Russia is expected to grow from 49 million ha
in 2014 to 52.1 million ha in 2030.
This represents a 6% growth in total area, with
the wheat area increasing from 48% of the
total area to 52% over the same period.
The Russian government is expected to invest
over $38 billion in the next 15 years with
investment from the private sector totalling
over $40 billion.
Despite this investment, Russian still has 18Mln
ha of idle farmland (although some say this
could be as much as 30Mln !!) 8
48%
3% 18%
21%
10%
2014
52%
3% 15%
20%
10%
2030
Wheat
Corn
Barley
Oilseeds
Other
Source:AEGIC
9
SOURCES: USDA / ROSSTAT
10
RUSSIAN SPRING WHEAT PRODUCTION Source – USDA/ Rosstat
11
SOVIET UNION - Russia
Importer to top exporter
12
1970s
•Soviet
Union
imported
millions of
tonnes of
grain
• The “Great
Grain
Robbery”
1980s
•Imports
continue
1990s
•1991 End
of USSR.
Start of
Exports
2030-2040
Russia could
produce over 75
million MT of
wheat with 35-
40 million MT of
exports
2000 -2015
• Russia
becomes a
major wheat
exporters
(with
exceptions in
2010 & 2012)
13
0,0
10,0
20,0
30,0
40,0
50,0
60,0
70,0
80,0
90,0
100,0
Winter vs Spring Wheat Area %
Wheat winter. Area Wheat spring. Area Source:IKAR
Winter vs Spring Wheat Production (MMT). Areas planted
are similar, but winter wheat has better yields
49,35
23,15
0,00
10,00
20,00
30,00
40,00
50,00
60,00
Winter Wheat Spring wheat
14
Source:IKAR
-15,00
-10,00
-5,00
0,00
5,00
10,00
15,00
20,00
25,00
Russian “Net” Wheat Trade. An incredible rise in the past 17 years!
15
Sources:Agrochart-AgResource-USDA
Russian Wheat Exports – MMT
0
5
10
15
20
25
30
35
40
Exports
Exports
16
Source:Agrochart
Russia’s Total 2016/17 Wheat Supply will be up16% from 2015/16
The Largest on Record!
17
0
10
20
30
40
50
60
70
80
Productions Beginning Stocks
MMT
Source:Agrochart
Russian Wheat Harvested Acres & Yields
1,00
1,20
1,40
1,60
1,80
2,00
2,20
2,40
2,60
2,80
10
12
14
16
18
20
22
24
26
28
Harv Area ('000 HA) Yield (Mt/HA) Doğrusal (Yield (Mt/HA))
18
Mil Ha MT/HA
Source:Agrochart
Russian Wheat Production (MMT)
0
10
20
30
40
50
60
70
80
19
Source:Agrochart
Russian Wheat Production & Exports (mmt)
0
5
10
15
20
25
30
35
0
10
20
30
40
50
60
70
80
Export
s
Pro
ducti
on
Production Exports
20
Source: Agrochart
21
Russian Wheat Supply/Demand Balances
July/June; Mln HA; MMT Est
15/16 16/17 17/18
Harvested 25.6 27.1 26.5
Yield 2.4 2.7 2.6
Carry In 6.3 5.7 10.5
Production 61.1 72.5 69
Imports 0.8 0.3 0.07
Supply 68.2 78.5 81.1
Feed 14 16 16
Other Ind 23 23 23
Domestic Use 37 37 39
Exports 26 29 30
Total Demand 63 68 69
Carry Out 5.7 10.5 12.1
Stocks/Use 9.1 15.4 17
Exports Season to Date 17.3
Balance to Ship 11.7
Source:WASDE
Sale of Wheat in Russia
Sales of wheat are as per local «GOST» standards in roubles.
Some traders give finance to farmers against their production, but legally the
farmer can repay these prepayments (with interest) rather than deliver the
goods. This engenders certain risks for the traders..
The busiest time of year is July-September as farmers come to market with
their crops after harvest. Most farmers deliver their goods ex-works on the
farm, but some are entering the export market directly.
Many large scale farming operations, but many decisions are still taken by the
owner only. Futures contracts to hedge are not widely used. Prices are
followed on local information provideres such as IKAR or SOVECON or
RUSAGRORTANS.
22
Quality of GOST Standard
5 grades of wheat in Russia.
1st class 14.5 protein / 32 % wet gluten
2nd class 13.5 protein / 28 % wet gluten.
3rd class 12.5 protein / 23 % wet gluten.
4th class. 11 protein / 18 % wet gluten.
5th class. Feed wheat. No min protein/gluten
GOST Gluten= +2% for ISO result.
23
Export Quality – 12.5% Protein Milling Wheat
Protein: min. 12.5% (N x 5,7 dry matter)
(minimum 12% for GASC)
Specific Weight: min. 77 kg/hl
Gluten: min. 25% (ISO 21415-1)
Falling Number Hagberg: min. 250 sec
W: min. 180
Moisture: max. 14%
Foreign Matter: max. 2%
Bug Damage: max. 1%
24
TOP 10 importers of Russian wheat
period 2011 to date..
25
1 Egypt 26.46 mmt
2 Turkey 17.38 mmt
3 Iran 5.42 mmt
4 Yemen 4.71 mmt
5 Nigeria 3.28 mmt
6 Bangladesh 3.27 mmt
7 Israel 2.82 mmt
8 Sudan 2.80 mmt
9 Libya 2.20 mmt
10 Lebanon 1.82 mmt
Source:IKAR
Mexico India, Pakistan,
Bangladesh Indonesia,
S.Korea
Ghana, Senegal,
Sth Africa
Middle East
North
Africa
Destinations of Russian Grains
Truly Global
26
Top World Exporters of Wheat (mmt)
Russian = top exporter in 2016
11,3
18,61
22,8
25,54
29
34
0
5
10
15
20
25
30
35
40
12/13 13/14 14/15 15/16 16/17 25/26 est
Russia US EU Australia Canada Ukraine Doğrusal (Russia)
27
Source:USDA
Wheat Yields for Major Producers – MT/HA
0
1
2
3
4
5
6
EU Canada US Australia Russia
1996/97 2006/07 2016/17
28
Source:WASDE
The Growing Reach of Russian Wheat
-
0,50
1,00
1,50
2,00
2,50
3,00
3,50
4,00
4,50
5,00
Nigerian Wheat Imports
US HRW Russia Total Imports
-
1,00
2,00
3,00
4,00
5,00
6,00
Mexico Wheat Imports
US HRW Russia Total
29
Source:WASDE
20%
30%
40%
50%
60%
70%
80%
90%
0
60
120
180
240
300
360
420
480 Russia
Share
of P
urc
hase
s %
GASC P
urc
hase
s ‘0
00M
T
Eksen Başlığı
GASC Volume by Origin – YTD 2016/17
Russia Others Russia % of Total
30 YTD total purchases 4.6MT, of which Russia 3.34MT or 73%.
Russian Wheat
0,00
0,50
1,00
1,50
2,00
2,50
3,00
Yield (Mt/HA)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
2
4
6
8
10
12
14Carry
out/
Use
% C
arr
y O
ut
(MM
T)
Wheat Carryout (MMT)
31
Source:Agrochart
32
PRODUCTION COSTS
SEEDS rub/ha 1,210
OTHER FARM INPUT COSTS/PESTICIDES rub/ha 3,150
FERTILIZERS rub/ha 6,040
FUEL(PETROL/DIESEL) rub/ha 1,560
COST OF LAND RENTAL/OWNERSHIP-SALARIES-
ADMINISTRATION COSTS rub/ha 14,290
26,250
YIELD OF WHEAT(MT/HA IN KRASNADOR mt/ha 5.20
COSTS PER TONNE (MT) rub/mt 5,048
STORAGE+TRANSPORT TO INLAND SILO/CLEANING rub/mt 555
TOTAL COST rub/mt 5,603
(approximate ) Exchange Rate of 1 USD = 60 roubles $93 / MT
Cost of transport to port of loading (Novorossisk) CPT 900 $15
Cost of fobbing at Novorossisk 1200 $20
Total cost FOB $128
FOB PRICE 12.5% FEBRUARY 2017 = 190 usd PROFIT $62 / MT
33
With the exception of the Ukraine, Russia is the most cost effective producer of wheat in the
world currently. With significant cost advantages in fertilizer & pesticide cost as well as low
land values and labour costs.
Vast improvements in supply chain efficiencies during the peak load period of July-September
have taken place since 2009 with significant investment, particularly in port infrastructure.
Income & Production Costs of Wheat – US$/mt
0
20
40
60
80
100
120
140
160
180
200
US Australia EU Canada Russia
Min Cost Max Cost Gross Revenue
Source:IntlFCStone
34
0
2000
4000
6000
8000
10000
$/acre Average Prices of Crop Land in 2016
Source: SovEcon, USDA
Future for Russian wheat
Russia can improve yields and increase global market share.
Infrastructure projects are planned in the Black Sea, the Azov sea
as well as in the Caspian to serve demand in Iran and in the Far
East, notably in Vladivostok for the Asian market.
Russian wheat often has the best quality/ price ration. Good
extraction values for flour.
Production costs are low ($ 90-115/mt) & the price of land up to
5x less than in USA/ EU. (between $1,500 - $3,000 per hectare vs
$5,000 in Kansas? $20,000 in Iowa? As per Sovecon)
35
Some points to watch Politics: there have been some export restrictions/ taxes (most
notably the ban in 2010, unlikely to be repeated)
Weather – extreme cold in winter/ very hot in the summer.
Default risk/ counterparty risk.
Fraud + financing issues
Cost of logistics rising/ expensive FOBBING cost $23/mt in peak season in Novorossissk. Can infrastructure keep pace?
Cultural differences/ communication difficulty/ Few local participants know international rules (such as GAFTA)
The % of bug damage impacts on quality and access to certain destinations like Saudi Arabia and Algeria.
Success of Russian Wheat exports has been without a centrally funded lobby group (no US Wheat Associates or France Export Cereales equivalent) 36
37
Russian Loading Ports Black and Azov Sea pool
Odessa
8 main ports
= 28MMT
5 MMT
13 MMT annual capacity via 3 silos
(NKHP 4, KSK 4 & NZT 5)
Yeisk 1 MMT
Novorossisk
4.5 MMT Rostov on Don
Azov 2 MMT
TAMAN &
Temryuk
500KMT Taganrog
2 MMT Tuapse
Azov Sea
BLACK SEA
Exports of Grains from Russian Ports
Port/Cross Border Points July-January 2015/2016, mln mt July-January 2016/2017 2015/2016 2016/2017
Azov Sea ports 7'516 7400 32.1 32.2
Novorossiysk 6'786 7425 29 32.3
Tuapse 1268 903 5.4 3.9
Taman 2433 2008 10.4 8.7
Kavkaz Roads 2526 2400 10.8 10.5
Baltic Ports 913 852 3.9 3.7
Azerbaijan 916 934 3.9 4.1
Caspian Sea Ports 627 670 2.7 2.9
Others 443 361 1.9 1.5
Total 23428 22955 100 100
Share %
38
1)Geographically Russia has a freight advantage for exports of milling wheat to Turkey and everyone knows it.
2)There are two main Russian bases of exports - 3/5 000 mt vessels from shallow Azov Sea and bigger vessels from Black sea ports.
By this Russian exporters have a chance to cover the needs of all kinds of Turkish clients depending on company's size, import and financial
capacities.
3)Short sea voyage leads to a necessity to trade on trust, i.e. In 90% of our sales contracts we trade cash against fax copies of cargo documents
as payment terms.
Source: Rusagrotrans
Turkey’s Milling Wheat Imports by Country &
Turkey’s Milling Wheat Production
39 Source: TUIK
Turkey’s Milling Wheat Imports by Countries
40 Source: TUIK
Quality of Russian wheat (as per SGS data)
Specification/ Russia Min. Average Max.
Protein (dry matter
basis) %
9.5% 13% 18%
Moisture % 9% 12.5% 20%
Test Weight (kg/hl) 66.5 77.8 80
Foreign matter % 0.17% 0.77% 7 %
Bug damage % 0.2% 0.84% 5%
Falling Number
/Hagberg (seconds)
60 346 490
Gluten,
ISO 21415-2
13% 26% 38%
Source: SGS
Average Quality Parameters of Russian Milling Wheat for past 4 Seasons
Parameter 2016 2015 2014 2013
Bug Damage 0.75 0.084 0.85 0.8
FN 355 347 335 339
Foreign matter 0.7 0.77 0.55 0.72
Gluten 25.93 25.9 26.7 27.26
Gluten Index 78 89 85 84
Moisture 11.92 12.6 11.84 12
Protein on Dry Matter 12.73 13 12.93 13.3
Test Weight 77.8 77.4 78.9 76.9
W 206 232 218 248
42 Remarkable fact is that Russian farmers did a really good job on Bug Damage
content which is actually below 0.5 % in almost all the shipments from
Black Sea and Azov Sea ports in the current season 2016/2017.
Source: SGS
Main factors that influenced on quality of milling wheat of
current crop (2016-2017 season)
1. Long spring period and wet weather conditions during growing led to:
Vegetative period was too long and thanks to sufficient moisture level and fertilizers used by producers plants had excellent conditions for “green mass” formation and growing,
2. Sudden stop of rains and temperature increase made the “wax” stage and harvesting faster:
As a result and despite the fact that average protein levels remain equal to last crop, the level of wet gluten/gluten index substantially decreased.
3. Long spring period with temperatures in the range of 17-20 degrees was favorable for agricultural diseases’ development:
In most of the growing regions due to unceasing rains the effect of treatment by fertilizers was substantially decreased,
4. It is noticed that the efficiency of treatment by insecticides was pretty poor than expected in Volgo-Ural and Central part,
5. Heavy rains influenced a lot a quality of above regions and as a result we have two kinds of wheat varieties:
Premium high pro milling wheat (Volga region) Feed wheat with elevated sprouted kernels’ percentage,
6. Due to longer, than needed wet weather agricultural diseases were quite active even in Black Soil regions like Voronezh.
43
Approximate Share of Wheat by Class 2016/17
Wheat Class as per GOST %
5th Class 31%
4th Class 46%
3rd Class 23%
44 Source: SGS
FAUSARIUM problem & realities of
the disease in the South of Russia No doubts Fusarium-contaminated wheat is one of the most dangerous diseases of grains in the world. Along with the production fall caused by decreased germination of seeds, lower amount of grains in the wheat ears as well as the weight of 1000 grains, Fusarium may damage the quality of malting and bakery. And even more, Fusarium may be a main cause of mycotoxins presence in milling wheat. It becomes a fact that the highest content of mycotoxins is found in wheat damaged by Fusarium when the crop is facing slower maturation than normal. Another “green light” for the disease is the storage of wetter wheat than required by the standards or further moisture increase of volumes already harvested and stored.
The biggest danger of Fusarium presence in milling wheat is:
The research has proved that in bread, which is made from dough contaminated by Fusarium, the content of toxins is not decreasing but even it may result in higher percentage during the process of making of yeast dough and bread.
45
It’s quite important to understand is that when we are talking about Fusarium in Russian Milling Wheat it’s not so critical to discuss the quantity of contaminated kernels but it really makes sense to consider the biological activity of them and the level of vomitoxins in these kernels.
As per lab statistics, two years ago there were alarming questions about a dangerous content of vomitoxins more than 1250 ppb (EU standard and requirements) in certain parcels of Russian Milling wheat. Meanwhile, the percentage of contaminated kernels was in the range of 0.4-0.8 %.
But remarkable thing is that In the current season, despite some detected spots of Fusarium disease in the South of the country, high level of vomitoxins/mycotoxins has not been found. For example, SGS says the range of vomitoxins content in exportable parcels of milling wheat is up to max 300 ppb what is significantly lower max levels of EU requirements.
46
Preventative Measures to Fight Fusarium
They are quite known and it remains just a question of discipline together with
certain overheads:
Buy sound, healthy, resistant to Fusarium disease planting material
Timely harvesting and drying if it’s needed to make sure moisture content is
not higher than 14 %
Timely and sufficient treatment the plantings by fungicides.
47
Blitz poll –
5 questions to 5 Turkish importers-flour millers:
The biggest advantage of Russian milling wheat or strongest quality parameter with reference to wheat flour quality ? .
Reply :
Logistics (short time voyage, availability of volumes of any size from 3,000mt to
30,000mt).
Quality wise it’s normally:
high level Test Weight,
steady Wet Gluten,
low percentage of Moisture.
if the crop is strong W is satisfactory with obvious advantage over other origins in Black Sea
area.
48
Question 2:
The weakest side of Russian milling wheat for wheat flour
production ?
Reply :
Seasons with low Energy and insufficient sedimentation
49
Question 3:
What should Russian farmer do in order to improve the
homogeneity of milling wheat?
Reply:
Turkish millers/importers understand that Homogeneity is more commercial issue for Russian farmers who are experienced blenders!!!
Needed steps to improve:
Good quality planting material,
Timely feeding with fertilizers,
Do not blend wheat with low Energy/W with parcels highpro wheat but of much lower Energy/W.
50
Question 4:
What are the most preferred 3 origins of milling wheat for Turkish miller
in general?
Who are they - those three stars?
Reply:
Apart from Turkish origin - Russian, Kazakh, Hungarian for Turkish Black
Sea ports.
EU/Lithuanian 12,5 %-14.0 % protein is preferred for Mersin due to
freight advantage.
The respondents also mentioned Australian and Canadian origins.
51
Question 5: What is better for Turkish miller ?
Average quality Russian crop with affordable prices
or
The year of small crop=above average quality=relatively high prices?
Reply:
For Turkish miller better to have an access to average quality Russian
crop with affordable prices and price advantage is taking the first place.
52
In Conclusion:
From the start of early 2000s and already years spent in the open market, Russian farmer is definitely improving his performance thanks to easier access to financial instruments and a clear understanding on “you have to be competitive”:
-thinking about the right choice of commodity selection/rotation to plant from year on year inviting agronomists.
-building modern storage facilities.
-inviting specialists, technologists who are well paid.
-farmer has already stopped hoping for luck of favourable weather but always trying to make sure about proper inputs for the plantings.
-farmer is looking at global market changes.
And if one day the community manages to implement a really efficient Black Sea standardized wheat futures contract with sufficient liquidity and workable conditions/delivery points the farmer will definitely follow!!!!!!
53
WWW.SOLARIS-CH.COM
WWW.GAFTA.COM
54
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Thank You -
Спасибо !
55