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Ukraine's top farmer sees 'above-average' winterkill threat


Kernel Holding acknowledged “above-average” winterkill worries this year at its farming operations, Ukraine’s biggest, undermined expectations of a recovery in the division’s output after 2020’s dryness-reduced result.


Kernel – which reported an agricultural holding of more than 500,000 hectares, ahead of Ukrlandfarming on 470,000 hectares and MHP on 370,000 hectares – said that its 64,000 hectares of winter wheat and nearly 9,000 hectares of winter rapeseed had suffered some setback to frost.


“Winterkill concerns are above average this year,” the group said, although adding that the “real impact will not be clear until the snow melts.


“Severe frosts with limited snow cover and persistent ice crust could hurt crops in certain areas.”


‘Risk of freeze-thaw’

The comments underline the threat of winter crop losses in Ukraine as well as the US, which suffered unusually cold temperatures last week, and Russia.


SovEcon two weeks ago trimmed its forecast for the 2021 winter wheat harvest by 400,000 tonnes to 53.6m tonnes, taking it further below last season’s 60m-tonne result despite bumper plantings.


Cold weather in the former Soviet Union this week raised further concerns, with Agritel noting that “very negative temperatures in the South of Russia and East of Ukraine are a threat for the crops that are not enough protected by a snow layer”.


In Ukraine, ideas of cold weather, following a warmer spell that allowed snow to melt, “created a risk of freeze-thaw on crops that will no longer be protected”.


In Europe, the official Mars bureau this week noted a risk of “some frost damage” to winter crops in western Germany, eastern France, Hungary, south eastern Europe and Turkey, although in France, crops remain in strong condition, data on Friday from FranceAgriMer showed.


Winter soft wheat was rated 87% good or excellent, up 1 point week on week and 23 points year on year, while being the best showing for this time of year since 2017. Winter barley was rated 83% good or excellent, with the durum reading at 88%.


‘Skyrocketing’ prices

Kernel’s comments undermine hopes for the company’s farming operation rebuilding its production, after two successive declines in output from the record 3.3m tonnes achieved in 2018.


Last year, both spring frosts and dryness saw production fall by 177,000 tonnes year on year to 2.84m tonnes, with wheat leading the decline.


However, the division for the October-to-December period achieved a surge in ebitda to $107m, from $19m a year before, Kernel said, citing support from “skyrocketing” prices.


Th group highlighted “the rally seen in global grain and oilseed prices, outweighing the negative impact from lower yields this season for all our key crops”.


‘Incredible price action’

The stronger markets had also boosted the performance of the Avere trading operation, which “well-captured an incredible soft commodities price action”.


“A grain price boom caused by raging Chinese demand, weak supply outlook and Russian export curbs created an opportunity momentum” for traders.


This helped Kernel’s infrastructure and trading division raise ebitda to $161m, from $61m a year before, despite “margin erosion” in the export business as Ukraine’s weakened 2020 harvest forced merchants to compete more strongly for supplies.


‘Intensified competition’

However, high crop prices undermined the group’s oilseeds processing division, which reported ebitda down 39% year-on-year to $24m for the quarter, as the quest for sunflower seeds to crush crimped margins.


Although the division’s revenues rose by 33% to $486m, a reflection of sunflower oil prices which stand at some $1,300 per tonne, roughly double year-ago levels, its margins halved year on year to $56 per tonne of oil sold.


In Ukraine, “the gap between industrial crushing capacity and harvest of sunflower seeds in current season almost doubled year-on-year, reaching 5.2m tonnes,” Kernel said, adding that this dynamic “intensified the competition for the seeds, contracting severely the crushing margin”.


The group lowered by 200,000 tonnes to 3.3m tonnes its forecast for its sunflower seed crushing volumes over the year to the end of June.


Shares rise

Kernel reported group earnings of $128m for the quarter, up from $41m a year before, on revenues up 29% at $1.03bn.


The group’s shares, which are listed in Warsaw, stood down 2.0% at 56.00 zloty in lunchtime deals.


The shares last week hit a three-year high of 58.70 zloty, amid the rally in agriculture stocks which has seen the likes of Deere & Co set record highs.

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