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Kernel underlines contrast in Russia's, Ukraine's grain exports

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Kernel Holding highlighted the contrasting fortunes of Ukraine's and Russia's grain exports as the group unveiled a drop in earnings, dented by farmer hoarding of sunflower crops.

The Ukraine-based vegetable oil-to-grain trading group said that its export terminals division saw an, unusual, year-on-year drop in volumes in the October-to-December quarter, of 2.0% to 1.62m tonnes – despite "double-digit growth" in trade handled through its Ukraine operations.

The decline was attributed to a "sluggish performance in Taman", in Russia, where Kernel Holding has a transhipment joint venture.

"The net contribution from Taman joint venture amounted to a loss of $1m as opposed to a gain of $0.9m a year ago," Kernel Holding said, restraining to 16.4% growth in the division's ebitda (earnings before interest, taxation, depreciation and amortisation), leaving it at to $13.5m.

'Strong rouble hindering exports'

The divergence in Kernel's performance in the two countries tallies with a broader trend, which has seen disappointment at the pace of Russian exports which, while still large, have fallen short of expectations, undermined by the dent from a rising rouble to the competitiveness of the country's supplies.

Russia on Monday pegged at 37m tonnes Russian grain shipments in 2016-17, below an earlier forecast of 40m tonnes, with Agriculture Minister Alexander Tkachev saying that "unfortunately, the strong rouble is hindering exports".

Last week, consultancy SovEcon forecast Russia's grain exports this season at 35m-36m tonnes, and the International Grains Council cut its estimate by 1.2m tonnes to 36.7m tonnes.

Russian revival ahead?

By contrast, the IGC on Friday raised by 800,000 tonnes to 40.1m tonnes its estimate for shipments from Ukraine.

And Agritel highlighted that "for the second week in a row, Ukraine exported nearly 500,000 tonnes of corn, mainly due to higher demand from European Union".

However, the IGC also highlighted that while "the pace of Russia's [wheat] shipments is slower than anticipated… progress may pick up as logistics improve seasonally", and the onset of milder spring weather.

Separately, Black Earth Farming last week flagged the potential for a revival in Russian exports ahead as farmers - facing cash needs for spring sowings, and anticipating the need to free up storage for the 2017 harvest – accept weaker rouble prices.

'Under pressure'

In Ukraine, Kernel Holdings highlighted a reluctance by sunflower farmers to sell at current prices, in "anticipation of farmgate price increases", and with the "good quality of harvested sunflower seeds" enhancing their ability to be kept in storage.

With competition for sunflower seeds enhanced too by industry capacity increases, the farmer hoarding - in offering some support to prices of the raw crop at a time of falling sunflower oil prices – left crushing margins "under pressure".

Ebitda at Kernel's sunflower oil division for the October-to-December quarter fell by 17.9% to $34.8m.

Group earnings dropped by 18.1% to $95.4m, on revenues up 6.2% at $659.3m.

Kernel Holding shares, which are listed in Warsaw, fell by 1.8% to 78.20 zloty in morning deals.

By Mike Verdin

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