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'Positive' outlook for Russia oilseed prices - but grain values 'low'

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Prospects look better for oilseed than grain prices in Russia, despite short-term support to values from overstretched traders, Black Earth Farming said, flagging the "excellent" growing conditions for wheat.

Prices offered for 2016-17 grains "remain low in front of a potentially big harvest", the farm operator said, flagging the boost to prospects from benign weather.

"Crop 2016-17 autumn plantings have benefited from a warmer-than-normal winter with very low winter loses and the wheat crop has the potential to reach 62m tonnes, equal to [2015], and possibly higher," said Black Earth Farming, which controls 256,000 hectares of Russian farmland.

And while Russia's spring plantings are running about a week behind, "frequent rains have disrupted fieldwork," soil moisture levels "are better than for many years which, combined with cooler weather, should promote good growth giving high yield potential".

Traders scramble

The weakness in forward Russian grain prices comes despite a reluctance by producers to sell "in case the rouble weakens again and rouble prices rise", the group added.

The rouble has in fact risen from a multi-year low of 82 roubles to $1 in late January to 66 roubles per $1 on Thursday, helped by a revival in oil prices, and cutting the value, in domestic terms, of exports such as grains priced internationally in dollars.

Still, over the past year, spot Russian values of corn and wheat have avoided the drop in dollar values of 12% and 19% respectively – rising by 15% for corn and 6% for wheat – helped by a scramble by merchants to secure near-term supplies, after an overambitious export programme.

"Rouble prices [of grains] have not fallen fully in line with the currency as the sellers of earlier export wheat and corn sales are having to pay up to cover their needs," Black Earth Farming said.

'Positive price prospects'

Still, values of sunflowers have performed even better than those of grains, gaining 21% in rouble terms compared with an 8% drop year on year on the dollar market.

And prospects for oilseed prices "remain positive", Black Earth Farming said, flagging the prospect of a "modest" increase in production this year, while demand increases.

The group noted an extra 1m tonnes of Russian oilseeds crushing capacity this year, besides the boost to values from stronger soy and palm oil markets.

Russia's growth in oilseeds crushing capacity – which soared to 20.6m tonnes for 2015-16 from 4.4m tonnes in 2002, according to US data – has been encouraged by the expansion in its dairy and meat sectors, which the government has encouraged to reduce dependence on imports.

Heavy rains

The comments came as Black Earth Farming unveiled a more than doubling in losses to $4.57m, from $2.07m a year before, for the January-to-March quarter despite a 42% surge to in $19.97m in revenues, reflecting in the main higher sales volumes.

However, distribution costs more than doubled to $5.1m, reflecting a greater reliance on export sales.

The group said that its own winter wheat crop was, as measured by vegetation index, in its best condition on record, beating the 2014 reading which had heralded a record company yield of 4.17 tonnes per hectare.

However, the rains which had helped wheat condition – and had reached double normal levels across the group's farms - had hampered sowings too.

Richard Warburton, the Black Earth Farming chief executive, said that while the company hoped to sow "close to" the 150,000 hectares with crops overall that it has targeted, the wet conditions meaning that it was "having to change crops" in it planting plans in some areas.

Black Earth Farming shares, which are listed in Stockholm, stood 3.1% lower at SEK3.71 in late deals.

By Mike Verdin

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