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Russia 'has improved' for grain growers, says Black Earth boss

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Conditions for Russian grain producers have been transformed for the better, despite the imposition of an export tax, the head of Black Earth Farming said, citing infrastructure improvements, and enhanced demand dynamics.

"The Russian domestic market appears structurally stronger" for grain growers, said Richard Warburton, the chief executive at Black Earth Farming, the Russian barley-to-potatoes producer which has a landbank of 228,000 hectares.

Mr Warburton - a Briton, and former head of agribusiness at UK land agency Bidwells - cited factors including the increasing numbers of powerful trading houses operating in Russia, with the growth in buyers meaning they have to compete harder to win sellers.

Furthermore, there are "fewer infrastructural bottlenecks, despite record export volumes", with the US Department of Agriculture, for instance, forecasting that Russian wheat shipments will hit an all-time high of 23.5m tonnes in 2015-16.

Russia's grain shipment capabilities boosted by investment from groups including the likes of Cargill, Glencore and Louis Dreyfus over the past two years.

Domestic vs international prices

Furthermore, Mr Warburton flagged "steadily growing demand for feed grains… from continually increasing pig and poultry numbers", largely in central Russia, thanks to the expansion of domestic livestock industries, which Moscow has long sought to encourage to stem dependence on meat imports.

The need for greater domestic production has only been enhanced by the sanctions imposed by Russia on ag imports from many Western countries, and the decline in the rouble which has made purchases of foreign goods more expensive.

The market's structural change has improved pricing conditions for grain producers, tying domestic values more closely to global ones.

"Despite high rouble volatility, the local domestic market has largely continued to correlate with the international markets in dollar terms," Mr Warburton said.

"Historically, this has not always been the case."

Indeed, Russian grain producers have often in past attacked the government's reluctance to allow domestic prices to rise in line with international values, and its willingness to impose hefty export taxes which have protected the interests of grain consumers over producers.

Back in the black

The comments came as Black Earth Farming revealed a return to the black for the October-to-December quarter, reporting earnings of $7.40m, compared with a loss of $8.45m a year before.

While revenues dropped 19.1% to $49.46m, reflecting weaker crop prices and sales volumes, costs shank even faster, thanks to the depreciation of the rouble, and a land swap which has allowed the company to consolidate operations somewhat.

The group added that its 38,000 hectares of autumn-seeded crops appeared to be in "excellent condition", after establishing well before winter.

However, Black Earth Farming, noting that "temperatures have fluctuated widely over the winter and snow coverage is currently much reduced", said that "impossible to be certain" of crop condition until spring.

By Agrimoney.com

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