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Russian wheat exports still lagging thanks to tax uncertainty

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The agribusiness Black Earth Farming has flagged the slow pace of Russian wheat shipments, as uncertainties over a new export levy and a slow start to the harvest put the pace of exports 60% behind last year.

"The imposition of export levies increase uncertainty in the company's operating environment," said Black Earth president and chief executive Richard Warburton. The company also forecast rising global grain prices to come, as demand picks up. Black Earth Farming expects total Russian grain exports in the region of 28mn tons, down 9.8% from 31m tons in the previous season, in line with other forecasts. Mixed conditions

"Growing conditions have been mixed across Russia," Black Earth Farming said.The start of the Russian wheat harvest was delayed by rains, however progress has since been good thanks to warm and dry weather.Black Earth Farming reports that winter wheat yields "are generally good and only slightly lower than 2014's above-trend yields," while the potential for corn and sunflower yields is also good."With approximately 60% harvested, winter wheat yields average 3.8 tonnes per hectare," Black Earth Farming said. However Black Earth Farming does note that early rains have lowered wheat quality, which will mean that there is less milling-grade wheat available, and more feed wheat, although continued dry weather would improve quality. Levy confusion

In addition, Russian exports have been slowed by confusion surrounding a new export tax. Russian introduced a floating export tax on wheat in July. However, as reported, there is considerable uncertainty surrounding how the tax is calculated.The confusion centres around the fact that wheat shipments are sold in dollars, but the tax is denominated in roubles.Given the volatility of the rouble, the exact timing of when the rouble-value of shipment is calculated can make the difference between whether or not tax is levied. "Uncertainty as to how the levy is actually calculated has made forward export sales more risky," said Black Earth Farming."As a result of this and the later harvest progress this year, exports are down 60% year on year."Black Earth Farming downplayed harvest pressure on grain markets "as prices are already low, many buyers still need to secure supplies for their immediate demands and small farmer selling is less of a feature due to the more protracted harvesting". "Forward prices may improve from the current lows after harvest and the weaker ruble should raise domestic prices," Black Earth Farming said."Dollar prices should however also increase as global supply pressure eases and demand picks up."Production forecasts

On Wednesday the US Department of agriculture raised its forecast for Russian wheat production by 3m tonnes to 60m tonnes, and raised its forecast for wheat exports by 1m tonnes to 23m tonnes.Russian wheat plus coarse grain production was forecast at 99.3m tonnes, while wheat plus coarse grain exports were forecast at 21.11m tonnes.Wednesday also saw the Russian agricultural consultancy SovEcon upgraded its forecast for Russia's wheat crop in 2015 by 2m tonnes to 59.5m tonnes.Undervalued land

"Russian agricultural land is in the company's view still undervalued," Black Earth Farming said, noting the "inherent production potential" of land holdings in the fertile black earth region of western Russia.Black Earth Farming controls a land-bank of 256,000 hectares.The company reported earnings before interest, depreciation, taxation and amortisation of $12.9m in the three months to June 30, more that twice the $6.3m reported in the same period last year.Revenues almost doubled over the same period, at $20.7m compared to $10.8m last year.


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