Russian wheat prices, whose strength in dollar terms has been a big prop to world values, are poised for decline, Black Earth Farming said, as the group unveiled a return to a loss for what is set to be its last full year as an independent company.
The farm operator in Russia's central, black earth region flagged a double whammy to the country's wheat values - from the "absence" of domestic buyers, which have already stockpiled 18% more of the grain than a year ago, besides the "current disappointing pace of exports".
The rouble's revival of some 30% over the past year, fuelled by oil price recovery, has reduced the competitiveness of the country's exports of goods including wheat.
While merchants have attempted to offset the rouble's strength by cutting prices, the effort has snagged on farmers' unwillingness to accept weaker values, which are down 16% year on year in the black earth region, Black Earth Farming said.
The hit to volumes has prompted a series of downgrades to forecasts for Russian wheat exports in 2016-17 - most lately from the International Grains Council, which on Thursday cut its estimate by 500,000 tonnes to 28.0m tonnes.
Russian wheat, renowned for its competitive prices, "is now only the world's cheapest quality wheat by a small margin", Black Earth Farming said, flagging a dynamic which has been seen by many commentators as a key driver of the revival in global wheat prices.
Chicago futures, trading at $4.36 a bushel on Friday, are up 21% from decade lows reached in August.
However, Black Earth Farming flagged the potential for a revival ahead in Russia's export performance, as farmers - facing cash needs for spring sowings, and anticipating the need to free up storage for the 2017 harvest – capitulate.
From "March forward, Russian export wheat is priced at a discount to the current, higher, prices reflecting expected farmer selling," the group said.
This should force the country's wheat prices broadly lower and "regain Russian competitiveness".
The comments came as Black Earth Farming - which has accepted a $200m offer from Volgo-DonSelkhozinvest, controlled by the Kukura family which is linked to Russian energy giant Lukoil – unveiled a loss of $10.6m for 2016, down from earnings of $14.3m a year before.
The decline into the red reflected in part the lack of a repeat of a land deal which boosted earnings by $7.1m last year, but also rain damage to crops which compounded the setback from lower prices.
Although rainfall 63% above the average level "resulted in decent yields of wheat and corn crops… it impacted negatively on wheat quality and harvest", said Richard Warburton, the Black Earth Farming chief executive.
"Due to the bad weather conditions during the 2016 harvest period, the company has got 53% of 'no class' winter wheat with very high moisture percentage and lowest sales price."
The group's full year revenues tumbled by 26% to $97.0m.
The group added that Volgo-DonSelkhozinvest had paid a $10m deposit on its takeover, satisfying an initial condition of the deal, which stands to give Black Earth Farming investors SEK7.20-7.40 on their Stockholm-listed depositary receipts, a proxy for shares.
The receipts stood up 0.7% at SEK6.90 in morning deals.
By Mike Verdin