how Russia exports record volumes of grain

The regular agricultural season ending in June showed the resilience of Russian grain exports to geopolitical tensions and trade barriers. Despite difficulties in paying for shipments and uncertainty over the extension of the deal for the export of Ukrainian grain, the record harvest allowed companies to send a significant amount of grain to foreign consumers – 59 million tons. Kommersant found out how exporters increased their income and whether they will be able to repeat this experience in the new season, when serious competition with EU producers may arise.

According to Rusagrotrans, following the results of this agricultural season (started on July 1, 2022 and will end on June 30, 2023), Russian grain exports will reach 59.3 million tons, of which 48.2 million tons are wheat. Analysts call the figures record-breaking, adding that the share of Russian wheat in the world market will be 13% (in the 2017/18 season – 11.3%).

The Institute for Agricultural Market Studies (IKAR) has similar forecasts for total grain exports, but they say that wheat exports will amount to 47.5 million tons. Sovecon believes that in general, 55.5 million tons of grain will be sent from Russia to other countries, of which 44.5 million tons are wheat. “Today, every fifth export batch of wheat in the world is of Russian origin,” said Dmitry Patrushev, head of the Ministry of Agriculture, in May.

Windows of Opportunity

Meanwhile, the season for Russian exporters began not so rosy. Sovecon estimated the volume of shipments in July-August 2022 at 5.9 million tons, which is 27% less than in the 2021/22 season and the lowest since 2017/18. With the outbreak of hostilities by the Russian Federation in Ukraine and a new wave of Western sanctions, exporters have repeatedly noted difficulties with chartering ships, cargo insurance and making payments. And the Russian authorities have stated that the conditions for unhindered access of Russian food to world markets, enshrined in the grain agreement signed in Istanbul on July 22, 2022, are not being met.

Director of Sovecon Andrey Sizov says that in the first months of the season, exports remained sluggish, primarily for two reasons – because of the strong ruble, when $1 cost 60 rubles, and the export duty, which, in a falling market, puts a lot of pressure on the business of exporters . According to him, the size of the duty was calculated based on the cost of wheat at $400 per ton, but after the price fell to $350, the original base amount that determines the amount of the fee remained the same. Two years ago, Mr. Sizov recalls, the situation was reversed and stimulated active shipments. The increase in the cost of freight, insurance and complicated checks by foreign contractors are the smallest part of the problems, the expert says.

IKAR Director General Dmitry Rylko notes that, despite a very large harvest in the world this season, some grain producing countries “had a drawdown, which opened a window of opportunity for Russian exporters.” Thus, due to problems with the harvest in the EU, record volumes of wheat from Russia were delivered to Saudi Arabia and Algeria. Difficulties in the United States and Argentina allowed large volumes to be shipped to Brazil and Mexico. Deliveries to Turkey were also higher than in previous years. According to Dmitry Rylko, as a result, Russia managed to maintain its position as the dominant supplier of wheat with 12.5% ​​protein.

The season of unprecedented margin

Large Russian exporters managed to seriously increase their turnover, which led to an increase in revenue. According to Mr. Rylko, throughout the season, the companies received high margins, “which they have not seen for a long time.”

According to Kommersant’s data, at the end of May, the largest exporter of grain from Russia since the beginning of the season has been Petr Khodykin’s Rif trading house, which shipped more than 7.5 million tons of grain, including 6.4 million tons of wheat. Second place belongs to Grain Gates with about 7.2 million tons of grain, including 6.6 million tons of wheat. The CEO and owner of 2% of Grain Gates is Ilya Aliyev, a former top manager of Demetra Holding, where VTB owned 45%. As Kommersant’s sources in the market explained, the holding had difficulties with the export of grain after the introduction of US sanctions against VTB. Since May 26 of this year, the ownership structure of Demetra-Holding has not been disclosed in the Unified State Register of Legal Entities.

The third place with more than 5.2 million tons at the end of May was occupied by Aston Vadim Vikulov, the fourth was the Russian structure Viterra (formerly Glencore Agriculture) Viterra Rus with 3.8 million tons. United Grain Company (OZK; 50% plus 1 share owned by the state) exported more than 2.4 million tons, which corresponds to fifth place. Trade House Rif, Grain Gates, Aston and MZK Export (former Viterra Rus) did not provide any comments.

The OZK notes that problems “in financial logistics” and with the organization of the charter of ships remain: the activities of the international structure of the group are completely blocked, and it is impossible for Russian companies to participate in a number of tenders abroad due to the refusal of first-class banks to provide guarantees. “We have obligations to permanent foreign partners, including state grain buyers, and we are working with them to transform interaction patterns,” the OZK explains.

The main task now, the company adds, is to expand the geography of direct grain deliveries and the rejection of intermediaries represented by international traders. In the long term, OZK plans to work on the development of exchange-traded instruments, the creation of its own fleet, an increase in the fleet of grain wagons and the modernization of the commodity distribution infrastructure.

Waiting for competitors to leave

Three international traders working in the Russian Federation – Viterra, Cargill and Louis Dreyfus have announced the termination of grain exports from the country since the new season. But under what scenario a withdrawal from the market may occur is not yet completely clear.

According to Kommersant’s sources, the local Viterra team will continue to work under a new name, the company can go to management while maintaining control over the terminal in Rostov-on-Don (see Kommersant dated May 18). Louis Dreyfus, as Kommersant’s interlocutors say, is determined with a buyer for a local business, including a terminal in Azov. Cargill owns a stake in the KSK terminal in Novorossiysk, the main owner of which is Delo Group, plans for the asset are unknown.

According to Dmitry Rylko, three international traders had the strongest positions in deliveries through the deep-water terminals of the Black Sea, occupying about 20% of shipments – now local players will share these volumes. In shipments from the port of Kavkaz, according to the expert, the companies accounted for about 13%, and in direct deliveries from Azov – about 2%.

According to Kommersant’s sources, the main beneficiary of the departure of foreign traders may be Grain Gates, which occupies a large share of deliveries through the Black Sea terminals. According to Kommersant’s interlocutors, the company may even outstrip the long-term leader of Rif Trade House in terms of grain exports.

The OZK representative believes that with the departure of global traders, competition between Russian grain exporters will become “as healthy as possible.” International traders, unlike Russian ones, “could freely use foreign financial instruments and did not fall under direct or indirect sanctions,” the company emphasizes.

Anxious expectations

In the next season of 2023/24, according to Rusagrotrans forecasts, Russia will retain the status of the largest exporter of wheat in the world. Due to record grain reserves of 24.5 million tons and a high gross harvest of 132 million tons, the export potential, taking into account legumes and flour, is expected to reach 57 million tons, and wheat – 43.7 million tons. Wheat supplies from the EU are estimated at 32.7 million tons, from Canada – at 23.8 million tons, according to analysts, the Pole.RF portal.

According to Andrey Sizov, Sovecon plans to revise the April forecast for wheat exports in the new season of 43 million tons and there are good chances of repeating or exceeding the record. According to him, sales for the new season have already begun, and exporters offer competitive prices for new crop wheat – about $230 per ton and below.

Duty reduction will also help increase supplies, and due to crop failure in North African countries, demand from key importers of Russian grain is expected to be high, he adds. In addition, Mr. Sizov notes, a new grain terminal has been launched in the Leningrad Region with a capacity of 4 million tons per year, which will allow more active export of grain during peak demand.

At the same time, Gazprombank notes in its report that Egypt, one of the largest importers of Russian wheat, is experiencing serious economic difficulties of a systemic nature, and traders are talking about delays in payments for deliveries. Dmitry Rylko expects that in the coming season, the supply of corn and wheat in the EU, given the good harvest and high stocks accumulated, including through supplies from Ukraine, may be very high. Competition for Russian exporters in the world market will grow, he is sure.

Mr. Sizov, however, believes that, despite the good supply of grain from Europe, the export of wheat from Ukraine in the next season will be reduced to 10.5 million tons against 16.5 million tons a season earlier. The grain deal, according to the expert, “is no longer of critical importance for the country, since Ukraine can generally fulfill the export program through ports on the Danube and supplies through the EU.”

But the terms of the deal may change – if Ukraine agrees to the transit of Russian ammonia through Odessa, Ukraine will certainly receive additional benefits. Reuters on June 1, citing sources, said the UN was “trying to salvage the deal” by offering Moscow, Kyiv and Ankara “mutually beneficial terms.” For Russia, we can talk about the transit of ammonia, for Ukraine, according to the interlocutors of the agency, about expanding the list of export ports and cargo.

Meanwhile, Mr. Rylko notes that the next season “may be alarming” for crop growers due to the increase in the cost of grain by 10-12% against the backdrop of lower prices. According to him, around the world, oilseeds and products of their processing are also becoming cheaper, which have always been a lifesaver for agricultural holdings, which made it possible to compensate for the loss of profitability on grain.

An interlocutor of Kommersant among large exporters says that the main question is how profitable the sale of wheat will remain. According to him, prices in the south “so far remain acceptable”, but in other regions “the situation may be worse.” The OGC says that given the current geopolitical situation, “we should not expect pressure to ease or trade barriers to be lifted.” On the contrary, the company is waiting for their strengthening and strengthening.

According to Kommersant’s interlocutor from among the major exporters, direct external restrictions on Russian wheat by origin are unlikely: “Grain supplies are a matter of food security, and everyone is interested in cheap wheat.” Andrey Sizov also does not expect “external sanctions” in the new season. But he admits that “the topic of food supplies can become an instrument of political pressure from the Russian authorities themselves.”

Anatoly Kostyrev