Happy New Year

Wishing everybody a happy and prosperous new year and a big thank you for following and supporting our endeavors over the previous year.

We have some great ideas and plans for our Black Sea crop tour service for 2017 building on the hard won experience we have gained over the last two years so watch this space.

Latest USDA weather update for western FSU

Dormant winter wheat remained sufficiently protected from bitter cold by snow cover.

Primary winter crop areas from central Ukraine into southern and central Russia remained covered by 5 to 20 cm of snow.

As a result, there was little concern from this week’s cold; temperatures reached as low as -18°C in northeastern Ukraine, and plunged to -28°C in northern portions of Russia’s Southern District.

Ukraine held Parliamentary hearings on land reforms

On Wednesday this week Ukraine held parliamentary hearings devoted to finding the best model for agricultural land regulation.

The discussion was attended by over 600 people including farmer representatives, professional associations, scientists, experts, executive authorities and local governments.

The First Deputy Minister of Agrarian Policy noted that while restrictions on land sales was a necessary precautions, the prolonged moratorium had resulted in very large agricultural groups with a prevalence to produce simple crop production cycles such as corn and sunflower.

He pointed out that the only source of income for land owners who are not willing or able to farm the land is to rent it at unreasonably low rates and that all actions and decisions in the context of land reform should be considered in the light of rural development.

Therein lies the issue; economic viability, sustainable land use and the social implications of not keeping people on the land.

If you study the EU Common Agricultural Policy you will see the same story played out over the last fifty odd years, while many people associate the CAP as an economic policy, it is in fact a social policy.

The EU could probably farm and produce food much more efficiently than it currently does but what would all those people do? 

It’s the same if not more so in Ukraine; without farming there is literally no other employment options available in rural areas.

The Deputy Minister went on to say that “in rural areas, it must be the middle class which will be the driver of economic activity and job creation. Tools to achieve this goal may be different, but it is clear that the transformation is not possible without changing the size of land relations."

Given the high capex required to go farming, even on a small scale, then finance at preferential rates must be one of those tools which is why so far in Ukraine’s redeveloping economy, farms are predominantly large and financed from private sources.

It doesn’t sound like anything will be decided soon but it’s definitely worth keeping a close eye on Ukraine's land reforms.

The moratorium (ban) on the sale of agricultural land was introduced in 2001 and has been extended every year since with the next review due in 2018.

Ukraine: every fifth hryvnia GDP produced in the agricultural sector

According to the State Statistics Service of Ukraine, agriculture, forestry and fisheries contribution to GDP for the first nine months of 2016 amounted to USD127 billion.

Given that the total GDP was USD664 billion, the agricultural sector, excluding processing, totalled 19%.

Ukraine signs a Memorandum to prevent speculation with food prices

Yesterday Ukraine’s Minister of Agriculture, Taras Kutoviy, along with the head of the Antimonopoly Committee and head of State Service on food safety and consumer protection signed a Memorandum of Cooperation, which among other things, aims to protect consumers from food price hikes.

Ukraine’s slow move towards a free market economy recently included a trial abolition of direct state regulation on prices for basic foodstuffs which simplified business but left consumers exposed to food price increases either by market economics or unfair competition.

The memorandum was signed in response to these concerns and time will tell if they have just swapped one set of archaic legislation for another with no real change.

Initial comments from the Minister are not particularly positive, “we have to solve problems of ​​price controls and unfair competition and ensure quality goods and services at a reasonable price".

Question is, who decides what is a reasonable price?

Ukraine's grain export limits agreed

Ukraine’s Ministry of Agriculture held its monthly grain market working group with representatives from the grain trade to discuss the latest agreement on exports.

Deputy Minister Elena Kovaleva reported preliminary estimates for 2016/2017 marketing year is expected to be a new record for general grain production at 64.2mmt with an export capacity of 40.2mmt.

Members of the working group agreed on the current Memorandum of Understanding and provided information on further exports, primarily corn.

The Deputy Minister said that "we are ready to consider revision in exports of grain and corn upwards” and proposed returning to this issue in January and February when revised corn crop data would be available.

Considering the Ministry reported the corn harvest was 77% finished over a month ago it now seems odd they need to wait until January or February to get a proper handle on how much corn is available for export.

As of December 2016, exports of wheat in the current marketing year are estimated at 11.0mmt which is 66.5% of the 16.5mmt recorded in the MoU, barley at 4.2mmt or 74.8% from 5.6mmt and corn at 5.8mmt or 33.7% from 17.2mmt.

The Memorandum of Understanding between the Ministry of Agricultural and market participants is a voluntary agreement to set the amount of grain available for export to guarantee food security in Ukraine. 

Russia to reclaim idle land to boost production

Russia continues to push agriculture as part of its broader economic policy, this time by returning idle land back in to production.

Earlier this week the Deputy Minister of Agriculture said that “the task is to return to operation of agricultural land, as well as involvement in the turnover of new agricultural land to obtain high yields”.

He added that effective work in this direction requires the collaboration of Ministry of Agriculture and regional agribusiness administration.

Not entirely sure how regional agribusiness administration will contribute but he will require the active collaboration and investment of regional agribusinesses to carryout operations and pay for seeds, fertiliser, sprays, fuel, machinery and labour in order to realise his vision of returning idle land back in to effective production.

From my experiences there is a reason why this land is not in production.

More often than not it's marginal land which was the first to be abandoned when economics tightened as it was not capable of producing viable yields, so I’m not entirely convinced it should be brought back into production, not growing crops anyway.

Much of this land would suit extensive grazing of cattle particularly the local hardy breeds adapted to scorching summers, freezing winters and low quality grazing and given that in 2015 Russia imported over half a million tonnes of beef that makes more sense than growing crops that might break even in a good year.

The Minister might also want to take a look at the current cultivation and rotation practices particularly in drier eastern regions where land is cultivated and left barren for a season to allow soil moisture reserves to build up.

If he is going to spend money then a few roubles on introducing direct drilling and soil water conservation techniques will likely pay greater dividends than trying to grow wheat on land that is just not up to the task.

Azerbaijan destroyed infected corn imported from Russia

Azerbaijan’s State Phytosanitary Service reported that on 15 December they destroyed ten tonnes of corn imported from Russia because it was infected with a quarantine organism, namely common Ragweed (Ambrosia artemisiifolia).

Sounds like a storm in a tea cup or to use the Russian idiom, делают из мухи слона.

However given the wet season and delayed herbicide applications as a result with the sheer volume of weed growth and that ambrosia grows like, well, a weed, it might just be worth keeping an eye on the content of that admix.

Russian pig production up 13.5%

Russia’s Ministry of Agriculture announced today that during the first 11 months of this year, live weight pig production increased by 13.5% compared to the same period last year and amounted to more than 3.1mmt.

According to the Federal State Statistics Service in November, the average price of agricultural producers of pigs in live weight in Russia was 94.08RUB/KG (1.53USD/KG, 1.25GBP/KG).

Latest USDA weather update for western FSU

From northern and eastern Ukraine into southern Russia, snow provided timely protection from the coldest air of the season.

Snowfall averaged 2 to 15 cm in Ukraine and Belarus, with the deepest snow cover (10 cm or more) noted in eastern Ukraine where readings dipped to -22°C during the period.

In Russia’s Central and Southern Districts, 5 to 20 cm of snow (locally more) afforded adequate protection from temperatures as low as -27°C.

Consequently, this week’s arctic blast had little detrimental impact on dormant winter wheat.

The weeks Black Sea agri-business news roundup

Russia’s Minister of Agriculture  reported to the State Duma that 16/17 grain exports will be about 35mmt and that the country will be self-sufficiency in agricultural products in seven years.

Trade relations between Russia and Turkey appear to be easing with the head of the Russian agriculture watchdog saying that the removal of bans may start from next week with initial plans to drop restrictions on aubergine, vegetable marrow and lettuce. 

Meanwhile relations with Belarus appear to be deteriorating as Russia suspended imports of chicken from five large Belarusian enterprises and banned imports from a number of dairies.  Belarusian Deputy Minister of Agriculture responded by saying they export to 58 countries across the globe and “no one complains about the quality of our products but Russia.”

Keen on encouraging inward investment, Ukraine's Minister of Agriculture met with a French winemaker this week to discuss the recent destruction of his vineyards in Odessa.  This story has been running for some time but basically involves a private viticulture investment being harassed by the local administration.  It's all smoke and mirrors as you would expect but not helped by the Minister saying “I hope the truth will be found”.  

“Hope” is not a word investors like to hear.

Ukraine has exported 12 billion USD of agricultural products so far this year resulting in 8.73 billion USD balance of trade with the biggest share in cereals (4.8 billion USD), fats and oils (3.1 billion USD) and food products (1.8 billion USD).

Ukraine announce they are to strengthen checks on GM crops grown in the country, something they tout every now and then but it’s generally acknowledged as the worst kept secret that much of Ukraine’s soya is GM.  It is not illegal to grow GM plants in Ukraine, but no GMOs have official registration needed for legal cultivation, so the logic goes that if you don’t register it then you are not breaking the laws.

This kind of twisted thinking led Ukraine to make it a legal requirement to label bottled water “без ГМО” (without GMO) and does nothing for the countries credibility.

Russia aims to reach self-sufficiency in seven years

Russia’s Minister of Agriculture, Alexander Tkachev, gave an update during Government hour to the state Duma on Wednesday.

He basically reiterated the current agricultural policy of import substitution saying Russia will be able to reach full self-sufficiency in agricultural products, except for exotic foods, in seven years.

From my travels across rural Russia, many people are already self sufficient in agricultural products.

Tkachev went on to say that this year’s grain harvest reached 117mmt, which is a post-Soviet record and grain exports will be about 35mmt during the current agricultural year. 

He doesn’t mention grain quality, specifically wheat, not that I can find anyway and I can’t help but think it’s an issue that is not going to go away.

He went on to report that he was confident 10-12 million hectares will be brought back into agricultural production which he viewed as a priority.

It would certainly boost Russian agricultural production if they did but bearing in mind Russia has a record grain harvest, there is possibly a reason why that land is currently lying unused.

On meat he reckons exports could reach 1mmt by 2020 and see’s Asian markets as the target but then again who doesn’t.

With Milk production at an all-time low (here) the Minister recognises that to completely replace imported dairy products, Russia will need to develop more than 800 dairy farms, or 160 farms every year by 2020.

Possible investment opportunity there for adventurous dairy farmers with deep, deep pockets.

The ministry also plans to protect domestic producers from unfair competition so expect more stories of import administration irregularities resulting in dangerous and counterfeit Belarussian apples being destroyed.

Ukraine has exported 12 billion USD of agricultural products so far this year

According to the State Statistics Service, Ukraine exported agricultural products worth 11.83 billion USD accounting for 40.7% of national exports.

During the same period Ukraine imported agricultural products worth 3.10 billion USD dollars, accounting for 9.9% of national import.

Thus the balance of trade in agricultural goods was worth 8.73 billion USD.

The biggest share in Ukrainian exports was cereals (4.8 billion USD), animal or vegetable fats and oils (3.1 billion USD) and food products (1.8 billion USD).

Imports are predominantly vegetable products (1 billion USD) and food products (1.4 billion USD).

In 2015 agricultural exports amounted to 14.56 billion USD (38.1% of national exports) and imports 3.47 billion USD (9.3% of national imports) with a balance of trade worth 11.09 billion USD.

Ukraine has exported over 20mmt of grain

As of December 15, in the current marketing year, Ukraine has exported 20,061,000mt of grain, up around 4.5% on the same period last year.

More than half (10.6mmt) of exports was made up wheat, corn accounted for 5.3mmt and barley 4.0mmt.

In addition, Ukraine exported 165,000mt of flour.

The largest importers of Ukrainian grain is Egypt, China, Thailand, Saudi Arabia, Indonesia and Bangladesh.

The Ukraine marketing year for cereals begins July 1 and ends June 30.

Ukraine planted 6.9 million hectares of winter crops

Ukraine Ministry of Agriculture report farmers have planted 6.9mha of winter crops including 5.9mha of wheat and triticale.

They go on to report 6.5mha emerged shoots of which they reckon 5.4mha (83%) are in good and satisfactory condition and 1.1mha (17%) in poor or thinned condition.

This compares to our crop tour assessment in November when we scored wheat as only 75% in good and satisfactory condition and 25% in poor or thinned condition.

Winter canola plantings are 845kha with 782kha emerged, of which 82% are in good and satisfactory condition and 18% in poor or thinned condition.

Latest Russian harvest and planting figures

Russian Ministry of Agriculture report that as of November 12, soya harvest stood at 3.2mmt, up 14% on the same period last year (2.8mmt in 2015).

This year's total soya crop will be a record with an average yield of 1.55mt/ha (1.43mt/ha in 2015).

The total grain harvest stands at 125.5mmt of in bunker weight, 15% more than the same period last year (108.8mmt in 2015).

Breakdown of the harvest is wheat 75.9, barley 19.1mmt, corn 14.9, rice 1.3mmt, sunflower 11.3mmt and canola 1.1mmt.

The potato harvest is 6.9mmt, sugar beet 51.1mmt,and vegetables 4.2mmt. 

Winter crop plantings is 17.4mha or 100.1% of the forecast which compares to 16.3mha in 2015.

Latest USDA weather update for western FSU

Moisture reserves remained favourable for dormant winter crops, though many key southern growing areas remained devoid of a protective snow cover.

Widespread precipitation — rain in the south and snow in the north — maintained adequate to abundant moisture reserves for spring growth.

Temperatures averaged 2 to 6°C below normal in the region’s key winter wheat areas from central and southern Ukraine into southern Russia, though these same areas remained devoid of a protective snow cover.

At week’s end, snow cover (2-20 cm) extended from northern Ukraine and Russia’s Central District east into the Volga District as well as northern portions of the Southern District.

Key winter wheat areas in the southwestern Southern District remained exposed to potential incursions of bitter cold.

This weeks Russian Agri-business news

Russia continue to report bullish agricultural production, this time greenhouse vegetable crops up 33% more when compared to the same date last year.

While Russia’s poultry industry seems to have reached domestic demand saturation as the industry reports growth stopped in Q3 after ten years of a steady 13% increase in output.

So it comes as no surprise to hear that the Russian poultry and meat producer, Cherkizovo, has negotiated and been granted authority to export chicken meat to the EU.

As of 1^st November, Russian grain stocks stood at 47.7mmt, the third month in a row of highest grain stocks (y-o-y) in the last five years.

Russia's record stocks are due in part to a record crop and slower than expected pace of exports with Andrey Sizov from SovEcon telling me via twitter that, in his opinion, the main reason is a dramatic improvement in farmers finances, presumably allowing them to hold on to stocks and sell strategically.

African Swine Fever (ASF) in southern Russia had the grain trade holding its breath this week with reports of possible quarantine measures affecting grain transport and exports.  

The issues seems to have passed for now with Krasnodar Governor Mr Korobkagive saying earlier today that there are no grounds to impose quarantine on grain shipments and that the situation is stable.

Good news for now but given the highly contagious nature of ASF, no treatments or vaccines and high mortality rates, I suspect this won’t be the end of the story.

Louis Dreyfus are to begin operations at the Don River grain terminal in Azov, Rostov region, with a facility that has the capacity to store 50,000mt and can handle ships up to 5,000mt.

Russia continue to keep up pressure to increase agricultural production with the latest draft resolution on idle or inappropriate land use aimed at bringing more agricultural land back into production.

Finally, Russia’s phytosanitary watchdog confiscated five tons of fruits, veg and nuts in November from the hand luggage of arriving passengers. Five tons!

Have a good weekend.

Latest USDA weather update for western FSU

For the first half of the week, light rain and snow showers prevailed with temperatures averaging up to 5°C above normal.

During this period, snow cover (2-10 cm) was confined to northern-most growing areas and to southern portions of the Southern District.

By week’s end, however, below-normal temperatures accompanied a developing storm system, resulting in widespread snowfall (5-30 mm liquid equivalent) from Ukraine into central Russia, with lesser snow accumulations closer to the Black Sea Coast.

The late week snow provided beneficial insulation (snow pack of 5-15 cm, locally more than 25 cm) to dormant winter crops across much of the region.

Another possible reason why Ukraine grain exports are falling behind?

Reading plenty of reports that Ukraine grain exports are falling behind because of a lack of grain wagons and tightened rules on transportation by trucks.

This has led to at least two interested organisations that I am aware of publicly complain to the government.

Changes in law limiting the size of trucks on Ukraine’s roads and lack of investment in railways is no doubt implicit, which news agencies have readily latched on to, but changes to VAT rules is more likely to have had a greater influence.

Previously farmers kept all the VAT element of sales in a separate account which could then be spent on specific items required for production, from memory included fuel, feed, fertiliser, seeds and pesticides.

In January this year the law changed so that 80% of VAT has to be paid to the government, no great surprise then that farmers are hanging on to grain and looking to sell for black cash.

While you can never be totally sure of the situation, the lack of trucks queuing up at silos when lines would normally be measured in kilometres and recent full on tax inspections (think raids, balaclavas, guns) suggest a lack of grain wagons is not necessarily the root cause.

There will be a limit on black cash grain sales as there will be a limit on where it can go and it won’t be long before farmers need to commit to input purchases, so, keeping in mind that January trade slows right down, come February we might see a rush on exports and prices dropping in the ensuing melee.

Will Russia's ASF outbreak affect grain exports?

African swine fever seems to be an increasing problem in Russia judging by the amount of reports currently being issued by the veterinary and phytosanitary watchdog.

The government are saying that quarantine measures being imposed in southern Russia will not affect grain exports from the region, which to my mind suggests it may well actually do precisely that.

The virus can be transported on machinery, clothing and presumably grain which would then make sense to restrict exports to stop it spreading further afield.

I’m not an expert on animal pathology but what I do know is that ASF was first detected in eastern and northern Europe in 2007 and is now considered to be endemic in domestic pigs in Russia.

The virus vector is a tick which can survive in the absence of a hosts for up to five years and once a pig is infected it sheds large quantities of the virus making it highly contagious to other pigs resulting in high mortality rates.

Adding to that, the virus can remain viable for 15 weeks in chilled meat and up to six months in processed hams, making it an incredibly difficult pathogen to contain.

How big of a problem is it in Russia?  I don’t know but the veterinary and phytosanitary watchdog have made 52 separate announcements on their website relating to ASF since the beginning of September.

Latest USDA weather update for western FSU

Cold, dry weather prevailed over much of the region.

Colder than-normal weather (2-8°C below normal) kept winter crops dormant from central Ukraine into central Russia and ushered winter wheat into dormancy along the Black Sea Coast.

Sunny skies prevailed, encouraging the final stages of corn harvesting in Ukraine.

Overall, winter crops entered dormancy in favorable condition, although snow cover remained shallow (less than 10 cm) and confined to northern winter wheat areas.