Wednesday, 17 December 2014

The Russian Rouble and the implications for farming

It’s all appears to be going very Pete Tong in Russia with the rouble losing 15% against the dollar between Friday and yesterday.

The farming community in Russia is saying it’s all going mental with fertiliser dealer’s reneging on previous agreements and seed and pesticide suppliers refusing to price product.

After previously lifting interest rates 1% and saying they didn't want to panic the market, Russia’s central bank panicked the market by lifting it a whopping 6.5% and making the announcement at 1am after what appeared to be a crisis meeting.

Russian inflation and crude oil prices continue to add to the pressure as oil and gas make up a sizeable portion Russian exports.

Russian Agriculture Minister Nikolai Fyodorov said that he was waiting government approval to raise the intervention price for grain to increase state stocks from 1.5mmt to 3.5mmt and presumably slow down exports at the same time.

They may well happen anyway as the slump against the dollar has created a big disincentive for Russian farmers to sell their grain but to hold onto crop in a wait and see because surely it can’t get any worse type scenario.

If suppliers are not agreeing prices then farmers with crop to sell will have no significant cash flow demands either so best to hold for now.  

Under these circumstances spring is a long, long way off.

Against this background western commentators with no understanding of how Russians tick and who are more used to politicians resigning after tweeting a picture of a white van are incredulous that President Putin's popularity continues to remain buoyant.

Putin is due to give his annual press conference tomorrow, my guess is he will down play Russia's role in the spluttering economy electing to blame western foreign policy and sanctions.

One of the few Russians prepared to go on record with the BBC summed it up when John Simpson asked for her if life was going to be more difficult in the future while standing in the freezing rain at tram stop number three said “yes but it’ll pass, we will survive”.

Latest USDA weather update for western FSU

During November, cold conditions further stressed poorly established winter grains in the north, while winter wheat in key southern growing areas entered dormancy under mostly favourable conditions.

Autumn drought continued from Belarus and northern Ukraine into central Russia, with November precipitation totalling less than 50 percent of normal (locally less than 10 percent).

The lack of moisture coupled with an early onset of bitter cold (-20°C or lower) resulted in poorly established winter grains in more northerly growing areas.

In addition, a lack of snow cover may have resulted in some burn-back or winterkill during the coldest weather.

In contrast, despite a dry November, winter crops in southern growing areas were properly established due to plentiful autumn rainfall.

Therefore, winter wheat from southern Ukraine into southern portions of Russia entered dormancy under mostly favourable conditions and was better able to withstand the late-month bitter cold, despite a relatively shallow snowpack.

...and the latest USDA weather update for eastern FSU

During November, bitterly cold, snowy weather halted late spring wheat harvesting.

In particular, un-harvested spring wheat in southern portions of Russia’s Siberia District remained covered in a moderate to deep snow-pack, with a persistent arctic air mass keeping much of the region encased in snow.

These areas do not typically grow much winter wheat due to the harsh winters.

Snow and cold also halted late autumn fieldwork in the south, though the cotton harvest was reportedly completed before the cold, snowy weather arrived.

Friday, 12 December 2014

Friday's Russian news roundup

Pakistan’s Finance Ministers has told officials from the Commerce and Trade Authority to come up with a plan to export agricultural products to Russia.

He told exporters to take advantage of the ban imposed by the Russian government and that it will enhance overall exports of the country and lessen the current deficit, which is an easier thing to say than do.

He also told Ministries to prepare for World Food Exhibition 2015 in Moscow, I didn't know there was a World Food Exhibition in Moscow next year, I wonder if EU and US food producers are invited.

Russia will ban imports of live poultry and hatching eggs from the Netherlands starting today due to the outbreak of H5N8 in the Dutch village Kamperveen.  As well as poultry the village is renowned for manufacturing mobile leisure vehicles.

The problem with all these tit-for-tat bans is it’s difficult to spot a genuine case when a country is justified in restricting imports, I suspect this is genuine although I thought poultry and hatching eggs would already have come under the general sanctions list.

The on-off Russian export is back on with rumours that Russia will go ahead and limit exports apparently based on a comment by a Russian agriculture minister that the country would attempt to slow exports by raising the intervention price.

All the indicators suggest there won’t be export restrictions which leads one to think that’s exactly what will happen.

Belarus are saying the current embargo by Russia on their exports are unjustified and are hurting several Belarussian companies.

Russia has now said they will let some Belarussian enterprises resume exports to which Belarus responded that it is important to reopen exports for all the enterprises at once instead of two or four.

Vladislav Tsydik, Deputy Chairman of the Agrarian Policy Commission of the House of Representatives of the National Assembly of Belarus (and breathe) said “I am convinced that our products are as good as foreign ones, Belarussian products are organic, environmentally pristine and safe”.  But possibly slightly radioactive.

You have to feel sorry for Belarus, April 1986 the wind was blowing in a northerly direction taking with it the radioactive cloud from Chornobyl before dumping it over large parts of Belarus, no nuclear power stations on its territory but extensive contamination.

I've been to the contaminated regions and abandoned villages in the south of the country, a truly heart-breaking experience.

Have a good weekend.

Thursday, 11 December 2014

Definitely maybe no Russian grain export restrictions

SovEcon said Russia’s December grain exports will remain high fuelled by a weaker rouble, which I take to mean exporting grain is a way of generating foreign currency, something Ukraine did when short of cash during the Yanukovych years.

Bunge said they do not see any signs of a possible imposition of grain export limitations by the Russian government and to date the company does not observe any government regulation of the market, and there is no indication that something should happen.

Which all feels a bit like the vote of absolute confidence a football manager receives from the board right before he is given the boot.

French four point beef support programme

I might be a bit cynical here but is it possible that the EU and other countries are using Russian food sanctions as an excuse to push support proposals in through the back door?

I'm not saying that there isn't a genuine effect as a result of the Russian issue but since when did Russia become such a significant trading partner that when it closes its doors the whole of the EU ag sector catches a cold?

The latest country to peg a support programme to the Russian issue is France who have put forward a four point programme to tackle problems arising in the beef sector.

While the French government say the programme is as a result of the Russian embargo they freely admit it has been amplified because of the prospect of the end of milk quotas in March next year.

Surely they have that the wrong way around, the real reason for a support programme is because of the end of milk quotas, the Russian problem just makes for a more palatable narrative.

The four priorities as set out by the French ag minister are in reality only two and come as no great surprise.

Financial aid to farmers from the French government and the EU (will the French government aid programme be supported by EU funds?) and developing export and domestic markets (which presumably require EU funds to administer).

I'm not having a specific go at the French here (I'm overwintering in rural France at the moment so I don’t want to upset French farmers), every EU member state is banging the drum for support and I suppose it’s a case of he who shouts loudest gets heard but may be we should be a bit clearer on the rationale behind the situation.

Wednesday, 10 December 2014

SigmaBleyzer macroeconomic situation report on Ukraine

SigmaBleyzer have released their latest macroeconomic situation report on Ukraine, the full transcript can be found here but below are a few highlights.

The Ukrainian currency (Hryvnia) continued to depreciate, falling to an historic low of UAH 16.05 per USD.

At the beginning of November, the National Bank of Ukraine (NBU) abandoned an unofficial peg of UAH 12.95 per USD,

A brief period of stability during October was achieved by the NBU forking out $1.4 billion with international reserves now at a ten year low of $12.6 billion.

Anticipated provision of sizeable foreign financial aid should contain Hryvnia depreciation beyond UAH 17 per USD.

The decline of agri exports to Russia has been mitigated to some extent by the growing exports to the EU thanks to unilateral trade preferences for Ukraine, extended by the EU until the end of 2015.

However due to the asymmetry in the structure of agro and food exports of Ukraine to Russia and the EU, exports to the EU are dominated by grains and edible oil (and some meat and dairy products) with fresh produce not being able to find a suitable alternative.

The problem with fresh produce is that Ukraine cannot achieve the quality standards or at least the necessary compliance records required for EU export.

Agri-news from Belarus, Russia and Kazakhstan

Belarus customs officers have restarted inspections of trucks on the border with Russia presumably in retaliation to Russia imposing a ban on the transit of food through Belarus to third countries.

Control over the countries’ borders was previously suspended in 2011 after Belarus, Russia and Kazakhstan had established the Customs Union.

A Russian trade delegation has expressed interest in importing agricultural produce from Zimbabwe.

Head of the delegation said that EU and US trade sanctions had propelled Russia to turn to Latin America, Asia and Africa for agricultural produce, conveniently forgetting it was Russia that imposed food import sanctions.

The head of the delegation went on to say they were interested in citrus fruits and understanding the nature and structure of subsidies because they believed that is the crux of the matter in terms of sustaining farmers, conveniently forgetting Russia has no money to subsidies farmers or that subsidies are a blunt instrument in managing agricultural policy.

Russian President Vladimir Putin was in Turkey last week.

Turkey looks to capitalise on the EU US Russian food sanctions by seeking to increase agricultural exports to Russia.

Turkish Minister Taner Yildiz said “Turkey will not make a choice between the European Union and Russia.  We are developing projects based on our own and mutual interests”.

Absolutely Minister but that will require a level of commitment to a business plan that hinges on politically imposed sanctions which could just as easily be lifted.  Risky.

Iran jumped on the supply Russia with food bandwagon when Deputy Minister of Agriculture said Iran has considerable supplies of food to be exported to Russia including chicken, eggs and fish.

I only hope the fish are not from the festering oil slick that is the Caspian Sea which by all accounts smells like TCP.

Indian Buffalo meat is potentially on Russian and Kazakhstan tables this winter as the Russian veterinary regulator Rosselkhoznadzor and Kazakhstan’s ministry of agriculture report that imports have now been cleared and it is now up to local companies to coordinate deliveries from suppliers.

I assume this is to supplement generic meat demand rather than to supply a niche market in organic buffalo steaks.


Buckwheat makes it on to the BBC news.

Botanists call Buckwheat a pseudo-cereal because it’s not actually wheat, Russians call it tasty and wholesome.

Rumours that snow has ruined the harvest in the Altai region have caused panic-buying and pushed up the price.

A few week’s back I was in Spain and passed a Russian product shop run by Russians for the extensive Russian ex-pat community hankering after pelmini and smetana, out of interest I popped in.

The lady running the shop said they hadn't had any buckwheat delivered for several weeks but were expecting some soon, possibly, but the price had gone up.

Back in Russia experts are saying stockpiles are plentiful, they see no reason for concern or shortages and rule out any link with the sanctions imposed over the Ukraine crisis.

They go on to say panic-buying is pure and simple hysterics, which kind of describes what panic buying is.

Latest USDA weather update for western FSU

Cold, snowy weather maintained favourable conditions for dormant winter grains and oilseeds.

Across primary southern winter wheat areas of Russia and Ukraine, temperatures averaged 5 to 9°C below normal, with night-time lows dropping below -20°C in the coldest locales.

However, a moderate snow pack (5-15 cm) insulated dormant winter wheat from freeze damage, and a fresh snowfall (2-20 mm liquid equivalent) boosted moisture reserves and insulation from eastern Ukraine into south-western Russia during the period.

Farther north, areas along the border between Russia’s Volga, Southern, and Central Districts may have experienced some burn back or freeze damage, as a shallow snow cover (2-5 cm) likely left some winter crops exposed to temperatures as low as -23°C.

Thursday, 4 December 2014

Russia requires $10bn to replace food imports

Despite the patriotic dig for victory rhetoric from Russia, replacing food imports banned by the government in response to western sanctions takes time and money.

Some banned products have found replacements from countries not affected by the ban but presumably there is a limit to how much this will provide particularly for products that have a long production cycle like beef.

While most ministers are saying we have it all sorted, we now have a supply of pig meat and we can make our own mozzarella, the Director from the economy department in the Ministry of Agriculture, Anatoli Kutsenko injected a bit more realism.

On Tuesday he told a conference that to replace imported foods the agricultural sector needed a massive budget allocation and "we'll be unable to solve the task to substantially increase production”.

According to Anatoli, to fully replace banned imported foods by 2020, Russian farmers would need at least 568bn roubles ($10.6bn) of government financed support.

To put that in context federal support for agricultural this year was 95bn roubles ($1.7bn).

Following Putin’s annual state-of-the nation address to parliament earlier today when he warned Russians of hard times ahead and urged self-reliance, it doesn't sound like anything near that amount if at all will be available.

Significant levels of support are unlikely to appear in the near future but I can see a situation when sanctions and import bans are lifted as the political landscape changes.

Which makes for a risky business plan if you hedging on supplying a market created by a political decision which could just as easily be reversed.

Wednesday, 3 December 2014

Latest USDA weather update for western FSU

Cold, snowy weather maintained favourable conditions for dormant winter grains and oilseeds.

Across key southern winter wheat areas of Russia and Ukraine, temperatures averaged 5°C or less, indicating crops were becoming or already dormant.

In addition, fresh snowfall (5-20 cm) by week’s end afforded winter wheat insulation against potential incursions of bitter cold.

Farther north, winter grains were also dormant from Belarus and northern Ukraine into central Russia, though crops in these areas were poorly established following an unfavourably dry autumn.

In addition, areas along the border between Russia’s Volga, Southern, and Central Districts remained devoid of snow cover, exposing winter crops to this past week’s bitter cold (-20 to -15°C).