Growing Importance of Russian Milling Wheat Worldwide
Turkey & Russia – Symbiotic Relationship of Milling Wheat
Trading
Sergey Chumak
Solaris Commodities S.A.
1
Table of Contents

Page 3 – SOLARIS company Bio

Page 27 – Worlds Top Wheat Exports

Page 4 – Russian wheat – Synopsis of presentation

Page 28 – World Wheat Yields

Page 5 – Russia & Farming

Page 29 – Russian Wheat Exports – Growing Share

Page 6 - Russian Land

Page 30 – GASC Volume by Origin 2016/2017

Page 7 – Russian Agricultural Sector

Page 31 – Russian Wheat Yield and Carryout

Page 8 – Russian Grain Area Growth

Page 32 – Production Costs

Page 9 – Wheat producing regions Russia + Kazakhstan

Page 33 – Income & Production Costs of Wheat

Page 10 WINTER WHEAT growing regions

Page 34 – Average Prices of Land

Page 11 SPRING WHEAT growing regions.

Page 35 – Future for Russian Wheat

Page 12 Russia – Importer to Exporter

Page 36 – Points to Watch

Page 13 – Winter vs Spring Wheat Area %
Page 14 –Winter vs Spring Wheat Production (MMT)

Page 37 – Russian Loading Ports

Page 15 – Net Wheat Trade – Russia

Page 38 – Exports of grains from Russian Ports


Page 16 – Wheat Exports – Russia

Page 39 – Turkey’s Wheat Imports and Production

Page 17 – Total Wheat Supply - Russia

Page 40 – Turkey’s Wheat Imports by origins

Page 18 – Russia Wheat Harvested Acres & Yields

Page 41 – Quality of Russian Wheat

Page 19 – Wheat Production & Exports – Russia

Page 42 – Average Quality Parameters of Russian Wheat

Page 20 – Wheat Production – Russia

Page 43 – Main Factors of Quality

Page 21 – Wheat S&D – Russia

Page 44 – Shares by Class

Page 22 – Sale of Wheat – Russia

Page 45/46 – Fusarium in reality

Page 23 – GOST Standard

Page 47 – Preventive Measures

Page 24 – Export Quality

Page 48/52 – 5 questions to Turkish millers and answers

Page 25 – Top 10 Importers of Russian wheat

Page 53 – Conclusion

Page 26 – Destinations of Russian Grains

Page 54 – Useful links
2
 Solaris Commodities S.A. started trading in Feb. 2012
 See WWW.SOLARIS-CH.COM
 Traded 1.6 Million MT of Russian grain last season
 Largest trader of Russian corn in 2015/2016 season
 Export partner of MIRO GROUP RESOURCES, based in
the grain heartland of southern Russian, Krasnodar.
 Exporting from 3,000 MT coasters from Azov Sea to
63,000 MT Panamax size + containers.
3
RUSSIAN WHEAT – SYNOPSIS OF PRESENTATION
1.
Overview of agricultural sector in Russia.
2.
Where wheat is grown in Russia
3.
Winter/ spring wheat production/yields.
4.
Production and Export statistics.
5.
Cost advantages of growing wheat in Russia
6.
Quality of Russian wheat vs. other origins.
7.
Export destinations.
8.
Challenges and future potential.
9.
Conclusions on the first part of presentation.
10.
Main Russian export hubs of grains and capacities.
11.
Turkey’s milling wheat imports.
12.
Quality of russian milling wheat and seasonal factors.
13.
Fusarium in reality.
14.
Advantages of Russian Milling Wheat for Turkish millers.
15.
Conclusions and questions.
Russia and Farming

During the Soviet period farms
were collectives, called ‘Kolkhoz’ ‘Sovhoz’

USSR ended in1991 and farms were
privatised.

Cash is king. Sale of wheat
domestically is in roubles and
include 10% VAT, which is
reimbursed to the exporter
between 2-6 months after export
5
Russian Land

Russia has 10% of all arable land in the world and 40% of
what is known as “Black Earth” (3% of the arable land in
Russia) which are in an area called the “Kuban” Krasnodar
/ Stavropol regions)

Yields for wheat in the Kuban are often over 7 tonnes per
hectare as opposed to the Russian average of 2.5 tonnes
per hectare.
6
Russian Agricultural Sector

The Russian agricultural sector employs around 7 million
people or 9% of the working population and produces 5%
of the gross national product of Russia

The Russian agriculture sector has 124mln ha (of which 44
mln ha are set aside for grain production, of which
29mln ha of wheat (15mln ha winter wheat / 14mln ha
spring wheat)

In 1990 there were around 25,000 “collective” farms. In
2015 there were 285,000 private farms, which generally
have between 10 and 100 hectares, but there are 40 huge
agri-businesses in Russia with over 100,000 hectares
7
Source:AEGIC
Russian Grain Area Growth
2017 Russian wheat area to be 7% higher than
2016 and is the 5th consecutive year of annual
growth.
2014
This represents the largest area since 1990
10%
21%
The total area sown to grain & oilseed crops in
Russia is expected to grow from 49 million ha
in 2014 to 52.1 million ha in 2030.
48%
18% 3%
This represents a 6% growth in total area, with
the wheat area increasing from 48% of the
total area to 52% over the same period.
2030
Wheat
10%
20%
15%
3%
Corn
52%
Barley
Oilseeds
Other
The Russian government is expected to invest
over $38 billion in the next 15 years with
investment from the private sector totalling
over $40 billion.
Despite this investment, Russian still has 18Mln
ha of idle farmland (although some say this8
could be as much as 30Mln !!)
Source:AEGIC
9
SOURCES: USDA / ROSSTAT
10
RUSSIAN SPRING WHEAT PRODUCTION
Source – USDA/ Rosstat
11
SOVIET UNION - Russia
Importer to top exporter
1970s
•Soviet
Union
imported
millions of
tonnes of
grain
• The “Great
Grain
Robbery”
1980s
•Imports
continue
1990s
•1991 End
of USSR.
Start of
Exports
2000 -2015
• Russia
becomes a
major wheat
exporters
(with
exceptions in
2010 & 2012)
2030-2040
 Russia could
produce over 75
million MT of
wheat with 3540 million MT of
exports
12
Winter vs Spring Wheat Area %
100,0
90,0
80,0
70,0
60,0
50,0
40,0
30,0
20,0
10,0
0,0
13
Wheat winter. Area
Wheat spring. Area
Source:IKAR
Winter vs Spring Wheat Production (MMT). Areas planted
are similar, but winter wheat has better yields
60,00
49,35
50,00
40,00
30,00
23,15
20,00
10,00
0,00
Winter Wheat
Spring wheat
14
Source:IKAR
Russian “Net” Wheat Trade.
An incredible rise in the past 17 years!
25,00
20,00
15,00
10,00
5,00
0,00
-5,00
-10,00
-15,00
15
Sources:Agrochart-AgResource-USDA
Russian Wheat Exports – MMT
Exports
40
35
30
25
20
15
10
5
0
Exports
16
Source:Agrochart
Russia’s Total 2016/17 Wheat Supply will be up16% from 2015/16
The Largest on Record!
MMT
80
70
60
50
40
30
20
10
0
Productions
Beginning Stocks
17
Source:Agrochart
Russian Wheat Harvested Acres & Yields
Mil Ha
MT/HA
28
2,80
26
2,60
24
2,40
22
2,20
20
2,00
18
1,80
16
1,60
14
1,40
12
1,20
10
1,00
Harv Area ('000 HA)
Yield (Mt/HA)
Doğrusal (Yield (Mt/HA))
18
Source:Agrochart
Russian Wheat Production (MMT)
80
70
60
50
40
30
20
10
0
19
Source:Agrochart
Russian Wheat Production & Exports (mmt)
80
35
70
30
25
50
20
40
15
30
Exports
Production
60
10
20
10
5
0
0
Production
Exports
20
Source: Agrochart
Russian Wheat Supply/Demand Balances
July/June; Mln HA; MMT
15/16
16/17
Est
17/18
Harvested
Yield
25.6
2.4
27.1
2.7
26.5
2.6
Carry In
P roduction
Imports
6.3
61.1
0.8
68.2
5.7
72.5
0.3
78.5
10.5
69
0.07
81.1
Feed
14
16
16
Other Ind
Domestic Use
23
37
23
37
23
39
Exports
26
29
30
63
68
69
5.7
9.1
10.5
15.4
12.1
17
Supply
Total Demand
Carry Out
Stocks/Use
Exports Season to Date
17.3
Balance to Ship
11.7
21
Source:WASDE
Sale of Wheat in Russia

Sales of wheat are as per local «GOST» standards in roubles.

Some traders give finance to farmers against their production, but legally the
farmer can repay these prepayments (with interest) rather than deliver the
goods. This engenders certain risks for the traders..

The busiest time of year is July-September as farmers come to market with
their crops after harvest. Most farmers deliver their goods ex-works on the
farm, but some are entering the export market directly.

Many large scale farming operations, but many decisions are still taken by the
owner only. Futures contracts to hedge are not widely used. Prices are
followed on local information provideres such as IKAR or SOVECON or
RUSAGRORTANS.
22
Quality of GOST Standard
5 grades of wheat in Russia.
 1st class 14.5 protein / 32 % wet gluten
 2nd class 13.5 protein / 28 % wet gluten.
 3rd class 12.5 protein / 23 % wet gluten.
 4th class. 11 protein / 18 % wet gluten.
 5th class. Feed wheat. No min protein/gluten


GOST Gluten= +2% for ISO result.
23
Export Quality – 12.5% Protein Milling Wheat
Protein: min. 12.5% (N x 5,7 dry matter)

(minimum 12% for GASC)
Specific Weight:
min. 77 kg/hl
Gluten:
min. 25% (ISO 21415-1)
Falling Number Hagberg:
min. 250 sec
W:
min. 180
Moisture:
max. 14%
Foreign Matter:
max. 2%
Bug Damage:
max. 1%
24
TOP 10 importers of Russian wheat
period 2011 to date..
1
2
3
4
5
6
7
8
9
10
Egypt
Turkey
Iran
Yemen
Nigeria
Bangladesh
Israel
Sudan
Libya
Lebanon
26.46 mmt
17.38 mmt
5.42 mmt
4.71 mmt
3.28 mmt
3.27 mmt
2.82 mmt
2.80 mmt
2.20 mmt
1.82 mmt
25
Source:IKAR
Destinations of Russian Grains
Truly Global
North
Africa
Middle East
Mexico
India, Pakistan,
Bangladesh
Indonesia,
S.Korea
Ghana, Senegal,
Sth Africa
26
Top World Exporters of Wheat (mmt)
Russian = top exporter in 2016
40
34
35
29
30
25,54
25
22,8
18,61
20
15
11,3
10
5
0
12/13
13/14
Russia
14/15
US
EU
Australia
15/16
Canada
16/17
Ukraine
25/26 est
Doğrusal (Russia)
27
Source:USDA
Wheat Yields for Major Producers – MT/HA
6
5
4
3
2
1
0
EU
Canada
US
1996/97
2006/07
Australia
Russia
2016/17
28
Source:WASDE
The Growing Reach of Russian Wheat
Nigerian Wheat Imports
5,00
4,50
4,00
3,50
3,00
2,50
2,00
1,50
1,00
0,50
-
Mexico Wheat Imports
6,00
5,00
4,00
3,00
2,00
1,00
-
US HRW
Russia
Total Imports
US HRW
Russia
Total
29
Source:WASDE
480
90%
420
80%
360
70%
300
60%
240
50%
180
40%
120
60
30%
0
20%
Russia Share of Purchases %
GASC Purchases ‘000MT
GASC Volume by Origin – YTD 2016/17
Eksen Başlığı
Russia
Others
Russia % of Total
YTD total purchases 4.6MT, of which Russia 3.34MT or 73%.
30
Russian Wheat
Yield (Mt/HA)
Wheat Carryout (MMT)
3,00
14
2,50
1,00
Carry Out (MMT)
1,50
10
90%
80%
70%
60%
8
6
4
50%
40%
30%
Carryout/Use %
2,00
12
100%
20%
0,50
2
0,00
0
10%
0%
31
Source:Agrochart
PRODUCTION COSTS
SEEDS
OTHER FARM INPUT COSTS/PESTICIDES
FERTILIZERS
FUEL(PETROL/DIESEL)
COST OF LAND RENTAL/OWNERSHIP-SALARIESADMINISTRATION COSTS
rub/ha
rub/ha
rub/ha
rub/ha
1,210
3,150
6,040
1,560
rub/ha
YIELD OF WHEAT(MT/HA IN KRASNADOR
STORAGE+TRANSPORT TO INLAND SILO/CLEANING
mt/ha
rub/mt
rub/mt
14,290
26,250
5.20
5,048
555
TOTAL COST
rub/mt
5,603
COSTS PER TONNE (MT)
$93 / MT
(approximate ) Exchange Rate of 1 USD = 60 roubles
Cost of transport to port of loading (Novorossisk) CPT
Cost of fobbing at Novorossisk
FOB PRICE 12.5% FEBRUARY 2017 = 190 usd
900
1200
Total cost FOB
PROFIT
$15
$20
$128
$62 / MT
32
Income & Production Costs of Wheat – US$/mt
With the exception of the Ukraine, Russia is the most cost effective producer of wheat in the
world currently. With significant cost advantages in fertilizer & pesticide cost as well as low
land values and labour costs.
Vast improvements in supply chain efficiencies during the peak load period of July-September
have taken place since 2009 with significant investment, particularly in port infrastructure.
200
180
160
140
120
100
80
60
40
20
0
US
Australia
Min Cost
EU
Max Cost
Canada
Gross Revenue
Russia
33
Source:IntlFCStone
$/acre
Average Prices of Crop Land in 2016
10000
8000
6000
4000
2000
0
34
Source: SovEcon, USDA
Future for Russian wheat

Russia can improve yields and increase global market share.

Infrastructure projects are planned in the Black Sea, the Azov sea
as well as in the Caspian to serve demand in Iran and in the Far
East, notably in Vladivostok for the Asian market.

Russian wheat often has the best quality/ price ration. Good
extraction values for flour.

Production costs are low ($ 90-115/mt) & the price of land up to
5x less than in USA/ EU. (between $1,500 - $3,000 per hectare vs
$5,000 in Kansas? $20,000 in Iowa? As per Sovecon)
35
Some points to watch

Politics: there have been some export restrictions/ taxes (most
notably the ban in 2010, unlikely to be repeated)

Weather – extreme cold in winter/ very hot in the summer.

Default risk/ counterparty risk.

Fraud + financing issues

Cost of logistics rising/ expensive FOBBING cost $23/mt in peak
season in Novorossissk. Can infrastructure keep pace?

Cultural differences/ communication difficulty/ Few local
participants know international rules (such as GAFTA)

The % of bug damage impacts on quality and access to certain
destinations like Saudi Arabia and Algeria.

Success of Russian Wheat exports has been without a centrally
funded lobby group (no US Wheat Associates or France Export
Cereales equivalent)
36
Russian Loading Ports Black and Azov Sea pool
Yeisk 1 MMT
8 main ports
= 28MMT
Azov Sea
TAMAN &
Temryuk
5 MMT
Taganrog
500KMT
Rostov on Don 4.5 MMT
BLACK SEA
Tuapse
2 MMT
Azov 2 MMT
Odessa
Novorossisk
13 MMT annual capacity via 3 silos
(NKHP 4, KSK 4 & NZT 5)
37
Exports of Grains from Russian Ports
Share %
Port/Cross Border Points July-January 2015/2016, mln mt July-January 2016/2017 2015/2016 2016/2017
Azov Sea ports
7'516
7400
32.1
32.2
Novorossiysk
6'786
7425
29
32.3
Tuapse
1268
903
5.4
3.9
Taman
2433
2008
10.4
8.7
Kavkaz Roads
2526
2400
10.8
10.5
Baltic Ports
913
852
3.9
3.7
Azerbaijan
916
934
3.9
4.1
Caspian Sea Ports
627
670
2.7
2.9
Others
443
361
1.9
1.5
Total
23428
22955
100
100
1)Geographically Russia has a freight advantage for exports of milling wheat to Turkey and everyone knows it.
2)There are two main Russian bases of exports - 3/5 000 mt vessels from shallow Azov Sea and bigger vessels from Black sea ports.
By this Russian exporters have a chance to cover the needs of all kinds of Turkish clients depending on company's size, import and financial
capacities.
3)Short sea voyage leads to a necessity to trade on trust, i.e. In 90% of our sales contracts we trade cash against fax copies of cargo documents
as payment terms.
38
Source: Rusagrotrans
Turkey’s Milling Wheat Imports by Country &
Turkey’s Milling Wheat Production
39
Source: TUIK
Turkey’s Milling Wheat Imports by Countries
40
Source: TUIK
Quality of Russian wheat
(as per SGS data)
Specification/ Russia
Min.
Average
Max.
Protein (dry matter
basis) %
9.5%
13%
18%
Moisture %
9%
12.5%
20%
Test Weight (kg/hl)
66.5
77.8
80
Foreign matter %
0.17%
0.77%
7%
Bug damage %
0.2%
0.84%
5%
Falling Number
/Hagberg (seconds)
60
346
490
Gluten,
ISO 21415-2
13%
26%
38%
Source: SGS
Average Quality Parameters of Russian Milling Wheat for past 4 Seasons
Parameter
2016
2015
2014
2013
Bug Damage
0.75
0.084
0.85
0.8
FN
355
347
335
339
Foreign matter
0.7
0.77
0.55
0.72
25.93
25.9
26.7
27.26
78
89
85
84
Moisture
11.92
12.6
11.84
12
Protein on Dry Matter
12.73
13
12.93
13.3
Test Weight
77.8
77.4
78.9
76.9
W
206
232
218
248
Gluten
Gluten Index
Remarkable fact is that Russian farmers did a really good job on Bug Damage
content which is actually below 0.5 % in almost all the shipments from
Black Sea and Azov Sea ports in the current season 2016/2017.
42
Source: SGS
Main factors that influenced on quality of milling wheat of
current crop (2016-2017 season)
1.

2.

3.

Long spring period and wet weather conditions during growing led to:
Vegetative period was too long and thanks to sufficient moisture level and fertilizers used by producers plants had excellent
conditions for “green mass” formation and growing,
Sudden stop of rains and temperature increase made the “wax” stage and harvesting faster:
As a result and despite the fact that average protein levels remain equal to last crop, the level of wet gluten/gluten index substantially
decreased.
Long spring period with temperatures in the range of 17-20 degrees was favorable for agricultural diseases’ development:
In most of the growing regions due to unceasing rains the effect of treatment by fertilizers was substantially decreased,
4.
It is noticed that the efficiency of treatment by insecticides was pretty poor than expected in Volgo-Ural and Central part,
5.
Heavy rains influenced a lot a quality of above regions and as a result we have two kinds of wheat varieties:

6.
Premium high pro milling wheat (Volga region) Feed wheat with elevated sprouted kernels’ percentage,
Due to longer, than needed wet weather agricultural diseases were quite active even in Black Soil regions like Voronezh.
43
Approximate Share of Wheat by Class 2016/17
Wheat Class as per GOST
%
5th Class
31%
4th Class
46%
3rd Class
23%
44
Source: SGS
FAUSARIUM problem & realities of
the disease in the South of Russia
No doubts Fusarium-contaminated wheat is one of
the most dangerous diseases of grains in the
world. Along with the production fall caused by
decreased germination of seeds, lower amount of
grains in the wheat ears as well as the weight of
1000 grains, Fusarium may damage the quality of
malting and bakery. And even more, Fusarium
may be a main cause of mycotoxins presence in
milling wheat. It becomes a fact that the highest
content of mycotoxins is found in wheat damaged
by Fusarium when the crop is facing slower
maturation than normal. Another “green light” for
the disease is the storage of wetter wheat than
required by the standards or further moisture
increase of volumes already harvested and stored.
The biggest danger of Fusarium presence in
milling wheat is:
The research has proved that in bread, which is
made from dough contaminated by Fusarium, the
content of toxins is not decreasing but even it
may result in higher percentage during the
process of making of yeast dough and bread.
45

It’s quite important to understand is that when
we are talking about Fusarium in Russian Milling
Wheat it’s not so critical to discuss the quantity
of contaminated kernels but it really makes
sense to consider the biological activity of them
and the level of vomitoxins in these kernels.

As per lab statistics, two years ago there were
alarming questions about a dangerous content of
vomitoxins more than 1250 ppb (EU standard and
requirements) in certain parcels of Russian
Milling wheat. Meanwhile, the percentage of
contaminated kernels was in the range of 0.4-0.8
%.

But remarkable thing is that In the current
season, despite some detected spots of Fusarium
disease in the South of the country, high level of
vomitoxins/mycotoxins has not been found. For
example, SGS says the range of vomitoxins
content in exportable parcels of milling wheat is
up to max 300 ppb what is significantly lower
max levels of EU requirements.
46
Preventative Measures to Fight Fusarium
They are quite known and it remains just a question of discipline together with
certain overheads:

Buy sound, healthy, resistant to Fusarium disease planting material

Timely harvesting and drying if it’s needed to make sure moisture content is
not higher than 14 %

Timely and sufficient treatment the plantings by fungicides.
47
Blitz poll –
5 questions to 5 Turkish importers-flour millers:
The biggest advantage of Russian milling wheat or strongest quality parameter with reference to wheat flour quality ? .
Reply :
Logistics (short time voyage, availability of volumes of any size from 3,000mt to
30,000mt).
Quality wise it’s normally:
high level Test Weight,
steady Wet Gluten,
low percentage of Moisture.
if the crop is strong W is satisfactory with obvious advantage over other origins in Black Sea48
area.
Question 2:
The weakest side of Russian milling wheat for wheat flour
production ?
Reply :
Seasons with low Energy and insufficient sedimentation
49
Question 3:
What should Russian farmer do in order to improve the
homogeneity of milling wheat?
Reply:
Turkish millers/importers understand that Homogeneity is more commercial issue
for Russian farmers who are experienced blenders!!!
Needed steps to improve:
Good quality planting material,
Timely feeding with fertilizers,
Do not blend wheat with low Energy/W with parcels highpro wheat but of much
lower Energy/W.
50
Question 4:
What are the most preferred 3 origins of milling wheat for Turkish miller
in general?
Who are they - those three stars?
Reply:
Apart from Turkish origin - Russian, Kazakh, Hungarian for Turkish Black
Sea ports.
EU/Lithuanian 12,5 %-14.0 % protein is preferred for Mersin due to
freight advantage.
The respondents also mentioned Australian and Canadian origins.
51
Question 5:
What is better for Turkish miller ?
Average quality Russian crop with affordable prices
or
The year of small crop=above average quality=relatively high prices?
Reply:
For Turkish miller better to have an access to average quality Russian
crop with affordable prices and price advantage is taking the first place.
52
In Conclusion:

From the start of early 2000s and already years spent in the open market, Russian
farmer is definitely improving his performance thanks to easier access to
financial instruments and a clear understanding on “you have to be
competitive”:

-thinking about the right choice of commodity selection/rotation to plant from
year on year inviting agronomists.

-building modern storage facilities.

-inviting specialists, technologists who are well paid.

-farmer has already stopped hoping for luck of favourable weather but always
trying to make sure about proper inputs for the plantings.

-farmer is looking at global market changes.

And if one day the community manages to implement a really efficient Black Sea
standardized wheat futures contract with sufficient liquidity and workable
conditions/delivery points the farmer will definitely follow!!!!!!
53
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TWITTER: @RUSSIANGRAINTRA
54
Thank You Спасибо !
55