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 37 Russian Loading Ports
Page 14 Winter vs Spring Wheat Production (MMT)
Page 38 Exports of grains from Russian Ports
Page 15 Net Wheat Trade Russia
Page 39 Turkeys Wheat Imports and Production
Page 16 Wheat Exports Russia
Page 40 Turkeys Wheat Imports by origins
Page 17 Total Wheat Supply - Russia
Page 41 Quality of Russian Wheat
Page 18 Russia Wheat Harvested Acres & Yields

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
2
Page 25 Top 10 Importers of Russian wheat Page 53 Conclusion

Page 26 Destinations of Russian Grains Page 54 Useful links

 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. Turkeys 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
2014 2016 and is the 5th consecutive year of annual
growth.
10% This represents the largest area since 1990
21%
48% The total area sown to grain & oilseed crops in
18% 3%
Russia is expected to grow from 49 million ha
in 2014 to 52.1 million ha in 2030.
This represents a 6% growth in total area, with
the wheat area increasing from 48% of the
2030
total area to 52% over the same period.

Wheat
The Russian government is expected to invest
10%
Corn
over $38 billion in the next 15 years with
20%
52% Barley
investment from the private sector totalling
15% Oilseeds
over $40 billion.
3%
Other 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 1980s 1990s 2000 -2015 2030-2040

Soviet Imports 1991 End Russia Russia could
Union continue of USSR. becomes a produce over 75
imported Start of major wheat million MT of
millions of Exports exporters wheat with 35-
tonnes of (with 40 million MT of
grain exceptions in exports
The Great 2010 & 2012)
Grain
Robbery
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
 Russias Total 2016/17 Wheat Supply will be up16% from 2015/16
The Largest on Record!
MMT
80

70

60

50

40

30

20

10

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) Dorusal (Yield (Mt/HA))

18

Source:Agrochart
Russian Wheat Production (MMT)
80

70

60

50

40

30

20

10

19

Source:Agrochart
 Russian Wheat Production & Exports (mmt)

80 35

70 30
60
25
50
Production

20

Exports
40
15
30
10
20

10 5

0 0

Production Exports

20

Source: Agrochart
Russian Wheat Supply/Demand Balances
July/June; Mln HA; MMT Est
15/16 16/17 17/18

Harvested 25.6 27.1 26.5

Yield 2.4 2.7 2.6

Carry In 6.3 5.7 10.5

P roduction 61.1 72.5 69
Imports 0.8 0.3 0.07
Supply 68.2 78.5 81.1

Feed 14 16 16

Other Ind 23 23 23
Domestic Use 37 37 39

Exports 26 29 30

Total Demand 63 68 69

Carry Out 5.7 10.5 12.1

Stocks/Use 9.1 15.4 17

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.

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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 Egypt 26.46 mmt
2 Turkey 17.38 mmt
3 Iran 5.42 mmt
4 Yemen 4.71 mmt
5 Nigeria 3.28 mmt
6 Bangladesh 3.27 mmt
7 Israel 2.82 mmt
8 Sudan 2.80 mmt
9 Libya 2.20 mmt
10 Lebanon 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, 26
Sth Africa
Top World Exporters of Wheat (mmt)
Russian = top exporter in 2016
40

35 34

30 29
25,54
25 22,8

20 18,61

15
11,3
10

0
12/13 13/14 14/15 15/16 16/17 25/26 est
Russia US EU Australia Canada Ukraine Dorusal (Russia)

27

Source:USDA
Wheat Yields for Major Producers MT/HA
6

0
EU Canada US Australia Russia
1996/97 2006/07 2016/17

28

Source:WASDE
The Growing Reach of Russian Wheat
Nigerian Wheat Imports Mexico Wheat Imports
5,00 6,00
4,50
4,00 5,00
3,50 4,00
3,00
2,50 3,00
2,00
1,50 2,00
1,00 1,00
0,50
- -

US HRW Russia Total Imports US HRW Russia Total

29

Source:WASDE
 GASC Volume by Origin YTD 2016/17

480 90%

Russia Share of Purchases %

420 80%
GASC Purchases 000MT

360
70%
300
60%
240
50%
180
40%
120
60 30%

0 20%

Eksen Bal

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)
100%
3,00
14
90%
2,50 12 80%
70%

Carry Out (MMT)

Carryout/Use %
2,00 10
60%
8
1,50 50%
6 40%
1,00 30%
4
20%
0,50 2
10%
0,00 0 0%

31

Source:Agrochart
 PRODUCTION COSTS

SEEDS rub/ha 1,210

OTHER FARM INPUT COSTS/PESTICIDES rub/ha 3,150
FERTILIZERS rub/ha 6,040
FUEL(PETROL/DIESEL) rub/ha 1,560
COST OF LAND RENTAL/OWNERSHIP-SALARIES-
ADMINISTRATION COSTS rub/ha 14,290
26,250
YIELD OF WHEAT(MT/HA IN KRASNADOR mt/ha 5.20
COSTS PER TONNE (MT) rub/mt 5,048
STORAGE+TRANSPORT TO INLAND SILO/CLEANING rub/mt 555
TOTAL COST rub/mt 5,603
(approximate ) Exchange Rate of 1 USD = 60 roubles $93 / MT

Cost of transport to port of loading (Novorossisk) CPT 900 $15

Cost of fobbing at Novorossisk 1200 $20
Total cost FOB $128
32
FOB PRICE 12.5% FEBRUARY 2017 = 190 usd PROFIT $62 / MT
 Income & Production Costs of Wheat US$/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 EU Canada Russia
33
Min Cost Max Cost Gross Revenue

Source:IntlFCStone
$/acre Average Prices of Crop Land in 2016
10000

8000

6000

4000

2000

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

8 main ports Taganrog 500KMT

Yeisk 1 MMT = 28MMT

TAMAN & Azov Sea Rostov on Don 4.5 MMT

Temryuk

5 MMT BLACK SEA

Tuapse 2 MMT Azov 2 MMT

Odessa

Novorossisk
13 MMT annual capacity via 3 silos 37
(NKHP 4, KSK 4 & NZT 5)
 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 38 Source: Rusagrotrans

as payment terms.
Turkeys Milling Wheat Imports by Country &
Turkeys Milling Wheat Production

39 Source: TUIK
Turkeys Milling Wheat Imports by Countries

40 Source: TUIK
 Quality of Russian wheat
(as per SGS data)

Specification/ Russia Min. Average Max.

Protein (dry matter 9.5% 13% 18%
basis) %
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 60 346 490
/Hagberg (seconds)
Gluten, 13% 26% 38%
ISO 21415-2
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

Gluten 25.93 25.9 26.7 27.26

Gluten Index 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

Remarkable fact is that Russian farmers did a really good job on Bug Damage 42 Source: SGS
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.
 Main factors that influenced on quality of milling wheat of
current crop (2016-2017 season)
1. 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,

2. 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.

3. 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:
Premium high pro milling wheat (Volga region) Feed wheat with elevated sprouted kernels percentage,

6. 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
 Its quite important to understand is that when
we are talking about Fusarium in Russian Milling
Wheat its 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 its 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 its 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,

50
Do not blend wheat with low Energy/W with parcels highpro wheat but of much
lower Energy/W.
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

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Thank You -
!

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