Russia’s growth potential may be overstated

Economics now play role | Analysts say no idle land remains in Ukraine and expansion is at a standstill with political turmoil

NEW ORLEANS, La. — The un-tapped agricultural potential of the former Soviet Union is more tapped than people think, according to a couple of experts.

Levin Flake, an analyst with the U.S. Department of Agriculture’s Foreign Agricultural Service, said there is no way Russia is returning anywhere close to its Soviet era land base.

That was a time when every acre of marginal land was planted because farmers were given seed and inputs to grow their crops.

“Economics didn’t really take a front seat,” he told the 2014 Oilseed & Grain Trade Summit.

The USDA believes all the good land in southern Russia near the Black Sea ports has been developed. No idle land remains.

Siberia is too far from the ports to make farming viable. Crop prices would have to be astronomical to see more land under production in that region of the country.

The only area that might see expansion is in the central district, where farmers are becoming enamored with hybrid corn varieties.

Matt Ammermann, commodity risk manger for the CIS/Black Sea region with INTLFC Stone, doubts there will be much, if any, acreage expansion in Ukraine.

There was little expansion during the high price period of 2007-12 and there certainly won’t be any expansion occurring with today’s low prices and political turmoil.

Ukrainian farmers are having a difficult time financing their existing operations.

They can’t use land for collateral because they don’t own the land. It doesn’t help that major banks have been leaving the country because of the threat of war.

“You have big issues with financing,” he said.

Growers need cash to buy inputs, which is why exports from of the former Soviet Union have been so intense during the first quarter of the 2014-15 crop year.

The financing constraints are also why Ammermann expects another huge crop of winter wheat this year. Wheat seed can be saved and re-planted while hybrid corn seed is expensive.

He is forecasting a three to five percent increase in winter wheat planting in Ukraine, where 90 to 95 percent of the wheat grown is planted in the winter.

Seeding conditions are good in Ukraine. It is dry in the Volga region of Russia, but Ammermann isn’t overly concerned.

“It’s wheat. You spit on it and it will grow,” he said.

“We should see another bumper crop as long as weather co-operates.”

The U.S. Department of Agriculture is forecasting 38.5 million tonnes of wheat exports from the former Soviet Union in 2014-15, up from 37.1 million tonnes last year.

It wasn’t long ago that the region was shipping five million tonnes.

Ammermann believes the FSU will remain a tough wheat export competitor in years to come, despite Russia’s stated objective of focusing on the livestock sector and Kazakhstan’s growing interest in oilseeds.

Flake said Kazakhstan’s government realizes that competing in the wheat market is not a good long-term strategy because of its transportation challenges.

The country is gradually diversifying into feed grains and oilseeds in an effort to build its livestock herd and export meat to Russia.

“They’re not looking at increasing their wheat exports. They’re looking at growing more oilseeds,” said Flake.

Ammermann said Ukrainian farmers are becoming more interested in growing corn. Five years ago, Ukrainian corn paled in comparison to U.S. corn in terms of quality.

“Now that has tightened up drastically. Practices are basically what they are in the west,” he said.

It is helping Ukraine take corn markets away from the United States. It has shipped an estimated one to three million tonnes of corn to China in the past few weeks, taking advantage of China’s concerns over unapproved genetically modified corn traits finding their way into U.S. shipments.

The U.S. desperately needs to ship to that big market, given its record corn harvest.

“From a price standpoint, it’s just another bearish influence,” he said.

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