The season-2019/20 for the Russian market of oilseeds can become quite interesting in terms of trading and distribution of raw materials. At the same time, the season already demonstrated the significant increase of the planted areas, which continues growing for the fifth running year for sunflower seed, and for the eleventh year — for soybeans.
The further growth of oilseed processing capacity will somewhat level down the expected new record in oilseeds production, in terms of the maximum carry-over stocks, but the trend will not support the price environment at all…
According to the October forecasts of the USDA, in 2019 the global production of sunflower seed will vary at the level of the previous year — over 51 mln tonnes, including the share of Russia at 25%. For a long period, the country surely holds the second position after Ukraine in the global rating of the oilseed producers.
In 2018, Russia harvested the maximum volumes of oilseeds in the contemporary history — 18.8 mln tonnes, including 12 mln tonnes of sunflower seed. In terms of the relatively unchanged production capacities in 2018/19 MY, the reporting figures will impact on both volumes of the oilseed processing, and the price dynamics in the segments of raw materials and sunflower oil.
Russia managed to reach the production growth, due to the increase in planted areas, which continued developing in the country since 2015 (in 2018, the upward trend totaled nearly 2%). At the same time, the planted areas under other oilseeds increased in even more significant rate, in particular under soybeans (up 12% in 2018, compared with the previous year) and rapeseed (up 57%). As a result, in 2018 the share of planted areas under sunflower reduced below 65% for the first time in the history of the oilseed cultivation.
According to preliminary figures of the Federal State Statistics Service (Rosstat), in 2019 the upward tendency of the planted areas under sunflower seed continued developing (up 4% to 2018). As for the regions of production, the leaders of sunflower seed areas remained unchanged — the Volga, Southern and Central Federal Districts (the regions of concentration of oilseed processing capacities).
Also, we should note the Siberian District, in particular Altai Krai, where in 2018 the planted areas increased by 20%, and in 2019 — up 7%. Not only the demand of Russian oilseed processors, but also foreign importers, including Kazakh companies, contribute to the growth of interest in cultivation of sunflower seed. Due to its geographical location, as well as free trade zone within the Customs Union, in 2018/19 MY Kazakhstan increased sunflower seed purchases from Russia in more than 4 times. The situation developed in terms of the deficit of domestic raw materials for processing at Kazakh oilseed plants, therefore they compensate the shortage using the Russian oilseed.
To date, the harvesting campaign of sunflower seed in Russia continues in quite active rates, in terms of the favourable weather conditions. As of October 24, agrarians already harvested sunflower seed throughout over 77% of the forecast. Many agrarians reported about the high quality of raw materials of the harvest-2019.
Taking into account the recent figures of the harvesting works progress, as well as the high yield of sunflower seed, APK-Inform analysts increased the forecast of the harvest volumes in 2019 to 13 mln tonnes, up 2% compared with the production volumes in 2018.
At the same time, in terms of the maximum carry-over stocks of the oilseed in 2019/20 MY (slightly more than 880 thsd tonnes), as well as saturation of the market with sunflower seed, in September 2019 the market fixed some decrease of the prices of the oilseed raw materials, which will likely continue in the near future.
As previously mentioned, the record sunflower seed production in 2018 provided the controversial impact on the processing rates and volumes. Taking into account some perturbations on the market, the bankruptcy of several enterprises, as well as not quite favourable situation in the export segment of sunflower oil, the first half of 2018/19 MY demonstrated some reduction by 3% of the processing volumes compared with the previous one. The processing figures totaled nearly 5.8 mln tonnes. At the same time, since March 2019 Russian oilseed processors increased the loading rates of enterprises, and not only closed the gap, but also managed to exceed the production of sunflower oil compared with the same period last season. Generally, in September-August of 2018/19 MY Russia produced almost 5 mln tonnes of sunflower oil, which became the historical maximum, and up 5% compared with the previous record (4.7 mln tonnes in 2016/17 MY).
At the same time, 2018/19 MY demonstrated some reduction of the share of processed sunflower seed to 88% of the total supply for the first time in many years, which specified the saturation of the oilseed market, and decreasing of the imbalance "processing capacities/harvest".
According to APK-Inform estimations, in 2018/19 MY the processing capacities of enterprises that can work with sunflower seed, reached 17.5 mln tonnes.
To date, the fat-and-oil industry announced several new projects, which will focus not only on modernization of the existing plants, but also construction of new ones.
In the season-2019/20, the holding EFKO plans to start upgrading its facilities in Belgorod oblast. As a result, the Group sunflower seed processing capacities in the region will grow to 875 thsd tonnes per year.
In 2019-2021 period, NMGK Group of Companies plans to build a new plant for sunflower seed deep processing on the basis of Uryupinsky oil extraction plant JSC. Due to the project, it is planned to double the annual capacities of oilseed processing — from 210 thsd tonnes to 400 thsd tonnes, the list of final products includes sunflower oil and high-protein meal.
In the second quarter of 2020, JSC Orelmaslo plans to complete construction of the shop of the oil extraction plant. The new production facilities will improve the technology of oil production by reducing the temperature during seed processing processes to remove the odour developed during the production process.
JSC Pavlovskagroprodukt (part of the group of companies Aprotek) plans to increase its production capacities by 80% in the near future. It will be the second stage of modernization of the company's facilities in 2019.
Konoplex Group of Companies started constructing a new complex for oilseeds processing in Penza oblast. The annual capacities of the complex will total more than 20 mln bottles of cold pressed oil, with the possibility of increasing of the production to 40 mln bottles.
In addition, in 2019-2020, it is planned to open several small-scale processing enterprises with the capacities of nearly 20-80 tonnes/day.
Thus, in Russia the processing capacities still exceed the general harvest volumes of the oilseed.
In the season-2018/19, Russia reached the active rates of sunflower seed exports — over 344 thsd tonnes, up almost 4 times compared with the previous MY. The growth of the export potential started developing, in terms of sufficiently large stocks of oilseed raw materials at agricultural producers, as well as the favourable price environment, which appeared on the foreign market in March-June (in the reporting period — 70% of the general exports). At the same time, in June 2019 Russia shipped the maximum monthly volumes in the history of sunflower seed exports — 108 thsd tonnes, including nearly 100 thsd tonnes to Turkey. In 2018/19 MY, Russia shipped 207 thsd tonnes of Russian sunflower seed to the country, up 10 times compared with the previous season.
At the same time, the further growth of Russian sunflower seed exports to Turkey is rather unlikely, due to a number of reasons. In particular, at the end of July 2019 Turkey increased the import duties on sunflower seed to 20%, against the previous level of 13%. The increased duties will act until the end of January 2020, which will contribute to some slowdown in the import rates of the oilseed by Turkey.
Countries of the Customs Union took the second position in the rating of importers of Russian sunflower seed, in particular Belarus and Kazakhstan. In 2018/19 MY, Russia increased the exports of the oilseed to Belarus to 49 thsd tonnes (up 72% compared with the previous season), and to Kazakhstan — to 45 thsd tonnes (up more than 4 times).
China imported no more than 15 thsd tonnes (up 7 times).
As for the prospects of Russian sunflower seed exports in 2019/20 MY, it is worth noting that there is not expected any significant upward trend. The low-scale growth of shipments is likely to continue developing for the CU countries, in particular due to reduction of rapeseed production in Belarus, and sunflower seed — in Kazakhstan. Turkey will likely become active only in the second half of the current season, taking into account the forecasts of slight decreasing of the oilseed production in the country (down 3%, according to the September USDA report).
APK-Inform Agency estimated the export potential of Russian sunflower seed in 2019/20 MY within the range of 340-360 thsd tonnes.
The gradual growth of the production for several years allowed Russia not only to become one of 10 largest producers of the oilseed around the globe, but also to keep steadily the 8th position in this rank. However, taking into account the giants of soybean production — countries of South America and the US, the share of Russia in the global production is rather insignificant and still totals 1%.
Nevertheless, for recent years Russia drastically surged the production of this crop, having increased the planted areas from 1.5 mln ha in 2013 to nearly 3 mln ha in 2018. The production volumes increased from 1.5 mln tonnes to 4 mln tonnes, respectively.
In 2018, the share of soybeans in the general structure of planted areas under all types of oilseeds for the first time ever exceeded 23%.
Herewith, for many years of soybean production in Russia, for the first time the Central Federal District became the leading production region (1.7 mln tonnes and 42% of the total production), thus outrunning the previous leading region — the Far Eastern Federal District (1.6 mln tonnes and 41% of the total production).
Condition to the active cooperation of the soybean producers in the Far Eastern Federal District with the Chinese buyers and the increase of the export of the crop to China in 2019, it was planned to widen the planted areas under soybeans in this area. However, the weather conditions discouraged the spring field works, and the prolonged precipitation prevented the timely filed works, which in a result led to the decrease of the planted areas under soybeans by 12% and through into question the acceleration of the export potential. Herewith, the rains continued to damage the planted during the germination period, which also can have a negative impact on the size of the harvesting areas.
On the other hand, this year we can observe a significant widening of the planted areas in the Central, Siberian and Volga Federal Districts, which can be explained by the constantly rising demand for this crop and the high concentration of the processing plants in these regions.
Thus, in 2019 the planted areas under soybeans exceeded 3 mln ha. According to the Ministry of Agriculture of Russia, as of October 24 the harvesting campaign was completed throughout over 75% of the planned areas, and the production totaled nearly 4 mln tonnes. Herewith, the average yield demonstrates rather high figures compared to last year — more than 1.6 t/ha.
In such conditions, APK-Inform Agency boosted the forecast of soybean production in 2019 to 4.3 mln tonnes, which can break the previous record in 2018 by 6%.
The forecast of the production can be corrected because at this point it is impossible to evaluate the real condition of the planted areas in Amur oblast (which is a largest soybean production region of Far Easter Federal District), which were subject to the unfavorable weather conditions. The harvesting in this region will start in October.
The segment of soybeans in 2018/29 MY witnessed rather interesting situation: in terms of the record soybean supply this season totaling 6.3 mln tonnes the processing of the oilseed covered only 72% of the supply compared to 76% last season, which accounts for nearly 4.4 mln tonnes (-3% y-o-y). Respectively, the production of soy oil declined to 811 thsd tonnes, whereas the import of the oil increased to 42 thsd tonnes (+59%). The main supplier of soy oil was the Belarusian company LLC “Belagroterminal”.
And this situation contrasts with the growing production of the oilseed in 2018/19 MY and the further widening of the planted areas in 2019 (+10% y-o-y).
According to our estimates, the volume of soybean processing in 2019/20 MY can increase slightly — to 4.5-4.7 mln tonnes, taking into account the number of the companies that plan to increase/launch new processing facilities.
In 2019, construction began on the fat extraction plant by group “Sodruzhestvo” in Kursk oblast. The investment project LLC “Kurskagroterminal” is designed for processing more than 1 mln tonnes of the oilseeds annually. The plant will process mainly soybeans, and also sunflower seed and rapeseed.
In the current year, the Group “Cherkizovo” announced the new investment projects in Lipetsk oblast. The soybean processing plants will be the key project, planned to be constructed in 2020. After the launch of the enterprise planned for 2022, the capacities of the plant will be able to process 1.5 thsd tonnes of the oilseeds per day and produce up to 350 thsd tonnes of GMO-free soybean meal per year.
LLC “Chenozemie”, which is a part of the Group of Companies “ExOil”, in terms of the development of the Export Processing Zone “Terbuny”, launched the engineering of the construction of the new plant of the deep oilseed processing (soybeans/rapeseed) with the capacity amounting 2000 t/day. The launch of the plant is planned for the FQ of 2020. The finished products of the production will include feed soybean meal with varied protein content, rapeseed meal, soybean hydrated soybean oil, rapeseed oil, vegetable lecithin, soybean protein concentrate.
In terms of the Eastern Economic Forum, the Russian Agricultural Bank and “Legendagro Holding” signed an agreement on the cooperation in foundation of the vertically integrated agricultural holding. The ambitious project includes the production of agricultural plants, deep soybean processing and a complex for transport and logistics which will export the products produced to the countries in Asia-Pacific region. In terms of the project it is planned to purchase 50 thsd ha of agricultural lands for cultivation of rice, corn and soybeans. The projected capacity will allow to produce 215 thsd tonnes of the products annually, with the half of this volume aimed for export. The soybeans are going to be the main exported product. Herewith, it is expected to export not the raw materials but the products of processing. The plant will be constructed in Ussuriysk, Primorsky Krai. The annual production capacity of the plant will total nearly 220 thsd tonnes of soybean products (oil, meal, lecithin, concentrate, molasses, shells).
Also, for 2 following years in Jewish Autonomous Oblast in PDA “Amur-Hinganskaya” there can be constructed a new plant for soybean deep processing.
Despite the stable soybean production surplus, for the long period Russia imports more than 2 mln tonnes annually. As a rule, the main volumes of the oilseed (nearly 100%) is imported by the Group of Companies “Sodruzhestvo”.
We should note that in 2018/19 Russia increased the import of soybean by 6% year-on-year and purchased 2.2 mln tonnes. This figure is a historic maximum and it is 5% higher than the previous record (2.09 mln tonnes in 2015/16 MY).
The key suppliers of soybeans to Russia in 2018/19 MY were: Brazil, which increaseв the market share to 49%, and Uruguay — 34%.
However, the import growth is not the only surprise of 2018/19 MY in terms of the crop size rise. In the reporting season Russia declined the export of soybeans by 9% — to 811 thsd tonnes. Nevertheless, this figure is the second largest after the 2017/18 MY result (895 thsd tonnes).
The cut of the deliveries to the foreign markets was stipulated first of all by the low selling activity of the crop by the agrarians owing to the unattractive price conjuncture.
Speaking of the export geography of Russia, the number of the export destinations decreased to 14 countries compared to 16 countries in 2017/18 MY. China stayed for 10 years in a row the leading buyer with market share totaling 90% and 730 thsd tonnes (-8% year-on-year).
The position of the second largest importer of Russian soybean was kept by the countries of Custom Union, despite the purchases decline by 46%. The main reason of the cut in purchases, mainly by Belarus, was the more attractive prices for Ukrainian soybeans in 2018/19 MY. Herewith, the Belarusian countries noted that in a summer period the prices were more acceptable owing to the rather high stocks of Russian soybeans, but this fact did not have significant effect on the import volumes. Kazakhstan, on the other hand, increased the purchases of Russian soybeans to 16 thsd tonnes (5 times increase).
We should take a separate look at Turkey, which in June-July imported nearly 27 thsd tonnes (6 time increase y-o-y), thus becoming the 3rd largest importer of Russian soybean in 2018/19 MY. At the same time, experience has proved that for several recent years Turkey shows a stable, excluding 2016/17 MY, demand for the import of soybeans from Russia in a summer period only. Consequently, the further growth of the Russian oilseeds deliveries to Turkey is not expected.
China will stay the main export destination in 2019/20 MY. Moreover, Russia and China have signed some agreements. In particular, China allowed to import soybeans from all the regions of Russia. Herewith, many experts note that there will be no significant increase of the export flows towards China in the current season because this will have minimal importance to the European part of Russia owing to the high concentration of processing plants and livestock breeding complexes there.
According to our estimates for the last several seasons the share of Russian soybeans on the Chinese market does not exceed 1%. And taking into account the huge import of soybeans by China, the increase of the share in this market can take may years.