Russian wheat: the new reference for cash wheat worldwide

From net importer to No. 1 Exporter

Swithun Still Solaris Commodities S.A.

1 Table of Contents

 Page 3 – SOLARIS company Bio  Page 27 – Quality of Russian Wheat

 Page 4 – Russian wheat – Synopsis of presentation  Page 28 – Loading Ports  Page 5 – Russia & Farming  Page 29 – Top 10 Importers of Russian wheat  Page 6 - Russian Land

 Page 7 – Russian Agricultural Sector  Page 30 – Destinations of Russian Grains

 Page 8 – Russian Grain Area Growth  Page 31 – Russian Wheat Exports – Growing Share

 Page 9 – Wheat producing regions Russia + Kazakhstan  Page 32 – Worlds Top Wheat Exports  Page 10 Russian grain growing regions  Page 33 – Russian Wheat – Yield & Carry Out  Page 11 WINTER WHEAT growing regions

 Page 12 SPRING WHEAT growing regions.  Page 34 – World Wheat Yields

 Page 13 – Russia – Importer to Exporter  Page 35 -GASC Volumes

 Page 14 – Winter vs Spring Wheat Area %  Page 36 – FSU-12 Net Exports  Page 15 – Winter vs Spring Wheat Production (MMT)  Page 37 – Growing Reach of Russia  Page 16 – Net Wheat Trade – Russia

 Page 17 – Wheat Exports – Russia  Page 38 – When Russia Sneezes..

 Page 18 – Total Wheat Supply - Russia  Page 39 – Production Costs

 Page 19 – Russia Wheat Harvested Acres & Yields  Page 40 – Income & Production Costs of Wheat  Page 20 – Wheat Production – Russia  Page 41 – World Milling Wheat Prices  Page 21 – Wheat Production & Exports – Russia

 Page 22 – Wheat S&D – Russia  Page 42 – Average Prices of Land

 Page 23 – Interior Russian Wheat Prices  Page 43 – Future for Russian Wheat

 Page 24 – Sale of Wheat – Russia  Page 44 – Points to Watch 2  Page 25 – GOST Standard  Page 45 – Useful Contacts  Page 26 – Export Quality  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 / questions. TWITTER: @RUSSIANGRAINTRA 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 49 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 In 2017 Russian wheat area to be 7% higher 2014 than in 2016 : this 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 Russia is expected to grow from 49 million ha 18% 3% in 2014 to 52.1 million ha in 2030. This represents a 6% growth in total area, with 2030 the wheat area increasing from 48% of the total area to 52% over the same period.

Wheat The Russian government is expected to invest 10% over $38 billion in the next 15 years with Corn 20% investment from the private sector totalling 52% Barley over $40 billion. 15% Oilseeds 3% Other Despite this investment, Russian still has 18Mln ha of idle farmland (although some say this 8 could be as much as 30Mln !!)

Source:AEGIC 9 10 SOURCES: USDA / ROSSTAT

11 RUSSIAN SPRING WHEAT PRODUCTION Source – USDA/ Rosstat

12 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” 13 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

14

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

15

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

16

Sources:Agrochart-AgResource-USDA Russian Wheat Exports – MMT Exports 40 35 30 25 20 15 10 5 0

Exports

17

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

18

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) Linear (Yield (Mt/HA))

19

Source:Agrochart Russian Wheat Production (MMT)

80

70

60

50

40

30

20

10

0

20

Source:Agrochart Russian Wheat Production & Exports (mmt)

80 35

70 30 60 25 50 20 40

15 Exports

Production 30 10 20

10 5

0 0

Production Exports

21

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 Production 61.1 72.5 70 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 22

Carry Out 5.7 10.5 12.1 Source:WASDE Stocks/Use 9.1 15.4 17

Exports Season to Date 17.3

Balance to Ship 11.7 Source:IntlFCStone 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 comntracts to hedge are not widely used. Prices are followed on local information provideres such as IKAR or SOVECON or RUSAGRORTANS.

24 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.

25 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%

26 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 Loading Ports

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 28 (NKHP 4, KSK 4 & NZT 5) 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 29

10 Lebanon 1.82 mmt Source:IKAR Destinations of Russian Grains Truly Global

North Africa

Middle East

Mexico India, Pakistan, Bangladesh Indonesia, S.Korea

Ghana, Senegal, Sth Africa Growing Share of World Wheat Exports

190

20.0% 170

150 15.0%

130

10.0% 110 Russian Mkt Share % Mkt Russian

World Exports (mmt) World 90 5.0% 70 Russian Export Ban

50 0.0%

World % Russian 31

Source:Agrochart 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

5

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

32

Source:USDA Russian Wheat – Yield and Carryout

Yield (Mt/HA) Wheat Carryout (MMT) 100% 3.00 14 90% 2.50 12 80%

70% Carryout/Use % 2.00 10 60% 8 1.50 50% 6 40% 1.00 Carry Out (MMT) Carry Out 30% 4 20% 0.50 2 10% 0.00 0 0%

33

Source:Agrochart Wheat Yields for Major Producers – MT/HA

6

5

4

3

2

1

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

34

Source:WASDE GASC Volume by Origin – YTD 2016/17

480 90% Russia Share ofPurchases % 420 80% 360 70% 300 60% 240 50% 180 40% 120

GASC Purchases ‘000MT GASC Purchases 60 30% 0 20%

Axis Title

Russia Others Russia % of Total

YTD total purchases 4.6MT, of which Russia 3.34MT or 73%. 35 MMT FSU-12's All Grains "Net" Exports 105 100 95 90 85 80 75 a Russia implements variable export levy 70 export Russia imposed in Dec & a restrictions Tax in Feb 65 60 55 50

45 export Ukraine imposed in Dec '12 restrictions 40 35 30 high export taxes high export 25 Russia and Ukriane imposed export embargoes 20 Russia and Ukraine imposed 15 or prohibitively high export taxes export high or prohibitively 10 embargo export Russia and Ukraine imposed 5 0

Source:AgResource 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 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

37

Source:WASDE When Russia Sneezes the Wheat Market Catches a Cold (and Heats Up !! ) Russian Wheat Exports: State Intervention in Markets 2007 to 2016

September 2012 December 2014 Severe drought; Export Minimum 35 Euro November 2007 ban rumored then ‘threatened’ export tax 10% (to 40%) export tax; 2008 export ban August 2010 January 2014 Export ban; Ukraine situation & Contracts cancelled Crimea annexed; Wheat (KCBOT) Monthly PricesExport impact feared 1600 +100% 1400

+100% +35% 1200 +45% 1000

+30% 800 600 400 200 2006 2008 2010 2012 2014 2016 Source:AgResource 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/HACOSTS PER TONNE (MT)IN KRASNADOR mt/harub/mt 5.20 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 39 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 40 Min Cost Max Cost Gross Revenue

Source:IntlFCStone Russian Wheat is the Best Value Milling Wheat in the World

Current World FOB Levels (as of Feb 23rd )

 Russian 12.5% $191

 HRW 12% Gulf $217

 2SRWGulf $188

 French 11% $191

 German 12.5% $194

 APW $207

 Argentina 12% $188

Source: Fryers Report

41 $/acre Average Prices of Crop Land in 2016 10000

8000

6000

4000

2000

0

42 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)

43 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 $28/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.

. Success of Russian Wheat exports has been without a centrally funded lobby group (no US Wheat Associates or France Export Cereales equivalent) 44 WWW.SOLARIS-CH.COM

WWW.GAFTA.COM

TWITTER: @RUSSIANGRAINTRA

45 Thank You - Спасибо !

46