This is by and large being done in Russia and Ukraine – but not in Kazakhstan. The split between Ukraine and Russia has disrupted the development of a tripartite export marketing pool for cereals, mainly through outlets at Black Sea ports, further consisting of Kazakhstan and the Russian Federation. Previously North-African and Southwest-Asian markets were the main targets for the ex-USSR “grain troika”. Its two remaining members are now reorienting their marketing strategy, with China as the main new market and existing clients such as Iran, Pakistan and India across the Caspian Sea and from there mainly by rail.

Grain stocks and China expor

On February 17 this year, Russia started preparing the paperwork for grain deliveries of up to 30 mln tonne of grain to China through the current year, the Kiev-based agro-newsreel APK Inform reported. This comes close to Russia’s entire export capacity, since the agency also reported that between the beginning of the current “marketing year” starting on July 1, 2014 up to February 11 this year, the Russian Federation had exported 23.616 mln tonne of cereals, an increase of 31.6% from the same period in the previous marketing year.

The deal also slightly exceeds Russia’s grain carryover stocks which as of February 1 stood at 29.2 mln tonne. And compensation in the form of output increase looks like a remote option. APK also reported on February 17 that Russia expects a harvest yield decrease of 3.2% this year to an expected total of 100.5 mln tonne, due to the fact that 21.2% of the areas under cultivation (3.6 mln hectare) is in “unsatisfactory” condition. Further setbacks can only be prevented by stepping up planting spring crops, which should be done in the course of March.

New marketing opportunities

With Russia’s domestic consumption standing at 71 mln tonne per year, the deal with China leaves little left for other customers. This, ironically, could prevent a trade war with Ukraine, which will be left with increased demand at its terminal at the port of Odessa. As recently reported by APK, from July 1 up to February 17, Ukraine exported 23.4 mln tonne of cereals, including 9 mln tonne of wheat, 10.3 mln tonne of maize and 3.8 mln tonne of barley. Wheat sales prices vary, according to quality, between $200 and $300 per tonne. Total exports for grain for the full current marketing year are expected to amount to 37.9 mln tonne, on a total production amounting to 63.8 mln tonne and carryover stocks of 8.34 mln tonne as of early 2015 and 7.3 mln tonne as of end-June this year.

It all leaves not Russia but rather Kazakhstan with the biggest challenge where the ongoing major shift in grain markets is concerned. Little earlier, Kazakhstan’s agriculture ministry stressed the necessity to seize new marketing opportunities circumventing the troublesome Black Sea zone, but no tangible results of it in the form of new major delivery contracts have been seen so far.

As of February 1 this year, Kazakhstan’s carryover stocks of grain came close to 12 mln tonne, with wheat making up for 10 mln. Last year’s grain harvest yields amounted to 17.162 mln tonne in clean weight. Exports of grain, the bulk of it consisting of wheat, amounted to just over 3 mln tonne in the first nine months of 2014, with no figure provided for the full year so far. With domestic consumption averaging 9 mln tonne per year, this leaves in the order of an awesome 25 mln tonne in place, with the need to sell some 10 mln tonne before the seasonal drop in market prices sets in. And even then, discounts should be offered given downward trends on world markets through the winter. Whereas both Russia and Ukraine offer their grain at their terminals in their highly depreciated local currencies, Kazakhstan continues to offer it in US dollar and euro denominations – thereby losing competitiveness.

Gross cash value

The economics behind the discrepancies are easily explained if one takes a glance at Central Asia’s agro-sector’s macroeconomics. The present situation in Ukraine is having dramatic consequences in terms of human victims and monetary values and the results for the agro-sector are certainly not positive and may not achieve the expected output of $23.5 bln.

According to figures provided in mid-February by the Moscow-based CIS Interstate Statistics Committee, Kazakhstan’s agriculture sector in 2014 stood for a gross cash value of $13.765 bln, a 0.8% net increase from the previous year. Russia’s sector value amounted to $74.1 bln and Belarus’ to $11.1 bln. Armenia and Kyrgyzstan, the two newcomers in the Eurasian Economic Union, together accounted for roughly another 5.5 bln greenbacks in agro-sector value. This means that the EEU five together produced crops with a gross value topping $105 bln.

Internal consumption and export commitment may create disequilibrium within the EEU and this may be the cause of possible unrest unless measures to equalize it within the Union are taken in a timely manner.