Black Earth plans Russia grain exports, forward sales

Bloomberg | 22 October 2009

By Maria Kolesnikova

Oct. 22 (Bloomberg) -- Black Earth Farming Ltd., which controls an area of Russian farmland four times the size of New York City, plans to start exporting grain and begin forward sales with traders and fertilizer suppliers.

The St. Helier, Jersey-based company may compete in tenders abroad, Chief Financial Officer Michael Shneyderman said in an interview yesterday at a UBS AG conference in Moscow. Production will expand by about 9 percent to more than 500,000 metric tons this year, Shneyderman said.

“We became a major producer,” he said. “It’s not possible anymore to sell it effectively in the local markets.”

Russia, seeking to diversify its economy away from energy and mining, wants to increase annual grain exports to as much as 50 million tons in the next 10 to 15 years from 23 million tons last year. President Dmitry Medvedev this month ordered a review of plans for additional grain terminals to bolster port capacity from 25 million tons, cheaper loans to renovate or build silos and legislation to spur development of fallow land.

Black Earth rose 1 krona, or 4.1 percent, to close at 25.70 kronor in Stockholm trading. The gain was the biggest since Sept. 4. The stock plunged 64 percent last year, before rebounding 39 percent this year and valuing the company at 3.19 billion kronor ($465 million).

Black Earth expects to sign a memorandum with a Japanese company next month for grain sales abroad, including Japan, Zorigto Sakhanov, chairman of Agro-Invest, Black Earth’s Russian unit, said in an interview. The Asian investors may also build a grain terminal on the Sea of Azov in southern Russia, he said.

Fertilizer Supplies

Russia needs to spend at least $3.4 billion on silos and ports if it is to meet the government’s export target, grain hauler ZAO Rusagrotrans said Oct. 15.

Black Earth is seeking to fix chemical and fertilizer supplies with producers including Basel, Switzerland-based Syngenta AG and Russia’s UralChem and lock in sales with grain buyers, Shneyderman said.

“If I can guarantee my prices of inputs, if I can guarantee my prices of grain, it’s beautiful,” he said.

Black Earth controls 323,000 hectares (798,150 acres) of farmland and will cultivate 181,000 hectares of it this year, or 28 percent more than last year. Its first harvest in 2005-06 covered 5,900 hectares.

Forward Contracts

The company may start selling on forward contracts from next season, Shneyderman said.

“Latin American producers hedge about 90 percent of their crop by the time it’s ready for harvesting,” Shneyderman said. “I would be happy to begin with a quarter or a third.”

Russia will probably export 16.5 million tons of wheat in the year to June 2010, 10 percent less than a year earlier, the U.S. Department of Agriculture estimates. Barley exports in the 12 months ending September 2010 will likely shrink 41 percent to 2.2 million tons, the USDA estimates. Black Earth produces wheat, rapeseed, barley, sunflower seed, corn and triticale, a hybrid of wheat and rye.

Black Earth began in 2005 with $7 million of capital. It sold shares three times since then to raise a total of $155 million, as well as 55 million euros ($83 million) of four-year bonds in 2007, according to its Web site. The company also sold 1.68 billion kronor ($245 million) of Swedish Depository Receipts in December 2007.

Black Earth may add vegetable-oil crushing or expand its livestock rearing business after 2010, Shneyderman told the UBS conference. Meat and milk accounted for 3 percent of the company’s $24.4 million of sales last year.

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