The profitability of crop production in the country as a whole has increased in the current agricultural year, statistics show what is profitable to grow in Russia. However, the situation is very different for regions, segments, and farms. The highest profit for farmers, however, is traditionally given by oilseeds, although the yield levels have fallen slightly after prices. Active export demand supports good margins of wheat. In the new season, it is unlikely that anything will change: surprises on the margin of farmers should not be expected.
In 2019, the profitability of the Russian agro-industrial complex on EBITDA as a whole was 20%, which exceeds the results of 2018 (19%), the research of the Russian agricultural Bank showed. With a moderate increase in total agricultural profits, some sub-sectors showed significant growth. One of the leaders in increasing this indicator was crop production, where the national average yield rose from 23% to 29% over the year. Rosstat data differ from the calculations of the RSHB: according to the Department, the profitability of crop production in 2019 decreased from 23.6% to 21.5%. What is profitable to grow in Russia.
The yield of crops varies significantly depending on the region. Even within the same region or district, the results in farms can be completely different, draws attention to the head of the grain direction of the Institute of agricultural market conditions (ICAR) Oleg Sukhanov. For example, in the Central Chernozem region, the top 3 most marginal cereals are headed by corn. Its profitability in the 2019/20 season exceeds 25 thousand rubles/hectare. Also what is profitable to grow in Russia, a good profit for farmers was provided by winter wheat and peas — about 20 thousand rubles/hectare “These figures are fairly conditional and averaged,” he says. — But one thing is clear: the yield of these positions has been steadily growing in recent years, while prices remain relatively high.” What is profitable to grow in Russia. Corn is also a striking example of regional differences in profitability, the expert adds. So, if in the CDR this is one of the most marginal agricultural crops, in the South of the country in recent seasons, the profit on it has sharply decreased due to adverse weather factors and pest infestations, sometimes to negative values.
According to the leading expert of ICAR, Daniil Khotko, the main oilseeds in the current season are competing for the title of the most profitable with wheat and barley in the South, as well as with corn in the center, where there is also a favorable market for farmers. In 2020, the expert expects an increase in the area of sunflower, although this season it has lost a little in value. In mid-March, agriculture cost at the level of 20.5-21 thousand rubles / t with VAT in the Central Federal district, 21.5-22 thousand rubles / t in the South. In 2019, at the same time, the price of sunflower, depending on the region, ranged from 21.5 thousand to 23 thousand rubles/t.
Soybean crops will also grow, despite the fact that prices for it this season in the European part of Russia are also quite low — 24-25.5 thousand rubles/ton compared to 27-31 thousand rubles/ton a year earlier. However, agriculture remains in high demand. Due to good yields, farmers in the South and in the Volga region earned almost as much as last year, the expert believes. In the center of the country, margins will be lower on average than in the 2018/19 season.
“Rapeseed is very profitable, especially for those who sold it not at the start of the season, but from December 2019 to March, when the prices were just gorgeous,” hotko notes. If in the center the price of rapeseed started from 24 thousand rubles/ton, and in Siberia-from 22 thousand rubles / ton with VAT, then in January-February it was sold for 26-27 thousand rubles/ton. A year ago in the Siberian regions, rapeseed at the maximum cost of 24 thousand rubles/ton. In this wave, many farms will increase its area, the expert believes what is profitable to grow in Russia.
In the new agricultural year, the industry will most likely enter with higher prices, Khotko predicts. So, for soybeans and rapeseed in the world, both production is expected to decrease (from 358.6 million tons to 341.7 million tons and from 72.4 million tons to 68.15 million tons, respectively, according to the March USDA forecast), and inventories, while consumption continues to grow. These factors will “pull up” prices for these positions in the coming months and in the summer, hotko predicts. However, do not forget about the impact of the dollar exchange rate on the costs of farmers, he reminds. Here everything will depend on whether they managed to buy the means of production before the collapse of the ruble. And given that the sowing campaign in certain regions has either already begun, or starts from day to day (that is, farmers are as ready as possible for sowing), most likely, there should not be a significant increase in the cost of production and what is profitable to grow in Russia.
Elena Tyurina, Director of the information and analytical Department of the Russian grain Union (RSU), expects an increase in the area of rye in 2020, so winter crops have already expanded by 200 thousand hectares. Due to the reduction in gross collection in 2019, the market was in deficit and prices increased by an average of 45%, allowing farmers to earn good money, she explains. The areas of barley and corn will be stable: the harvest last year was good, but the sales volume is not growing, which, in particular, is due to high competition with Ukraine for corn. Export prices for this position there are 10 percent lower than in Russia. Although next season it is Ukraine that can support Russian corn producers, as experts expect a reduction in both the harvest and sales volumes from the neighboring country.
High export demand will support a good yield of wheat, continues Tyurina. But for now, Russia can compete mainly only in those markets where the price of a product is of primary importance, and not its quality characteristics. “When expanding the sales channels of our main agriculture, the issue of quality comes to the fore,” the expert draws attention.
The most profitable agricultural crops in the last few years are wheat and sunflower, says the Deputy General Director of the agricultural holding “Svetly” (Rostov region) Nikolai Goncharov. However, if before the second was more profitable than the first, now they give about the same profit. First of all, the top Manager attributes this to an increase in the yield of winter wheat. He also calls rapeseed an interesting agricultural crop. But for now, the company is only testing its production. “Winter rape shows good financial results, but does not always survive in our region,” explains Goncharov. — We are trying to work out the technology to reach stable production indicators, if we succeed, we will increase the crops, if not, we will get rid of it.”
Sunflower is also a leader in profitability for Agrotech-Garant (Voronezh and Belgorod regions). But the profitability of the grain group has significantly decreased primarily due to the fact that part of the fields fell into a local drought. As a result what is profitable to grow in Russia, the yield was 40-45 centners per hectare instead of the planned 60 centners per hectare of wheat, 50 centners per hectare of barley. Prices were also slightly lower, and the profit margin in the end was about 20%. “Next year, the profit on grain may be higher, it is quite realistic to reach 30-35%, but it all depends on the yield,” says the company’s President, Sergey orobinsky.
The yield of corn at Agrotech-Garant in the 2019/20 season exceeded 50%, which was also a result of high collection. But this agriculture “shoots” every few years. In other years, there is no price for it, then it turns out a low yield, the top Manager pays attention. But soy failed relative to the 2018/19 agricultural year. Its starting price fell over the year from 28-30 thousand rubles/ton to 20 thousand rubles/ton, which is close to the cost price. It only helped that in the last couple of months the cost of agriculture has risen to 23 thousand rubles/ton. The final profitability may be at the level of 15-20%, orobinsky hopes. He expects the same result in the new season.
The number one agricultural crop in terms of falling profitability not only in the current season, but also in the previous two — sugar beet. Collapsed sugar prices have deprived farmers of any earnings on it. “With sugar beets in this agricultural year, just trouble! orobinsky exclaims. — Until recently, it was the main agricultural sector for us, and now it has brought 350 million rubles of losses, the profitability was minus 30%.” The price of sugar beet in the current season has fallen to 1.5-1.6 thousand rubles/ton at a cost of 2.1-2.2 thousand rubles / ton. To achieve payback, the company must receive almost 700 quintals per hectare. But this, says the top Manager, is simply an unrealistic figure. Individual farms of “Agrotech-Garant” collected 630-650 quintals per hectare of beet in the test weight last year, but in others the yield was lower than usual due to the weather. As a result, the average collection per hectare for the group was 520-540 quintals.
But for the agricultural enterprise” Luch ” (Kursk region, more than 2 thousand hectares of sugar beet), sugar beet has become the third largest margin after corn and wheat. Despite the collapse in prices, the company was able to earn it, although less than a year earlier, by about 220 million rubles, shares the General Director of the farm Ivan Golenishchev. “Record yields helped prevent losses,” he says. — We were able to reach more than 800 quintals per hectare!» Both the weather and the high level of agricultural technology contributed to this result. According to the head, agricultural enterprises that collect beets less than 500 quintals per hectare, the industry “has nothing to do”: the cost will be too high, and at current prices, agriculture will not bring anything but losses.
Sugar beets can remain profitable even under the conditions prevailing in the current season prices, says a leading expert of IKAR Evgeniy Ivanov. “If an agricultural enterprise has maintained a yield above the regional average for several years, it is likely to be doing well,” he comments. – For sure, a Park of specialized agricultural machinery has been assembled there for a long time, there are experienced personnel, enough working capital, and all the technology has been honed.” After all, sugar beet is one of the most complex agricultural crops. It does not involve minimalistic methods, and requires strict observance of crop rotation. Who was able to build all this will remain with profitability, the expert is sure.
In the future, it is unlikely to be possible to preserve sugar beet crops in many regions of the Volga-Urals due to soil and climate conditions and low productivity. There, this is possible only with a very successful combination of circumstances or with special support measures, Ivanov believes. According to him, in 10-15 years, beet farming will continue at best in 18 of the current 25 regions of Russia.
The main factor affecting the profitability of crop producers has always been and will be the weather. “We have two troubles — the harvest and crop failure,” says Goncharov. — If the collection is high, the price subsides, and the products need to be removed, transported: there is more trouble and costs, but less revenue. And if the yield falls, then prices, of course, rise, but you can not collect anything at all…»
The main limiting factors for crop production are a lack of moisture and abnormal weather conditions, such as sudden frosts or total dry weather, orobinsky adds. And their appearance can not be influenced in any way. “We provide everything else to our business and do not save on production,” he says. — We have qualified people, a sufficient amount of fertilizers and SPR to apply to the entire area, good technological maps, we are technically armed and all operations are carried out in the optimal time.”
The profitability of agricultural crops largely depends on the yield, says Maxim Nikitochkin, senior Manager of the group for providing services to agribusiness enterprises of EY. And this indicator is usually influenced by both the weather and climate factor and the technological level of the economy. In this regard, according to the analyst, the plans of different farms for the profitability of sugar beet in 2020 are indicative. So, depending on the district where the company operates, the following levels of profitability are expected: -1%, 21% and 48%. What is profitable to grow in Russia?
In General, now the whole country is waiting for changes in the monetary policy of the state: whether the key rate will increase, what amounts of currency will be sold by the Central Bank/Ministry of Finance to maintain the ruble exchange rate, continues Nikitochkin. Although this does not directly affect crop production, which is able to receive preferential loans at 5% per annum. Only a catastrophic development of events with a multiple increase in the key rate can lead to a deficit in the pledged volume of subsidies for concessional lending and, as a result, to a revision of the size of the concessional rate, he says what is profitable to grow in Russia.
At the same time, the devaluation of the ruble makes seed projects more profitable, the analyst believes. The share of domestic-produced seeds is likely to grow in the coming years. Global events may also be important for the industry: the response of most countries to the spread of coronavirus and methods of controlling it, which may result in reduced business activity up to a drop in crop yields in 2020 what is profitable to grow in Russia.
According to Elena Tyurina, in the future, the level of integration will become more important for the market. If many countries that are major exporters of crop products have already passed the path of integration from the field to export sales, in Russia these links still remain separate: farmers, processors, traders work separately from each other. “In an attempt to create a major export market leader, we now see attempts to advance agricultural enterprises for future crops,” the expert says. — This may well be the first stage of the industry’s unification.”
Goncharov attributes the active development of the port terminal network to positive factors affecting the profitability of grain producers. New low-water facilities are being built, which will increase competition among exporters and traders and, as a result, lead to lower transshipment tariffs. “Of course, the reduction will be small-give or take a dollar per ton of transshipment — but this is also good,” he said. According to the top Manager, it is also important to open a stable export of grain from Siberia to China. In any case, the diversification of sales markets will have a positive impact on the market as a whole and will support prices.
Sees potters and negatives. “Now on the sidelines, the rumor about the closure of the RAID transshipment, which is now sent abroad a significant part of the grain, is actively being discussed,” he notes. — If the measure is implemented, we will, on the contrary, face reduced competition and higher prices for port terminal services.”
In regions far from the center of the country, one of the limiting factors for the development of the industry may be the personnel issue. Such a problem, for example, faced Orenburg “Elan”. “There is a catastrophic shortage of specialists, we can’t expand simply because there is no one to work with,” complains Alexey Orlov. — In recent years, we have increased volumes only by increasing the power of tractors and the productivity of other units. But there is a limit here, too.” Last year, four out of 30 machine operators left the company (two died and two retired). And only one came to take their place. In animal husbandry, the staff situation is even worse, says the Manager.
Discussing the profitability of the next season at the beginning of spring is a thankless task, says Daniil Khotko. “In the coming months, and especially in the fall, anything can happen to product prices, we can only guess, especially in the current conditions of falling stock and commodity markets in the world,” he says. — But there is almost no doubt that farmers will increase the area under all types of main oilseeds as the most profitable agricultural crops and what is profitable to grow in Russia.”
If we look at the prerequisites for the development of the situation, the picture is uncertain, says Vladimir Shaforostov, partner of neo Center. There were too many factors at the beginning of 2020 that do not allow us to talk about a predictable development of events. This includes economic slowdown due to the coronavirus, falling oil prices and currency fluctuations, as well as military conflicts and climate features of this year. “It is difficult to guess what the harvest will be, where prices will go or how much the cost price will increase under the influence of external shocks,” he comments. According to Shaforostov, it is more correct now to talk not about specific agricultural crops, but about the regions that will show what is profitable to grow in Russia at this year. By the end of the year, for example, we should expect economic recovery in China, so the farms of the far Eastern Federal district and Siberia have prerequisites for increasing both the area and the profitability of such positions as soy, corn and rapeseed. Oilseeds, on the whole, will remain the leader in profitability, and sugar beets will be under the strongest pressure.
The largest profit in 2020 for agricultural producers can bring confectionery sunflower, predicts Nikitochkin. But its market is extremely small, many confectionery companies still prefer to buy ordinary seeds, rather than confectionery. Wheat will be highly profitable, especially if it is sold directly for export: given the devaluation of the ruble, it is likely that the export price will exceed the domestic price. A good margin is possible on corn, barley and chickpeas, he believes. What is profitable to grow in Russia. The overall profitability of crop producers in 2020 may increase due to devaluation. For example, the cost of many agricultural crops is correlated with the price of the dollar due to export parity. However, the potential world record of wheat production in the 2020/21 season of 769 million tons may adjust the dollar prices. Global corn production is expected in the new agricultural year approximately at the level of the previous season, the analyst knows.
Oleg Sukhanov expects a decrease in the yield of barley in the upcoming agricultural year due to relatively limited export demand. Winter rye is also likely to lose its margin, as its harvest may grow significantly in the new season, and sales prices will be much lower than the current values.
It is too early to talk not only about the margin-2020/21, but also to sum up the results-2019/20, emphasizes the General Director of the Orenburg company “Elan” Alexey Orlov. “We are now in a waiting mode, while sales were quite restrained,” he said in mid-March. — This season we decided: if everything is sold, then we should not do it. After all, when we do like everyone else, for some reason we lose.”
Elani has its own Elevator, so there are no problems with storage. Sunflower is traditionally the most profitable for the company. But at the beginning of this agricultural year, it lost a lot in price, so the company was in no hurry to sell it. As the price of agriculture increased, the farm made spot sales, but by the beginning of spring, a little more than half of the crop was sold. What is profitable to grow in Russia. It is the same with other usually high — yield oilseeds-flax and mustard, as well as wheat. “For us, this situation is also not the best, so, for example, we almost did not make any investments, just servicing loans, leasing and taking new loans,” -admits Orlov. If the situation becomes very tense, the company will start selling at the prices that will be on the market. But while there is an opportunity to hold the implementation, the farm intends to do this, “I want to get the maximum profit,” says the head.
For the past three months, Orlov shares, Elan has been negotiating with one of the largest grain exporters. And throughout this period, the latter raised the purchase price. “Exporters should better think through their strategy: first they drop prices so much that farmers start to panic, and then, when no one wants to implement anything, they start to raise prices. And then the farmers do not raise their hand to sell the crop, because we understand that we can earn more, ” the head explains what is profitable to grow in Russia