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Billionaire Deripaska Joins Russia Grain Rush as Sales Ban Ends

June 02, 2011

June 2 (Bloomberg) -- Billionaire Oleg Deripaska’s farm in southern Russia is preparing to join the surge in grain exports that will come a month from now as the government lifts a ban on shipments that contributed to a doubling of wheat prices.

The 75,000-hectare (185,320-acre) Kuban AgroHolding farming company in the Krasnodar region stored about half of last year’s harvest and will sell it to trading companies, said Andrey Oleynik, managing director of the agribusiness at Deripaska’s Basic Element holding company. The current crop is doing well after rain last month, he said.

“Our winter wheat is doing very well,” Oleynik said in an interview by phone, forecasting a 4.3 percent increase in the crop. “It went through the winter very well, and rains in May provided additional moisture.”

The prospect of Russian exports and a bigger harvest is helping to contain grain prices as droughts in parts of Europe, the U.S. and China threaten to drain global stockpiles for a second year. While wheat traded on the Chicago Board of Trade, a global benchmark, is 59 percent above the 10-year average, it would have to rise another 75 percent to match the high seen in 2008. That was in the middle of a three-year period when more than 60 food riots erupted worldwide.

Russia, formerly the world’s second-biggest wheat exporter, banned shipments in August as its worst drought in more than a half century ruined crops. The ban will expire July 1, Prime Minister Vladimir Putin said May 28.

Russian wheat production will rise to 53 million metric tons this year, compared with 41.5 million tons in 2010, the U.S. Department of Agriculture estimates. Exports will jump to 10 million tons from 4 million tons, the USDA says.

Agriculture Ministry

The country may harvest about 70 million tons of grain this year, Oleynik said. Russia’s Agriculture Ministry estimates the harvest at 85 million tons to 90 million tons, up from 60.9 million tons last year. That forecast is too optimistic because soil in central Russia was dry when farmers planted winter grains last year, Oleynik said.

Wheat prices in Russia rose 11 percent last week as traders anticipated the ban will be lifted and may climb 20 percent more this month before easing as the next harvest begins, Oleynik said. The farm sold half of the 141,000 tons of wheat and barley it reaped last year in the domestic market, more than the 20 percent it normally supplies locally, he said.

Russian traders started to move grain to silos in southern Russia even before the end of the ban was announced. The Black Sea export port of Tuapse last week said it got 85,000 tons of wheat from Russian and Kazakh sources.

Southern Russia

Based on prices at silos in southern Russia, fourth-grade milling wheat will cost 6,000 rubles ($215) a ton in Novorossiysk, the main southern export hub, said Oleynik. That’s less than the $328 being traded in New Orleans and 252 euros ($363) in Rouen, France.

The resumption of exports may drive international wheat prices 5 percent to 7 percent lower, while boosting domestic prices 15 percent to 20 percent, according to Alexander Korbut, vice president of Russia’s Grain Union, the largest lobby group for cereal exporters. Russian ports can handle as much as 3.5 million tons a month, he said.

A jump in Russian prices may spur the government to curb sales again later in the year, Andrey Sizov Jr., managing director of agricultural researcher SovEcon, said May 28.

Most of the country’s 10 million-ton exportable wheat surplus from the 2010 crop is kept in southern Russia and about 70 percent of it may be shipped abroad, Oleynik said. Exports in the season starting July 1 may be 17 million tons, he said.

Food Costs

The resumption of Russian exports won’t be enough to drive wheat prices lower, said Erin FitzPatrick, part of a team of analysts at Rabobank in London who correctly predicted this year’s surge in food costs. Wheat traded in Chicago will average $8 a bushel in the third quarter, compared with $7.90 in the previous three months, Rabobank forecasts.

“The weather risks that are developing in other producing regions will be more than enough to offset any type of exports coming of Russia,” FitzPatrick said.

European farmers are contending with the driest growing conditions in more than three decades. The European Union warned this month that soil moisture is now “critical” in at least six countries after some places had their driest March on record. France’s soft-wheat crop, the EU’s largest, will drop 12 percent, and German output will slide 7.2 percent, local forecasters said May 18.

Farmers worldwide will reap 667 million tons of wheat in 2011-2012, trailing demand at 669 million tons, the International Grains Council said May 26. The agency pared its production estimate from 672 million tons in April, cutting stockpiles to 185 million tons, the lowest since 2008-2009.

Living Conditions

Kuban AgroHolding, founded in 2002, was intended partly as a “social project” to bring jobs and improve living conditions in the area, according to Oleynik, who has led the business since 2006. Besides Kuban AgroHolding, the agribusiness unit of Basic Element also includes a stud farm for horses and a manufacturer of non-alcoholic beverages.

Deripaska, 43, is worth $16.8 billion, making him Russia’s sixth-richest man, according to Forbes magazine. He grew up in Krasnodar on his grandparents’ farm, where he rode horses and tended chickens, pigs and cows as a child, and most of the land his Kuban AgroHolding owns today is nearby. He is chief executive officer and the biggest shareholder of United Co. Rusal, the world’s biggest aluminum producer.

Kuban AgroHolding plans to at least double the amount of land it farms in the next several years to 150,000 to 200,000 hectares, mostly in the south, Oleynik said. The company is also expanding in the western Mordovia and Nizhny Novgorod regions, where it will cultivate grain for flour mills. Kuban is also building a slaughter house and a soy-processing plant in southern Russia.

The Krasnador region where Kuban AgroHolding sits was “almost the only one” spared by the Russian drought last year, reaping 10 million tons of grain, or a sixth of the national crop, according to local governor Alexander Tkachyov.

--With assistance from Tony Dreibus in London. Editors: John Deane, Sharon Lindores

To contact the reporter on this story: Maria Kolesnikova in London at

To contact the editor responsible for this story: Claudia Carpenter at

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