New CBH subsidiary sows seeds in Russia

06 Aug, 2015 02:00 AM
Comments
16
 

CBH Group has sown the seeds of a southern Russia grain accumulation and export arm, establishing a toehold in one of Australia's major wheat export competitors near the leading Black Sea grain port of Novorossiysk.

It has formed a Russian subsidiary company called Granary LLC which has opened an office in Krasnodar, the southern Russian administrative and economic centre of about 770,000 people, 148 kilometres from the port.

The locally-registered company will enable CBH to own grain in Russia and operate as a grain accumulator and trader within that country.

It is a step up from its previous operations in Russia where it could only purchase grain free-on-board (FOB) where ownership of the grain did not transfer to CBH until it was loaded on ship.

The Krasnodar office has three Russian staff but from next month CBH grain traders will rotate through the office to gain exposure and experience of international trading in Russia.

Granary has contracted a local Russian commodities dealer to act as its representative in the region and to approach major grain growers on its behalf.

It hopes to fill two to four ships in the coming season with Russian wheat and barley, with the northern hemisphere harvest now well underway.

Trevor Lucas, who became CBH head of trading in April after being the group's barley trading manager for almost seven years, said the move was a "toe in the water" to enable CBH to better understand a major competitor.

"It's a low capital operation so if it goes pear-shaped we can easily cut our losses and walk away," Mr Lucas said, referring to the instability of the Russian economy.

Exposure to the local economy is also limited by using the local knowledge of a trusted intermediary, he said.

"They (Russia) provide about 15 per cent of the world's wheat exports and we (Australia) do about 15pc, so we are both substantial players.

"In understanding what is happening in the market nothing is more important than real-time information.

"When you are getting your information second hand, as we were trading FOB, that information can be two or three days out of date.

"This (Krasnodar office) is about gathering timely market information and understanding a competitor.

"It's also a drought hedge for us - if we have a drought in Australia we can fill orders with grain from Russia."

He said CBH had traded bulk grains, mainly from Argentina, the United States, France and Germany, for the past three to four years.

It already has offices in Hong Kong, Tokyo and Portland, in the US.

"We did one cargo to Iraq out of Russia last year. We hope to do two to four this year if it goes alright," he said.

With fertile soil and "very consistent rainfall" of 700 to 800 millimetres per year, the region around Krasnodar "was the perfect spot for accumulating grain", Mr Lucas said.

"Some of the growers have very big operations, producing 50,000 to 60,000 tonnes a year with on-farm storage and their own transport - some own their own trucking businesses and others have their own railway siding."

He said there were "relatively few hurdles" CBH had to clear to establish Granary to buy and export Russian grain.

"They produce 50 million tonnes a year and domestic use is only 30m tonnes so they depend on export," he said.

"Occasionally they'll have a bad year further to the north and the government will close the port (to grain exports) to protect their domestic market, but we now have the option of selling our (Russian) grain into the domestic market if that happens."

He said Granary would investigate other commodities such as corn in the future and the range of Russian grains, particularly hard grains, could enable CBH to "expand our suite of products" traded.

Mr Lucas said Russian grains could also complement CBH's business interests in milling.

CBH has a half share in Interflour which operates seven flour mills in Indonesia, Vietnam, Malaysia and Turkey and operates a grain port terminal in Vietnam.

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Mal Gill

Mal Gill

is wool and dairy writer for Farm Weekly
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READER COMMENTS

drowning in debt
6/08/2015 6:09:46 AM, on Farm Weekly

CBH expanding everywhere but in WA. Keep on wasting money boys. pretty soon the crows will come home to roost and the empire building focus of the board will be seen as a wasted opportunity to create a company whose shareholders had reason to be loyal. Cos they got their equity. At the moment they're sending it oversees and quite frankly Russia is a far cry from new debate wally
Deregul8
6/08/2015 6:16:49 AM, on Farm Weekly

And how can you accumulate grain without putting significant capital at risk in this part of the world? What about WA? How about focussing on the core business? There is a bit of competition on the radar in case the board haven't noticed. What about value adding in our own backyard instead of Indonesia, Vietnam, Victoria etc? Geez!
x
6/08/2015 6:59:18 AM, on Farm Weekly

How about resolving the network revitalisation / rationalisation issue in WA as outlined at CEO / Director meetings earlier this year. Unless competitive efficiencies are delivered CBH will not survive
Free trader
6/08/2015 7:16:45 AM, on Stock & Land

Interesting development just after CBH and Interflour CEOs stated it was cheaper to get wheat to Indonesia from Ukraine rather than from Australia. Another question. Why has CBH largely closed its Melbourne office and opened in Russia? Whose standing up for Aussie wheat growers? Are we to solely rely on Austrade?
boris
6/08/2015 7:34:51 AM, on Farm Weekly

In 2013 CBH opened an office in Portland, Oregon, US. CBH said at the time that this move would enable us to strengthen our trading and marketing relationships in the region and service our customer's requirements with origination from multiple locations. Whatever happened to this office? The growers (apparently owners of CBH) have never received an update on the performance of the Portland office. Given the Pacific North West in the most competitive grain trading precinct on the planet maybe, just maybe, it has failed? And now we move on to Russia like nothing ever happen in Portland.
Gerry Atric
6/08/2015 8:32:28 AM, on Farm Weekly

Good point D8, let's concentrate all of our risk into 1 state in Australia, when grain is a world game. Then we will complain when the next drought comes around that CBH is too concentrated into 1 state in Australia, when grain is a world game.
Philip Downie
6/08/2015 9:07:26 AM, on The Land

Frankly there is no one standing up for Australian wheat and it is not possible given the structures in place, it is a dogs breakfast.
Interested Party
6/08/2015 10:44:08 AM, on Farm Weekly

I see the sheep are out bleating again. One day they might wake up as this would appear to be a low risk great opportunity for the guys in the west.
halfcocked
6/08/2015 12:00:48 PM, on Farm Weekly

How about CBH buying out the railway lease and that may save us growers some money in the long run. Better than investing our money in a Putin controlled country which may have trade sanctions envoked against it by the west at any time
boris
6/08/2015 12:03:43 PM, on Farm Weekly

I agree with your comment, x. The board of CBH will have to show leadership to rationalise the network but politics always gets in the way. It will only come about by someone else forcing their hand or someone else, full stop. The perks and status of the job far outweigh moving CBH into a position where it can compete because those directors promised nothing will change. Remember CBH is more than a bulk handler it is a way of life for some. Inevitably those that cheer for the co-op will face a rude awakening. The decline is slow at the moment, the band-aids are holding...just!
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