CBH plants itself in Russian grain
Australia’s biggest co-operative is setting up operations in the heart of some of Russia’s best farmland and will export grain from a major port on the Black Sea.
CBH, controlled by about 4200 grain growers in WA, will have an office in Krasnodar and use a local service provider to buy wheat and barley direct from Russian farmers.
If it is successful in accumulating and shipping grain from the port of Novorossiysk, CBH will consider branch-ing out into corn and other commodities.
For CBH, it is not a case of to Russia with love, but with respect. The Black Sea’s booming production and growing influence in international grain trading has been impossible to ignore.
CBH head of trading Trevor Lucas said a move into the Black Sea had been brewing for two years and was borne out of a desire to better understand a major competitor.
“We have been looking at the Black Sea area in particular because of the amount of grain they produce and export into the global market,” he said. “As it turns out, we have ended up in southern Russia with our new business.”
Mr Lucas said Russia was consistently producing a wheat crop of more than 50 million tonnes, with about 20mt hitting an international market where falling freight rates had eroded Australia’s competitive advantage in South-East Asia.
“Their winter crop is coming off now and it sets the scene for global prices of wheat from here on in, which obviously we are a big part of,” he said.
CBH is conscious of the sovereign risk of doing business in Russia. It has opted for a low-capital operation that relies on local expertise.
A lot of the due diligence focused on finding a trustworthy local service provider able to help CBH buy direct from farmers and secure freight and port agreements.
“We have a service provider who we pay a fee and we are working with them closely in terms of utilising their resources and their relationships within Russia,” Mr Lucas said. “They have a team of field representatives similar to what we have in WA with our grower reps and we’ll be leveraging off that.
“I’m not expecting 10 or 20 cargoes in the first year, we are talking maybe one or two. If successful and we can identify value up-country, we’ll build on that.”
CBH declined to name its service provider, but Andrey Doluda and his company Mirogroup Resources have been linked to the project.
Mr Lucas said the farmland around Krasnodar, which is about 150km north-east of Novorossiysk, had some of the richest soil he had seen.
He said it regularly produced up to eight tonne per hectare for wheat and barley from yearly rainfall of 700mm to 800mm. Corn yields are up around 10t/ha.
CBH will use Russian grain to complement its offerings to customers in North Africa, the Middle East and Asia. It has regularly traded cargoes outside Australia, including from the Black Sea, the US and France but always on a free-on-board basis.
“We haven’t bedded down anywhere on the planet where we can truly originate behind the FOB and Russia appears to be one of the easier places,” Mr Lucas said.
“The barriers to entry in Russia are actually pretty small. Obviously there is a sovereign risk there but we think it is manageable.
“For us, it is quite exciting to have this origination play and also to be able to compete like-for-like with a lot of the multinationals who have huge product suites to offer customers.”
Former head of trading Don Campbell was involved in planning the move into Russia before leaving CBH to join Al Ghurair Resources in the United Arab Emirates.
CBH has also lost Sam Nottle, who ran its US operations from an office in Portland, and trader Stephen Moyle. They have joined French co-operative InVivo, which has set up an office in Singapore.
CBH is in no hurry to fill the vacancy in Portland as it re-assesses the role of the office it opened in 2013. The focus is likely to shift from trading to helping to manage CBH’s hedging profile, tied to the Chicago futures exchange.
The Krasnodar office will open with three Russian staff. CBH will manage the operations from its headquarters in West Perth.
It is the third big move from CBH in recent months after it launched a fertiliser business in WA and bought oats processor Blue Lake Milling.
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