Ukraine’s Kernel sees Q2 revenues fall 19% on weak grain volumes

Kernel, one of Ukraine’s biggest agriculture interests, has revealed a 19% fall in revenue for the second quarter of the 2018 financial year in its interim results for the 6 months through to December 2017.

Despite being more active in farming terms, harvesting an area 45% larger for corn, 78% larger for wheat and nearly 12% larger for soybeans, yields across all three declined significantly as the company on unfavourable weather and bringing new land into use.

In the case of soybeans, the yields were down 35.6% to 1.8 mt per hectare, leaving overall soybean production 28% lower at 114,200 mt.

Wheat and corn production reached 706,000 mt and 1.3 million mt respectively, higher by 47.5% for wheat and 10.4% for corn.

Overall, corn and wheat production was enough to see total net tonnage of the company’s five key crops – corn, wheat, sunflower, soybean and rapeseed – increase 19%, with much of the fall in yields attributed to new land from a land bank expansion in the summer of 2017.

“Crop yields on Kernel’s initial lands (prior to expansion) are far above the country averages, and we are working at full speed to replicate our production technology on the newly acquired land bank,” the earnings report said.

Exports suffer amid weak global prices

Exports, however, have suffered with grain trading seeing a 23.8% loss in revenue to $363.1 million versus the previous year, and the company’s export terminal business declining 11.3% to $25.6 million.

Volumes also declined in both trading and export terms with much of the loss stemming from Russia-based operations after Kernel reached an agreement on assigning its quota of transhipments through the Black Sea port of Taman to a third-party.

The company had held a 50% stake in the Taman grain terminal, sharing ownership with Glencore, but sold its stake – its final Russia-based asset – in March 2017.

Alongside that, Ukraine’s corn exports have dipped as low prices internationally saw farmers keep corn in stock rather than pushing it out for export, while the country’s wheat exports have had to compete with a massive Russian harvest.

Kernel was recently listed as the biggest exporter of Ukraine’s corn for the second consecutive year, according to data compiled by Latifundist and published on the Ukrainian Grain Association website.

For 2016/17, Kernel is thought to have moved 2.19 million mt of corn, just ahead of international trader Louis Dreyfus at 2.15 million mt and ADM at 1.9 million mt.

Limited risk of crop loss in year ahead

For the year ahead, Kernel is anticipating a strong performance with farming undertaken on 560,000 ha, almost doubling the land farmed in the previous marketing year, with some 108,000 mt already planted with winter crops.

Of these, 75% to 85% of plantings are in good condition with the balance said to be satisfactory and only “quite limited risks of crop losses”.

“Warm and snowless weather in November-December 2017 extended the winter crop vegetation period… as of mid-February 2018, a much larger share of acreage under winter crops in in the optimal conditions,” the report states.