Oilseeds

Kazakh flaxseed: "Climate change poses significant risks"

January 3, 2022 2:00 PM, Der AUDITOR
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SEEHEIM/NUR-SULTAN. The AUDITOR's editorial team spoke to a number of different commodity trading experts. For today's interview, Evgeniy Karabanov, Chairman of the Kazakh Grain Union in Kazakhstan, answered our questions. He reports on the adversities and hurdles faced by the Kazakh flaxseed seed market this year, but also about his positive experiences and his expectations for the coming year 2022.

What issues were the most difficult ones for the Kazakh flaxseed market to face in 2021? Were they mainly related to the lingering threat of the worldwide pandemic or do you think they would also have occurred in a more normal year?

The pandemic that started in 2020 also had an impact on the global economy in 2021. Problems with logistics in the Chinese direction due to strict quarantine measures on the Kazakh-Chinese border introduced by China in October 2020 hampered the export of many Kazakh agricultural goods, including flaxseed. In early 2021, the number of wagons with goods standing along the entire length of the Kazakh-Chinese border reached 20,000. First, the Chinese government banned the acceptance of packaged goods, and later any commodities, including bulk goods. Only containers were allowed. However, in September 2021, China also restricted the acceptance of goods in containers and banned them completely from October 2021.

As a result, export goods stood at the border for 5-6 months, were not delivered to China and exporters were forced to retrieve shipments. This led to the cancellation of contracts, large financial losses for exporters with additional costs of storage and return of wagons, and deterioration in the quality of goods.

At the end of 2019, there were high expectations to increase exports of Kazakh flaxseed to China, but for the twelve months of the 2020/21 marketing year, flaxseed exports from Kazakhstan to China amounted to 109,500 mt, an increase of only 5% compared to the nine months of the 2019/20 marketing year (104,200 mt) when Kazakhstan started its flaxseed exports to China. This situation did not allow sellers to increase prices due to limited competition between Chinese and European buyers.

In November 2021, China indefinitely banned the import of goods in wagons (including bulk) from Russia, except for goods in containers. This led to downtime of more than 6,200 loaded wagons at the Russian-Chinese border. The continuation of the ban on the shipment of agricultural goods from Kazakhstan to China forces us to reduce the forecast for exports of Kazakh flaxseed to China in the current marketing year to 80,000 mt. There will also be a decrease in exports for Russian flaxseed.

Flaxseed exports, Kazakhstan, in mt

Destination

2018/19

2019/20

2020/21

2021/22*

Belgium

245,800

170,000

125,600

165,000

China

0

104,200

109,500

80,000

Poland

84,600

65,700

66,300

80,000

Germany

22,600

25,500

22,400

30,000

Russia

16,700

34,400

27,300

25,000

Afghanistan

54,500

34,300

18,000

10,000

Others

71,900

49,600

30,400

40,000

Total

496,100

483,700

399,500

430,000

State Revenue Committee under the Ministry of Finance of the Republic of Kazakhstan and Eurasian Commission; Sep-Aug; *Forecast

In most markets, prices for feed and food commodities went up significantly over the course of the past year. Flaxseed is no exception to that. Do you think buyers will have to adjust to these higher levels in the long run or do you expect prices to decrease again?

The explosive price growth in agricultural commodity markets that began last year continues. Prices for many commodities have currently reached 10-12 year highs and for some products, especially flaxseed, even a new record. There were virtually no out-of-season fluctuations in the flaxseed market. The 2020/21 marketing year ended at highs and the new 2021/22 season started with them, while the price increase for flaxseed continued. High price trends in the vegetable oil market were caused by expensive oil, a decline in the production of a number of oilseeds, a disruption in existing commodity supply chains and a sharp increase in the cost of freight and logistics services. Last season (September 2020 to September 2021), the flaxseed price on the European market in Ghent increased almost 1.7 times from USD 565 to USD 938/mt. Further growth or stabilisation of flaxseed prices will depend on oil prices in adjacent markets – rapeseed, palm oil, soybeans.

Did the demand situation change compared to 2020 and 2019? Do you think some buyers and processors had to readjust their needs?

Demand for farmgate goods has been lower in the flaxseed market compared to previous years. The main reasons for this are a sharp rise in raw material prices, an increase in transport costs and, in general, high volatility in vegetable oil markets. However, according to the Kazakh Grain Union (KGU), the decline in flaxseed production by more than 6% (20,000 mt) to 2020/21 levels in the current season due to dry weather conditions in the main exporting countries Canada and Kazakhstan offsets a slight decline in demand.

Logistical issues like high freight costs, a lack of containers and truck drivers as well as closed ports were problems faced by the food and feed commodity market. Is there a lesson to be learned from that going into 2022?

Of course, these problems have made world trade much more difficult. As already mentioned, the flaxseed trade is also affected by quarantine measures and bans. However, market players are quickly changing direction and finding new logistics routes. For example, Kazakh flaxseed is now delivered in shipping containers to the Chinese port of Tianjin via the Russian ports of Novorossiysk and Vladivostok. A similar route was used by Russian flaxseed exporters. In addition, the issue of exporting flaxseed from Russia to China via Russia's Far Eastern ports is being addressed.

Additionally, climate change and crop concerns are real and pose a threat to all kinds of food and feed commodities around the world and will most likely continue to do so. How would this affect the flaxseed market in the future and what could companies in this industry do to improve this situation?

Climate change associated with global warming poses significant risks to agricultural producers around the world. This process is particularly acute in regions with a highly continental climate. This year's dry conditions in the USA, Canada, Kazakhstan and a number of regions in Russia are confirmation of this fact. In Kazakhstan, farmers in the northern region of the country, the main producer of cereals and oilseeds including flaxseed, experienced a significant lack of soil moisture throughout the growing season. This situation did not change in autumn and in winter this resulted in critically low soil moisture levels, only about 20-50% of long-term averages. This creates essential conditions for a recurrence of the drought next year. Producers are therefore faced with the task of finding ways to minimise these risks. Primarily by improving agricultural technologies and widespread use of moisture-saving methods of crop cultivation.

However, due to the crisis in the gas market in Europe, China and a number of other countries, the prices of fertilisers and crop protection products have increased significantly by 30-200% compared to last year.  And their use is extremely necessary to increase yields and offset the effects of adverse weather and climate factors. But many farmers will face difficult choices. Either they will have to buy the necessary complex of fertilisers and pesticides and incur significant financial costs, or reduce costs by buying less fertiliser and insect repellent, which increases the risk of reducing yields, or abandon the cultivation of some crops in a number of regions, reducing the area sown. These factors will not contribute to an increase in global agricultural production or a decrease in prices while consumption remains high.

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