KAZAGRO. National Management Holding. Analytical review of grain market

Transcription

1 KAZAGRO National Management Holding Analytical review of grain market 1

2 CONTENT 1. FOREIGN MARKET Long-term prognosis of grain market till 2021 (FAO) World market balance, short-term prognosis of the United States Department of Agriculture (USDA) Prognosis for import and export World prices dynamics Situation with provision with grain in main Kazakhstan grain importing countries 7 2. DOMESTIC MARKET Grain production in the Republic of Kazakhstan Price environment Grain balance Prices for services of elevators and mills Current capacities for grain storage Kazakhstan grain export CURRENT SITUATION IN GRAIN SECTOR EXPERT ASSESSMENT 19 2

3 1. FOREIGN MARKET Main kinds of grain crops at the world market are wheat, barley, oat, maize, rice, buckwheat and pea. At present grain world market is controlling by five main exporters: USA, Canada, Australia, Argentina and EU. Total export proposal of grain from the main five exporters amounts to over 84% of total world trade volume. 1.1 Long-term prognosis of grain market till 2021 (FAO) According to prognosis of Food and Agricultural Organization of the United Nations (FAO) increase of global wheat production till 2021 is expected at level of 11%. Kazakhstan, Russia and Ukraine will increase production of grain crops for 40%, 20% and 28% accordingly. At that expected increase of global production of forage grain crops (first of all, maize and barley) in medium-term perspective will amount approximately 20% - till 1.4 billion tons. Particularly in Kazakhstan, Russia and Ukraine production of forage crops will increase for 22%, 14% and 23% accordingly. Increase of global production of forage crops will be of priority rates in relation to food ones, approximately for 20%. All these prognoses are based on models of global level, models of economic imbalance and, naturally, as any economic model, are based in range of prepositions about growth of GDP, population revenues, population growth, and change of level of products consumption. Diagram 1. Prognosis of grain production in the world till Wheat, million tons Feed grains, million tons OECD-FAO Agricultural Outlook Balance of world market, short-term prognosis of production of USDA USDA in its regular report dated March 10, 2014 insignificantly increased evaluation of world resources of wheat in 2013/14 (Marketing year) almost for 0.08 million tons and amounted to million tons, that is higher than in the last marketing year for 8.0 million tons. Also evaluation of wheat production was increased for almost 0.8 million tons and amounted to million tons (table 1). It is for 56.4 million tons higher of the last year indicator. 3

4 According to IGC, International Grains Council (IGC) the prognosis of world wheat stock in 2013/14 marketing year was increased by 1.6 million tons, that is million tons, but evaluation of wheat production was decreased by 6.8 million tons and amounted to 700.2million tons. At that evaluation of consumption increased by 8.6 million tons till million tons, also by 4% more than in the last marketing year (table 2). Table 1. Balance of world wheat market according to USDA, million tons. 2010/ / /13 Prognosis 2013/14 January February March Production 652,3 697,27 656,34 712,65 711,88 712,71 (+0,83) Consumption 655,7 697,3 679,4 703,39 703,99 704,82 (+0,83) Trade 134,0 153,8 147,1 155,55 155,50 158,42 (+2,92) Final stock 198,9 198,9 175,8 185,39 183,73 183,81 (+0,08) - according to USDA Table 2. Balance of world wheat market according to IGC, million tons. 2010/ / /13 Prognosis 2013/14 November January March Production ,4 707,0 700,2 (-6,8) Consumption ,0 691,4 700 (+8,6) Trade ,3 146,6 143 (-3,6) Final stock ,0 188,4 190 (+1,6) - according to IGC According to report of USDA, prognosis of wheat production for Kazakhstan in 2013/14 marketing year is presented downward from 15.5 till million tons, increase for Russia till million tons and for Ukraine till million tons (table 3). Table 3. Prognosis of production on main exporting-importing countries, million tons. Difference 2009/ / / / /14* (2013/ /13) USA 60,4 60,1 54,4 61,76 57,96-3,80 Argentina 12,0 16,7 15,5 10,0 10,5 +0,5 Australia 21,8 27,4 29,9 22,46 27,0 +4,54 Canada 26,9 23,3 25,3 27,2 37,5 +10,3 EU 139,72 136,67 138,08 133,87 142,88 +9,01 Russia 61,77 41,5 56,24 37,72 52,06 +14,34 Ukraine 20,9 16,8 22,1 15,76 22,28 +6,52 Kazakhstan 17,0 9,64 22,73 9,84 13,94 +4,10 India 80,68 80,80 86,87 94,88 93,51-1,37 China 115,12 115,18 117,4 121,02 121,72 +0,70 Total: 686,74 652,28 697,17 656,33 712,71 +56,30 * Prognosis of USDA as of March 10, Prognosis on export and import Prognosis of wheat exporting on Kazakhstan in 2013/14 marketing year with account of adjustment as of March 10, 2014 are presented with increase by 0.2 million tons (7.0 million tons) compared with the last marketing year (6.8 million tons), 4

5 significant increase on Russia by 6.22 million tons (17.5 million tons) and on Ukraine by 2.8 million tons (10 million tons). Table 4. Prognosis of USDA on export, by main exporting-importing countries, million tons. 2009/ / / / /14* Difference (2013/ /13) USA 24,1 35,9 28,07 27,69 31,5 +3,81 Argentina 5,2 7,74 11,9 7,45 2,0-5,45 Australia 13,76 18,48 23,0 21,3 18,5-2,8 Canada 19,0 16,79 17,6 18,58 22,5 +3,92 EU 22,1 22,90 16,57 22,6 29,0 +6,38 Russia 18,56 3,98 21,63 11,28 17,5 +6,22 Ukraine 9,34 4,3 5,44 7,2 10,0 +2,8 Kazakhstan 7,87 5,52 11,07 6,8 7,0 +0,2 Total: 135,37 134,0,1 153,76 147,12 158,42 +11,30 - Prognosis of USDA as of Machc 10, Table 5. Prognosis of USDA on world carry-over stocks, by main exporting-importing countries, million tons. 2009/ / / / /14* Difference (2013/ /13) USA 26,55 23,46 20,21 19,54 15,18-4,36 Argentina 2,337 4,107 0,735 0,290 1,74 +1,45 Australia 5,6 8,3 7,04 4,24 4,92 +0,68 Canada 7,74 7,36 5,93 5,05 9,84 +4,79 EU 16,13 11,67 13,81 10,07 10,71 +0,64 Russia 14,72 13,74 10,89 4,95 6,02 +1,07 Kazakhstan 2,36 2,88 6,38 2,93 3,08 +0,15 Ukraine 5,00 3,34 5,16 2,17 3,05 +0,88 China 54,42 59,09 55,94 53,96 57,68 +3,72 Total: 201,71 199,23 199,49 175,84 183,73 +7,90 - Prognosis of USDA as of March 10,

6 Table 6. Prognosis of USDA for import, by main exporting-importing countries, million tons. 2009/ / / / /14* Difference (2013/ /13) EURASIA Russia 0,164 0,089 0,55 1,17 0,5-0,67 EU 5,52 4,71 7,37 5,3 4,0-1,3 Turkey 3,22 3,52 4,4 3,3 4,0 +0,7 Uzbekistan 1,67 1,61 2,69 1,86 1,9 +0,04 NORTH AFRICA Egypt 10,5 10,6 11,65 8,3 10,5 +1,7 Algeria 5,17 6,44 6,35 6,2 6,7 +0,5 Morocco 2,30 4,02 3,21 3,8 2,2-1,6 MIDDLE EAST Saudi Arabia 1,91 1,74 2,90 1,95 3,2 +1,28 Afghanistan 2,5 2,0 2,2 1,6 2,0 +0,4 Iran 3,65 0,35 2,7 5,55 6,0-0,45 Iraq 3,90 3,63 3,79 3,9 3,4-0,5 SOUTH-EAST ASIA China 1,39 0,93 2,93 2,96 8,5 +5,54 Bangladesh 3,35 3,95 2,01 2,7 3,3 +0,6 Indonesia 5,4 6,6 6,5 7,1 7,2 +0,1 Philippines 3,2 3,2 4,1 3,6 3,4-0,2 AMERICA Brazil 7,16 6,69 7,05 7,54 7,5-0,04 Total: 135,37 134,18 153,76 147,12 158,42 +11,3 - Prognosis of USDA as of March 10, Dynamics of world prices Evaluating condition at world market, according to information of International Food Policy Research Institute, it should be noted that dynamics of world prices for grain is determined by the largest world exporters and importers: USA, Canada, Australia, Argentina, EU, China, India, Pakistan, and Japan. Increase of world prices for wheat is due to dynamically developing countries of South-East Asia not possessing sufficient land resources satisfying increasing demand for world market resources. One of the main factors influencing wheat price is natural and climatic conditions. Fall in wheat price in UA at SWOT Chicago stopped before February 10 and turned to growth. In Europe fall of wheat quotations continued. Wheat in USA from February 10 to April 1 increased by 17.2 %, in Paris MATIF by 8%. Table 7. Dynamics of price quotation for wheat, from January 10 to February 7 (in dollars per ton). 10.Jan 20.Jan 10.Feb 20.Feb 26.Feb 10.Mar 20. Mar 02.Apr SWOT - Chicago 209,06 206,95 214,85 226,42 220,45 236,99 258,73 245,9 MATIF - Paris 264,86 258,68 265,68 273,6 273,76 287,17 292,75 284,1 6

7 Diagram 2. Price environment. Futures: results of stock trading at world commodity exchanges , ,5 286, ,3 282, , ,4 238, ,8 228, , , , CBOT-Chicago MATIF-Paris T able 8. Cash market (wheat): Origin Wheat quality Price ($/ton) Change +/ USA (Gulf of Mexico) FOB SRW2 (soft, red grained, winter, 2 nd class) USA (Gulf of Mexico) FOB HRW (hard grained, winter) EU (France, Rouen port) FOB FCW1 (milling) Australia FOB Milling ASW Russia (Novorossiysk port) FOB Food 12,5% Russia (Azov port) FOB Food 11,5% Ukraine (Black sea ports) FOB Food 12,5% Source Food corporation NC JSC 1.5 Situation with grain provision in main countries importing Kazakhstan grain For the period from July 1, 2013 to February 20, 2014 about 5.7 million tons of grain crops and flour in grain equivalent were exported from Kazakhstan that is 25% more than in the relevant period of the last season. According to the Ministry of agriculture of the Republic of Kazakhstan, grain exporting for 2013/2014 marketing year will amount 9 million tons. Kazakhstan supplies grain mainly by railway. Caspian Aktau sea port in the west of Kazakhstan can transship thousand tons of grain in year only. Main direction of Kazakhstan grain export are the traditional markets neighbors for Central Asian and the Caspian. 7

8 Table 9. Dynamics of Kazakhstan grain and flour exporting. August, September, Trade classification. Exporting thousand thousand country tons tons October, thousand tons November, thousand tons December, thousand tons Total grain and flour in grain equivalent Including flour , Including wheat and meslin Total CIS Including Azerbaijan Uzbekistan Tajikistan Kyrgyzstan Remote countries Including Iran Georgia Turkey Afghanistan Sweden China UAE Germany 18 Barley (total) Source И Kazakh-Zerno information agency 8

9 2. DOMESTIC MARKET Main industry of Kazakhstan cropping is grain growing. In recent year total crops of grain take over 80% of arable area for agricultural crops. Natural and climatic conditions of northern, north-eastern and significant part of western and central regions of the country are suitable for growing of grain and legume crops and, firstly, food wheat with high content of gluten, high-demanded at world markets as improver of baking capacities of flour. In this regard, grain production is one of strategic industries of the republic, on which depends food security of the country, revenues and employment of population, development of related industries (livestock, poultry breeding, food and processing industry). 2.1 Grain production in the Republic of Kazakhstan According to the Agency of RK for statistics, wheat yield in 2013 in the republic amounted at average to 10.8 centners from hectare. Compared with yield of 2012 there is an increase by 36.7 or 2.9 centner from hectare. The most indicator is shown in South-Kazakhstan region, when yield achieved 19.4 and in Almaty regions 18.2 centners from hectare (Zhambyl region 16.5, East-Kazakhstan 14.2) table 10. Table 10. Wheat yield, centner from one hectare * Republic of Kazakhstan 11,9 7,3 16,6 7,9 10,8 Akmola 10,9 5,1 15,5 7,0 10,0 Aktobe 6,4 2,4 7,4 2,8 5,2 Almaty 21,4 18,0 19,0 16,3 18,2 Atyrau ,9 West-Kazakhstan 5,8 4,4 9,5 5,8 7,1 Zhambyl 21,9 14,6 15,4 8,6 16,5 Karaganda 7,8 4,6 10,8 6,5 11,5 Kostanay 11,0 7,3 18,3 6,1 9,6 Kyzylorda 13,2 12,4 7,8 4,7 7,1 South-Kazakhstan 19,3 14,7 14,1 10,9 19,4 Pavlodar 13,9 5,7 7,6 3,8 12,0 North-Kazakhstan 14,4 9,6 20,9 11,5 12,4 East-Kazakhstan 16,0 9,8 10,7 10,9 14,2 Astana city 11,4 6,8 14,2 6,1 7,4 Almaty city 10, * Data about grain and legume crops are adjusted as of by results of preliminary calculation of grain balance for Source: Agency of RK for statistics In Kazakhstan at average million tons of grain are producing, that gives the country a right to take the third place in CIS after Russia and Ukraine. According to the Agency of RK for statistics, gross collection of grain crops on the republic in 2013 amounted to thousand tons, including wheat thousand tons, with increase by 41.7% compared with 2012 ( thousand tons) 9

10 (table 11). At that a significant increase of gross production in 2013 was in relation to dry 2012 and is significantly less than in yielding 2009, Table 11. Gross collection of grain crops including wheat, thousand tons * Republic of Kazakhstan , , , , ,1 including: wheat Republic of Kazakhstan , , , , ,8 Akmola 4 413, , , , ,8 Aktobe 328,1 59,7 376,1 72,8 176,5 Almaty 425,1 399,6 405,5 305,7 305,9 Atyrau ,0 West-Kazakhstan 126,3 65,1 256,2 101,1 145,6 Zhambyl 248,1 182,4 183,6 84,3 163,5 Karaganda 476,9 261,3 611,4 332,2 593,2 Kostanay 4 626, , , , ,9 Kyzylorda 9,3 6,3 5,2 2,7 2,5 South-Kazakhstan 290,6 244,1 234,5 137,2 308,5 Pavlodar 643,5 194,2 311,1 123,7 470,3 North-Kazakhstan 4 836, , , , ,0 East-Kazakhstan 626,8 316,6 380,2 376,6 507,7 Astana city 0,4 0,2 0,3 0,4 0,4 Almaty city 0, * Data about grain and legume crops are adjusted as of by results of preliminary calculation of grain balance for Source: Agency of RK for statistics. 2.2 Price environment Average prices for wheat of 3 rd class in main countries producing food wheat. Diagram 3. Dynamics of average prices for wheat of 3 rd in Russia, Ukraine and Kazakhstan, US dollars/ton (EXW) July August 2013 Source Food corporation NC JSC September 2013 October November December 2013 Russia Kazakhstan Ukraine January February

11 Diagram 4. Average market prices for wheat of 3 rd class for the period from 2004 to 2013 in the Republic of Kazakhstan Source Kazagromarketing JSC Table 12. Export prices for grain crops and flour in dollars per ton, including VAT 0 % (exelevator) as of Station Petropavlovsk st. (ЮУЖД) Wheat 3 class, with gluten Wheat 4 class Wheat 5 class Barley 23-24% 27-30% - 2 class Top grade 1 sort 2 sort Sale flour Sale Sale Sale Sale Sale Sale Sale Supply terms DAP Sary-agash st DAP Lugovaya st DAP Tobol st DAP Aktau port FOB Bekabad st СРТ Khairaton st СРТ Kudukli st СРТ Sarakhs st Source Kazakh-Zerno information agency 2.3 Grain balance As of March 1, 2014, according to the Agency of RK for statistics, in households of Kazakhstan volume of accounting stock of grain crops amounted to thousand tons. Compared with January 1, 2014 volume of grain crops stock was thousand tons. In result, for two months, in the process of domestic consumption, export and losses volume of grain crops in the republic decreased by thousand tons, or by 20.2% (table 13). Compared with the last year, grain in the republic is a little less. As of March 1, 2013 grain stock amounted to thousand tons that is 4.2% or thousand tons more that in the current year. For the last year period stock for two months decreased by thousand tons, or 16.5%. 11

12 Table 13. Grain availability in the republic Region Akmola region Aktobe region Almaty region Atyrau region East-Kazakhstan region Zhambyl region West-Kazakhstan region Karaganda region Kostanay region Kyzylorda region Mangistau region Pavlodar region North-Kazakhstan region South-Kazakhstan region Almaty city Astana city Total in RK Current prices for elevator and mill services The following are tariffs for elevator and mill services by regions as of April 1, 2014 (according to Kazagromarketing JSC). Table 14. Tariffs for elevator services Cities Tariffs for storage, $/ton/ month Elevators (dollar course: 182,06 KZT/USD) Underworkin g, Acceptance by vehicle, $ Shipment by vehicle, $ Shipment by railway vehicle,$ ($/ton) Kostanay 1,40 0,20 1,80 2,60 5,70 Petropavlovsk 1,49 0,23 1,25 3,02 4,61 Karaganda 1,81 0,63-4,37 -* 2,68 3,02 Pavlodar 1,50 0,60 1,40 1,40 2,90 Kokshetau 1,80 0,2-2,1 1,60 4,00 4,30 Ust-Kamenogorsk 1,02 2,04 1,19 1,00 1,80 Taldykorgan 1,50 - * 1,30 2,20 3,20 * not producing. Table 15. Tariffs for mill services Cities Wholesale price for flour of 1st sort (in tenge per 1 kg) Mills (dollar course: 182,06 KZT/USD) Milling Flour output, % Tariff for milling ($/ton) Kostanay * Petropavlovsk ,13 Karaganda ,00 Pavlodar * Kokshetau * Ust-Kamenogorsk ,70 Taldykorgan ,00 * not producing. 12

13 2.5 Existing capacities of grain storage Total existing capacity of grain storage in the republic is about 24.5 million tons, including licensed grain-collecting stations 13.9 million tons, agricultural producers 10.6 million tons. From assets of KazAgro Holding for elevators were commissioned with total storage capacity over 458 thousand tons, including in thousand tons. Capacities existing in the republic are sufficient to ensure storage of grain in years with average yield, but insufficient in yielding years. Furthermore, material and technical base of the most of grain-collecting stations is outwear and needs reconstruction. To develop storage infrastructure and export of grain products it is provided to commission additional storage capacities for 3.5 million tons, including it is planning to create 350 thousand tons of capacities for grain transshipment through Food corporation NC JSC on main export directions. Table 16. Prognosis of expansion of grain storage capacities, thousand tons Region grain produc tion progno sis by 2020 grain producti on prognosi s in yielding years Grain storage capacities availability total Grain collecti ng station including: Agricu ltural produc ers Insuffici ent capacitie s of grain storage Construction prognosis Akmola ,1 5657,1 3789,7 1867, Aktobe 423,1 542,3 912, , Almaty 1293,8 1643,6 728,4 243,2 485,2 915, Atyrau 0,9 1,3 1,3 0 East-Kazakhstan 848,4 1069,7 1137,2 574,8 562,4-67,5 0 Zhambyl 458,3 584, , West-Kazakhstan 349,8 444,5 790,6 624,8 165,8-346,1 0 Karaganda 662,1 843,3 599,1 202,8 396,3 244, Kyzylorda 323,9 364,5 275,8 223,7 52,1 88, Kostanay 5166,5 6635,2 6576,5 3880,3 2696,2 58, Mangistau Pavlodar 519,4 649,8 875,5 185,3 690,2-225,7 0 North-Kazakhstan 5468,9 7073,4 6003,7 3409,8 2593,9 1069, South-Kazakhstan 443,6 565,3 73,9 73,9 491, On the republic 21067, , , , ,8 2951, Data of Master plan Stabilization of grain market placed at site f the Ministry of agriculture of RK as of Export of Kazakhstan grain High qualitative characteristics of Kazakhstan wheat facilitated to positioning of Kazakhstan as one of the leading world exporters of grain and flour. Kazakhstan is included into ten leading suppliers of wheat to world market, and for flour export takes a leading position in the world. Thus, for period of an annual average volume of grain export with account of flour in grain equivalent amounted to 8.2 million tons or increased compared with the previous five-year period by 2.5 million tons or 42.6%, consolidated currency revenue from grain and flour sale for export amounted to more than 8.8 billion US dollars with increase to level of in 2.2 times Tota l for 8 year s 13

14 Diagram 5. Dynamics of grain and flour export, thousand tons grain export flour export (in grain equivalent) Table 17. Information about grain shipment for export by months, thousand tons Months Grain * January 1015,6 1188,8 246,3 432,8 144,9 922,5 280,9 457,8 February 636,6 1091,3 220,7 400,1 99,5 768,0 387,0 504,7 March 588,5 922,5 214,6 418,8 96,1 925,1 279,5 559,4 April 592,5 681,3 313,0 464,3 100,8 863,0 440,3 May 585,3 91,5 326,5 719,7 125,2 1094,3 376,9 June 429,4 37,8 364,8 484,5 91,3 844,7 504,8 July 297,4 31,9 222,9 351,8 92,9 593,1 335,1 August 97,6 12,7 229,9 391,7 187,2 445,1 227,5 September 247,0 354,6 266,3 458,8 208,7 392,8 418,0 October 586,8 417,6 346,5 577,3 582,0 371,6 671,0 November 758,0 423,9 351,6 390,6 804,9 344,4 713,4 December 1046,1 391,7 474,0 401,8 960,0 296,9 756,4 Total 6880,8 5645,6 3577,1 5492,2 3493,5 7861,5 5390,8 1521,9 TOTAL export of grain and flour in grain equivalent 8958,4 8220,7 6788,2 8773,3 6210, ,6 7962,5 2148,3 * as of March 30 according to Kazakhstan TemirZholy NC JSC" Table 18. Information about flour shipment for export by months, thousand tons. Flour Months * January 144,2 125, , ,7 125,1 139,3 February 144,5 135,5 132,6 187,8 88,4 246,2 111,4 154,4 March 119,1 93,4 96,4 151,4 93,7 232,1 98,7 144,8 April 121,4 137,8 185,6 205,2 87,3 190,9 143,4 May 110,8 177,4 192,1 220,3 97,3 251,3 138,8 June 128,8 103,7 153,7 263,8 94,9 185,6 128,7 July 115,2 129,9 142,5 193, ,3 158,3 August 76,9 140,3 148,7 202,1 165, September 82,8 143,6 214,1 211,2 176,9 127,8 138,1 October 144,4 237, ,2 219,7 228 November 148,5 218,7 302,7 163,7 335,9 170,6 242,7 December 117,7 158,5 246,4 162,4 257,4 126,8 160 Total 1454,3 1802,6 2247,8 2296,8 1901, ,2 438,5 * as of March 30 according to Kazakhstan TemirZholy NC JSC" 14

15 Table 19. Information about grain and flour shipment for export for marketing years, thousand tons. Marketing year grain flour in terms of grain grain and flour in terms of grain Share of flour export in total amount of grain export 2007/2008 MY 7046,1 1459,2 2084,6 9130,7 22,8 2008/2009 MY 3318,3 1953,3 2790,4 6108,7 45,7 2009/2010 MY 4811,4 2510,1 3585,9 8397,3 42,7 2010/2011 MY 3229,8 1656,7 2366,7 5596,5 42,3 2011/2012 MY 8253,3 2644,1 3777, ,6 31,4 2012/2013 MY 4713,3 1702,3 2431,9 7145,2 34,0 2012/2013 MY * 2853,8 1118,4 1597,7 4451,5 35,2 2013/2014 MY * 3724,2 1218,3 1740,4 5464,6 31,5 * as of March 30 according to Kazakhstan TemirZholy NC JSC MY- from July 1 to June 30 In 2013 Food corporation NC JSC exported 10 thousand tons of grain to China. In 2014 it is expecting to increase export volume till 30 thousand tons of grain. 15

16 3. CURRENT SITUATION IN GRAIN INDUSTRY For the last five years grain producers survived two high-yield (2009, 2011) and two dry years (2010, 2012). These periods coincided with financial crisis and devaluation of 2009, which from one part resulted in rise in price of borrowed funds for agricultural producers, from other reduced availability of long-term loans. At evaluation of financial condition of grain companies it is necessary to account specifics of grain production. Attraction of borrowed funds in many cases is implementing for short-term period and is calculating for one production cycle. Thus, loan repayment received before sowing campaign is implementing in the period of yield sale before the next sowing for which a new loan is attracted. Moreover, due to shortage of long-term funding sources at second-tier banks, some agricultural producers purchased machines, modernized production capacities on account of short bank loans, accounting with refinancing in future. Such practice of grain production financing enforces risks of deterioration of grain producers financial condition at bad yield and/or unprofitable price conjuncture. As a primary result of unfavorable set of circumstances, many grain producers turn out to be reloaded with dear loans. According to information of the National bank of RK, past due debt on bank loans in agriculture by results of 2013 amounted to 35.1 billion tenge (diagram 6). Diagram 6. Past due debt on bank loans in agriculture, million tenge at period end * according to information of the National bank of RK As diagram shows critical phase of financial crisis, devaluation and high yield breaking down prices for grain, in 2009 resulted in sharp increase of past due debt 77% of which were short-term loans. As banks reduce financing of grain producers for working capital financing, by the instruction of the Government KazAgro Holding from temporarily free funds of the National Fund directed for spring sowing and harvesting financing 69 billion tenge and 55 billion tenge for grain purchase, that allows stabilize situation on the market and do not allow sharp deterioration of financial condition of agrarians. In the subsequent years for lending of sowing and harvesting campaigns the Holding was allocated budget loans. 16

17 It shall be noted that the mentioned specialty of long production cycle from sowing to grain yield conditions possibility of borrowers to repay past due debt appearing from bad market conjuncture, from the yield of the next year. It is shown on example of more that twofold decrease of past due debt level in 2010 compared with 2009 when agrarians could not repay debt in 2009 due to sharply broken prices, and made it in 2010 when less yield resulted in significant increase in prices and, accordingly, solvency of grain producers. There is an opportunity that statistics reflects the situation with past due debt not in full in relation to difference of borrowers categories classification (is not to be confused with loans classification) as loans in grain industry are attracted not only by agricultural formations, but by grain traders, which activity is classified as trading. In whole high loan load of grain companies complicates granting of new financial resources for operational activity and production development. In this situation one of instrument to solve the problem is program of financial recovery of agribusiness entities under the program Agribusiness Financial recovery of agribusiness entities provided that they will be included into the program, supposes subsidizing of fee rates by means of decrease till not more 7% per annum on loan and/or leasing obligations for whole period of their validation, extension of terms for obligations repayment for period not more than 9 years. Thanks to loan long term the grain producers after financial recovery, an average annual loan load hectare of cultivated area will decrease that allows agrarians receive in ownership more revenues from yield sale and direct it to expansion of production, renewal of agricultural machines, construction and modernization of grain stores, etc. In 2014 practice of financing spring sowing and harvesting through KazAgro Holding will be continued. For these purposes the Holding was allocated a budget loan in 40 billion tenge with repayment term till December 20, Besides, own funds of the Holding subsidiary companies will be used. To provide scale reach of agribusiness entities and availability of funds the loan products will be implemented similar to programs of 2013: - lending under commercial banks guarantees and grin receipts; - forward purchase of grain (through spring purchase of grain with delay of implementation till autumn) under guarantees of social-entrepreneurship corporations, having no overdue liabilities before Food corporation NC JSC; - financing of agribusiness entities through loan associations, system of microloan organizations. Moreover, given the necessity to expand availability of financial resources, KazAgro Holding in the current year plans to introduce additional loan products of agrarians financing through commercial banks. All together prognostic volume of spring sowing and harvesting financing through KazAgro Holding from all sources is evaluated in 61.6 billion tenge, that allows reach about 6.1 million ha of cultivated area. 17

18 Moreover, from 2014 agrarians will have an opportunity to lend in banks on preferential terms thanks to new program of the Ministry of agriculture for subsidizing fee rates on loans. Also the programs of the Ministry of agriculture of RK and local executive bodies will be continued to implement for subsidizing of purchasing mineral fertilizers, fuel and inventories, insurance of planted areas. 18

19 4. EXPERT EVALUATION In whole, condition of grain industry in Kazakhstan is stable. Traditional importers of Kazakhstan grain due to natural and climatic conditions are not provided with grain of own production and in long-term perspective preserve demand for Kazakhstan grain. Besides, stable dynamics of population growth in the countries of the Central Asia will stimulate demand growth for Kazakhstan grain. Good perspectives for Kazakhstan exporters have Chines market, where according to statistics in 2013 there was exported 124 thousand tons of grain. Thanks to significant investment and technologies inflow to grain industry, for the last years a stable production basis was created. Notwithstanding periodic lean years, in whole profitability of grain production for the last periods was at the level of 52-65%, at expenses cost per 1 ha of planted area in thousand tenge. It preserves in long-term perspective an investment attraction of grain industry. Current problem of high debt ration of agricultural formations shall decrease thanks to program of financial recovery. Sue to reduce of annual average payments on loans after financial recovery procedures it is expected increase of free cash resources remaining in grain companies that will stimulate investments to production modernization and, as consequence, facilitate to labor productivity growth. KazAgro Holding supposes it reasonable for grain companies to invest to construction and modernization of grain stores, that allows sale grain in period of higher prices and so increase business profitability. In its turn, KazAgro Holding may give for projects implementation on construction and modernization of grain stores long-term loan resources at fee rate 6% per annum. Besides, from 2014 the program of investment subsidizing will start which allow recompense part of expenses for creation of grain storage capacities and so to accelerate project pay-back. Separately we shall note currency devaluation in February 2014 which as it is expected positively affects export oriented grain industry. Large grain companies may receive additional liquidity for loans maintenance, without tying in to foreign currencies. Especially, it regards to loans of KazAgro Holding companies. 19

20 Information containing in this review is actual for the moment of research, and bears information character only and is not a proposal or recommendation for any investment and other business decisions. Information and opinions containing in this review are based on information received from public sources, published at sites of exchange, ministries, Agency of RK for statistics, central banks, information agencies and other organizations, and own data of KazAgro Holding JSC. KazAgro Holding JSC does not bear responsibility for results of use materials, data, opinion given in the review, and resulting in losses, missed profit or other negative effects including connected with errors, differences in data, evaluations. 20