International grains traders face scrutiny over Russian assets

Russia's invasion of Ukraine has forced many traders of natural resources to reassess their relationship with the country, often under pressure from governments in Europe and the US, but participants in the wheat market say they're expecting major international investors to retain their assets in the country, which is the world's biggest exporter.

In the energy sector, Shell and BP have both said that they will divest from their Russian assets and will no longer enter contracts to buy oil or gas from the country's ports. Unlike Russia's oil, which typically goes to refineries in Europe, most of the country's wheat is shipped to mills in Egypt, Turkey, Syria, Iran and Iraq.

"I think [the multinationals] will carry on trading, as long as grains aren't sanctioned," said one participant in the Russian market. "Russian grains will continue to flow, Egypt needs to buy, Turkey needs to buy, Syria needs to buy, Iraq needs to buy all of these buyers will find ways and means," the person added, saying that three vessels loaded from Russia in the ten days up to March 8. That is still well below the usual flow - for comparison, 14 ships loaded and sailed in January from the terminals in Novorossiisk, the country's main grains port.

Viterra, the agricultural business of Glencore, has the largest asset base in Russia of any multinational, with a 50% stake in the grain terminal at Taman, which it says has a capacity of 3.5 to 4 million mt a year equivalent to around a tenth of Russia's total wheat exports. Its co-owner is the sanctioned Russian bank VTB, which has been disconnected from the financial messaging system SWIFT and had its assets frozen in Europe and the US. VTB bought the stake from Ukraine's Kernel for Eur61 million in 2020.

Viterra also owns a shallow water terminal in Rostov on the Azov Sea, which has an annual capacity of 1 million/mt and has been closed since the invasion on Feb. 24. The company also owns a 50% stake in Idel Shipping Company Ltd.

Glencore issued a statement on March 1 saying that it had "no operational footprint in Russia" and its trading exposure was "not material." When asked whether Viterra intended to divest its Russian assets or restrict trading of Russian grains, the company declined to respond immediately.

Louis Dreyfus also owns a terminal on the Azov sea with an annual export capacity of 1.1 million mt, as well as inland storage facilities with a total capacity of 1.1 million mt. The company suspended Russian operations on March 4 but declined to comment on whether it would sell its Russian assets or stop trading Russian wheat.

Privately-held Cargill is another active player in the Black Sea market, and its business was directly impacted on the first day of the war when a ship that it had chartered was hit by a missile near the Ukrainian port of Odessa. In Russia, the company owns a 25% stake in the KSK grain terminal, which shipped 5.1 million mt of grains in 2020. It also didn't respond when asked whether it planned to divest..

The US Department of Agriculture, in its February report, predicted global wheat exports of 208.5 million mt in the 2021-22 marketing year (July to June), of which Russia would represent 35 million mt, or 17%..The country had exported 26.4 million mt of wheat as of March 3, data from the Russian Federal Service for Veterinary and Phytosanitary Surveillance.

Prior to Russia's invasion of Ukraine, the agriculture ministry set exporters a limit of 8 million mt on the total volume of wheat that they could ship between Feb. 15 and June 30. That represents average monthly exports of around 1.8 million mt of wheat. Traders in Geneva said that they expect far less than to be exported in March and April, with most estimating around 200,000 to 400,000 mt/month.

One sign that international food companies may hold firm in Russia came from French food group Danone, whose chief executive said March 8 that it would continue operating in in the country, where it earns around 6% of its revenue, mostly from sales of dairy products and yogurt. "We have a responsibility to the people we feed," Antoine de Saint-Affrique told the Financial Times.