Close view of Black Sea happenings with Andrey Sizov

Paul Yeager   Hi everyone, I'm Paul Yeager This is the MtoM Show podcast production of Iowa PBS. And the Market to Market TV show. Andrey Sizov off is a return guest for us here on the podcast. He was in Moscow. He's now in Spain. But he still follows what goes on in Moscow, Ukraine, and the rest of that region when it comes to the commodity markets. He is an economist of someone who watches the markets, sometimes trades, but a grains analyst he's going to help us understand what's going on in the Black Sea region and what that means for American producers as well as the rest of the global grains picture. We're going to talk specifically about farmers in Russia and Ukraine. We'll also talk about Turkey, India, and China. So a nice global perspective today on what's happening on a view from outside of the United States. That's this installment of the MTM podcast. New episodes come out each and every Tuesday. Join us then. Good to see you again. Andre, you are still looks like at a remote location. Where are you sitting today?

Andrey Sizov   Ah, spring we moved to Spain a couple of years ago. I'm in Costa del Sol Malaga. Pretty hot here today.

Paul Yeager   Yeah, but what's hot? What's hot for Spain, though? Hot for Spain is like, I think don't you think 100 is cool for some parts of Spain.

Andrey Sizov   Yeah, now again, is that complicated Fahrenheit to Celsius conversion. But it's it's relatively hard. And it's it's very dry, it's payments very dry, and this crop going to be a disaster for spring. Fortunately for us, it's not the biggest producer and for example, France, the number one green grower and exporter looks very good still. But Spain, which is to the south from France is very dry. And that's south of Spain and the Lucia southern part of southeastern Europe. Very bright hot.

Paul Yeager   Yeah, we've been following the mean it comes up in our discussion about the drought in France and the dry conditions there. Before you went to Spain, you were living in Russia.

Andrey Sizov   Yeah, I was living in Moscow, Moscow. But I was living in the UK for some time in Spain when I was studying in different places. In the US, I had a few problems spent several months in the US different places, but mainly in Russia. I was born in Russia and mostly in Russia to 2029 or sorry, 2021 2021.

Paul Yeager   Things changed there dramatically. And it was quite the region to instability was the name of the day still is.

Andrey Sizov   Yes, it was quite volatile, even before the war started in 2022. But yeah, it was very volatile. And if you were if you were and you are trading with you have to have followed this region closely. Corn is also important, but what is number one, Russia has been and still is number one wheat exports. Ukraine top three top four wheat exporter, Ukraine top four corn exports are number one exporter of corn to China, which is very important for the Yes, obviously. Yeah. And that region wasn't transparent and still not transparent and wasn't volatile and predictable and transparent before the war. And this what we're doing we're helping people to understand what's happening here so they won't make any very costly mistakes. Being on the wrong side of trade when something big happens whether it's droughts or drone attack, which just happened last week on the Kremlin, and Chicago road 5% of that, not just helping people to to be ahead of the crowd falling what's happening here.

Paul Yeager   And you are a trader? No. How do you how do you catalogue yourself Andre?

Andrey Sizov   Ah, economist analyst from time to time trading but mainly invested just my own personal pension money. Let's put it that way. We have people so well, analysts, our main product is our report sees of dot report, you can go online and check in and get your free trial. We have problems in pain. We have people in different places in Georgia, in Russia and Ukraine. So this what we do we get information some information for traders farmers, trying to understand what could happen in the market and help our clients to deal with with events happened in this region.

Paul Yeager   When the invasion happened into Ukraine, there was this concern that Ukrainian farmers are not gonna be able to plant. Ukrainian farmers were able to plant they were able to get a crop, they were able to get it to their bins or storage. But getting it after that has been a challenge. What's the current status of, in general terms of a Ukrainian farmer trying to get a crop? Somewhere? That's not Ukraine?

Andrey Sizov   If we talk, you're correct. It was obviously very challenging times. You know, in some cases, farmers in Ukraine were harvesting their crops last year, just a few miles, there was a front and shooting nearby. But you printed farmers, now we can say that you bring in farmers were way more resilient than the market was expecting. The production did drop. But it was I think it was way higher than many web for the can start of the war, which started in February. So indeed, both wheat and crop production declined, for example, with fell from 30 million tonnes or how use tongs to 20 million tonnes. But still, that that's a good crop relatively, and those 30 million sounds we should add, that was a record high crop. So it was substantial about 2021. But it was stillan OK crop taking account that it was what times. And you know, if you're, for example, one takeaway for looking at Ukrainian map, and bringing us from the Black Sea, you should be in mind that south of Ukraine near the Black Sea, as of say, that's the mean, with belt where the country produces its wilt. Its wit, currently south and eastern part of Ukraine is controlled by Russia in a big share with and central and northern regions. Those are regions where they mainly grow corn. So now, part of the country is controlled by Russia and 20%. And that's mainly bad for Ukrainian wheat crop. For example, last year, when Russian troops pulled out from Central Ukraine from Kiev, if you you might remember those many short satellite shots. It was very beneficial for you praying and lead crops like sunflower and corn. So Ukrainian farmers are called harvest those crops even talk about the stalks and that all crop by now actually it has been mainly shaped and the experts program is done by around 90%. Or even more, around 5,000,005 -7 million tonnes of crops left from the previous season, because we're exporting quite actively via the green corridor Green Deal. Probably we'll talk about that later. And then they started to actually ship the the EU land, to Romania, to Hungary to Poland to Bulgaria. But it was a big problem. You know, the Ukraine has a different gorge rail gorge compared to the US. So you can just send a big train with all those crops directly to Romania to Constancio you have to change the wheels or turn around from one rail car to another and that all takes time. Unfortunately, boyfriend's also had a very important new relatively new route or mostly forgotten route, but the time it's the Danube that river flowing through Eastern Europe, the very small terminals and the Bremer switches, only barges 1000 times, something like that. But it became very important, especially when ADESA terminals mean terminals on the Black Sea were blocked. Because because of the wars, so now they can ship around 20 million tons via the Donald. And that's a lot. So basically, they shipped almost all their crops from the current from the previous season, and take into account that we expect a substantial decline further decline in production in the new year. They have enough capacity or almost enough capacity to ship all their wheat, corn and barley and sunflower and some oil in the new season even without the green corridor everyone is talking about. So as the importance of the green corridor is becoming it's become less important compared to what it was a year ago where there were bigger crops and huge stocks from the previous year.

Paul Yeager   Okay, so is that why there'll be less wheat planted because there's still a lot of stocks? Is that why you said the crop will be smaller,

Andrey Sizov   the crop will be smaller, because you know, they're still a war. Area is down. But it has been planted it's roughly minus 20%. year on year. Winter wheat, it has been planted already last fall. Yeah, that's one reason another reason it's harder to get inputs and harder to get fuel, there was still a war going on. And I think one of the biggest problems probably for lead crops like corn would be fertilizer. Because it's, you know, it's physically a lot, you need a lot of fertilizer, corn requires a lot of fertilizer. So it's not seeds, it's not chemicals, crop protection, which just physically doesn't require a lot of space. But fertilizer, it's a lot of volume. And on top of that Russia was the biggest supplier of fertilizer to Ukraine prior to the war. So now you're putting house together fertilizer somehow, in a way. And that's another reason why we think we will see a substantial decline production, particularly in corn, we expect to see around 20 to 23 million tonnes crop compared to 28 million tonnes previous year, and 42 million tonnes two years ago. So it's 50% compared to what the country produced in 2021.

Paul Yeager   So the Ukrainian producer is, like the American producer of they may have bought chemicals and inputs and seed and had it before Russia invaded. That's where they were able to put it in. But now it's much harder to restock all those inputs and expensive. And those are two of the factors. So what is the Ukrainian farmer produce them this year?

Andrey Sizov   So yeah, that's a good point. So by February 2022, sorry, 20. Yes, 2022 ones that were started a lot of board similar to so farmers are not buying everything just a week ahead of the flu walk and let it was bought already with winter wheat was planted. And fortunately, as I mentioned, fortunate for Ukrainian farmers and for Ukrainian corn crop, Russia pulled out of central and northern Ukraine, which is major corn grown regional last year, and that allowed them to first plant corn and then harvest that corn later on. So now, things are more complicated in terms of inputs, Russia control less of Ukrainian territory, which is good for Ukrainian control, for example. But at the same time, beginning for inputs, inputs are becoming more expensive fertilizer, it's hard to get, as we talked about already, it's not a rush, as a supplier of fertilizer anymore. And yes, I think in many cases, that's one of our assumptions that many farmers Ukrainian farmers would prefer to plant less corn and switch to other crops. For example, like sunflower Festival, which is just cheaper, you can still get in an ok crop with way less inputs per hectare per acre. And so farmers will prefer to, I think, to plant more oil seed generally than corn last year, this year, sorry. Well, and

Paul Yeager   when you say less inputs, it makes me think of it American farmers did kind of the same thing, not no inputs, or no fertilizer, just less and they found out well, we did okay, because they were trying to, you know, save on that. Alright. You also said one other thing about the ports, less risk. Just last week, I think it was Andre, the American market responded heavily to problems at the port. Why? I'm sorry, Will that continue to be a dominator of trade in Chicago, of what goes on there in those black sea ports that you were referring to? So

Andrey Sizov   I think there are two questions. One is a world Chicago and motifs this European exchange will have an will follow green corridor agreement. Yes, they will. They will have to follow that agreement. So Russia says that it could be terminated on May 18. And if it really is terminated, I think there was a huge headline risk, Lucien Bloomberg Reuters, all the big guys writing them out that humanity is doomed. And we'll see we're likely to see a big rally in Chicago, first of all, probably my TV as well, at the same time, and I think that's important to know if you kind of try to look at the market more fundamentally, as I mentioned, for Ukraine, the importance of that corridor is not as big as you might think we're in the headlines because one eagle huge stocks, a lot of bigger crop lots of stocks from the previous interrupt inside the country, and you have to shoot them as half half somehow, but by now so as I said, as the problems done, stocks allow a new perspective to be lowered. So Ukraine actually can ship all its wheat, corn, barley and other crops almost all without the green corridor, so it's not really that important. But as I said that that's a big headline risk. That's. So one point. And another point. I think you mentioned that last week, Chicago rose sharply because of the green corridor talks. I think it wasn't probably, yeah, see, still have to follow it. But it wasn't the number one driver. I think the number one driver last week was the drone attack on the Kremlin, Moscow Kremlin. And after that, on that date, and I mean, I'm just watching the chart. And just when the news appeared, half an hour's as the market started to rally, I think that was the biggest story. And the market was afraid that we could see some further escalation after those attacks. But today, now we're talking to me knowing there was a victory parade in Moscow. And that's very important event for Kremlin for Moscow for Russia. And I think many were afraid or not afraid. Were betting that we could see some escalation or we ate me known, or perhaps me 10. But it hasn't happened, at least, as we are recording this. And we see today Chicago has gone down, European wheat prices are going down. So I think it was the biggest driver, not the green agreement deal. Because the grain agreement, I mean, you know, it has been around for months. And you know, rushing keeps threatening that we going out of this agreement, it won't be terminated, our demands are not met. And the market just Chicago during that time fell under 20% 15%. Because you know, the market is doesn't really believe kremens narrative prevalent should do something about it, just to make it to believe to look serious, because by now, I mean prices have threatened, threatened, threatened price have fallen, fallen, fallen, and as important topic, and probably it could be even more important than talks, more talks in Istanbul that will be held tomorrow and the day after tomorrow me 10 mi 11. And as important topic to follow, and which we're following closely is the election in Turkey. Because President Erdogan, I think he's a big person supporter of the green agreement is kind of godfather of the green new agreement. And that agreement has been caught, for example, in Turkish media as such, it's out of the guns deal. So it's not a Green Deal. It's on the Black Sea deal. It's not the au un Rendell it's Arabic. And still, it's very important for him personally, I think, actually, I think that's the key reason why Kremlin, the Kremlin is supporting this deal, because it's, my guess, my speculation. That's the personal agreement between Putin and Erdogan. And so, if the gun is not winning the election election is going to start on week eight, is going to happen on May 14, if he's not going to win, I think risks for this printing will be higher, which if we're the effect organization present some substantial headline risk. But in reality, I think it's not really such a big deal for the Global Green Market. Because Ukraine can do even without that green corridor,

Paul Yeager   you don't think that we would trade that headline without understanding the full impact of that Turkey election? Is that what you're saying?

Andrey Sizov   I'm saying that there was a huge headline risk. I mean, if Russia,

Paul Yeager   I think has become a big problem with this wheat market and understanding that it is be more about the headlines, as I listened to you explain the headlines to me. We have this problem in Chicago, we love to trade headlines, oh, it's dry in Kansas, it's dry in Oklahoma, back down, up down? Yes,

Andrey Sizov   exactly. And said happens. For example, after the state of the invasion in February 2022. Once the markets rallied, we saw five six sessions Lehman obsessions in a row, the market rallied around 50%. And actually, it looked like it was pricing that all experts from the Black Sea, not only queen, but Russia would stop or have stopped already, but Russia can just temporarily stop. And actually Ukraine also resumed its export Why'd I think in several weeks after the start of the invasion, so but the market was pricing so no more grain coming out of the Black Sea, which was very, which was not correct. So what's wrong and wrong relevante me, me roughly April, May, and then started to reverse. But by by not by, by, but now I think the situation is opposite. At that time, the market was always stimulating Black Sea risks. Now, it's clearly in my view and estimating Black Sea risks, because there was still a war going on. Lots of green inside Russia, some green inside Ukraine. And that rally short term rally was saw last week it was just a reminder that the markets really should pay more Attention to the Black Sea. You know, it's still very volatile and very important region for the Global Green Market and especially global with s&t.

Paul Yeager   I asked about the Ukrainian farmer, what's the Russian farmers plight right now? What are they facing?

Andrey Sizov   Oh, Russian farmers. Fortunately for them, they operate in way peaceful, more peaceful environment. But, you know, there are also some missiles and drones flying in 2000 and western Russia. But at the same time they have, they have another problem. The X in 2021, prior to the war, Russia introduced a very strict X protects on all mean crops or cash crops, including with. And so the result of that is that Russia is Russia and Russian farmers are facing very low prices. In fact, prices inside Russia just Okay, we're gonna lose it because it's dollars per ton. But the it just, it's roughly 40 50% lower than in Ukraine, which face a full scale war, and around 60 70% lower than in the EU, because of those taxes, which were introduced by the government. So those taxes are currently taken around 1/3 of farmers revenue out of their pocket. So in many cases, you know, Russia is a big country so so it wasn't Russia, Central Russia, margins are still positive positive there for farms, but Volga Valley, more eastern parts of the country. Margins. I think wheat margins and margins for many crops are negative. And that's the biggest problem Russian farmers are facing. And same time inputs are higher as well prices for inputs. So fertilizer, not as high as Russia, big exporter. But what has just, I think, almost doubled in some cases is prices for machinery. So some companies pulled out of Russia, like the cars that were not the major marketplace, but still important. And now farmers are getting the spare parts, everything got from prices rose in two years, by 50 100%. In three years, and that's now that's so p&l, that's the p&l is the biggest problems for many, many Russian farms.

Paul Yeager   So the Russian farmer, if I get this right, is being penalized because of their government. They are able to grow their crop with less bombs and missiles. But yes, they're still happening. But there's no market nobody's buying because it's a Russian product. And the even though the Russian farmer isn't at the Kremlin, it's the Kremlin that's making the Russian farmer be penalized. global picture,

Andrey Sizov   no conclusions, right. So yes. Is that being penalized because of those by those experts taxes on major crops or text? Experts or text? But no, Russia are so bad, that you said that no one is buying Russian product. No, that's not correct brush. In fact, it's shipping eats wheat at record high pace this year. And it's very likely to set a new record. This isn't around 44 45 million tonnes. That's a new record high because of very high stocks rushing produce the record high propolis team was among 100 million tons. Stocks are high, which put additional pressure on domestic crisis. domestic prices are low. But no experts are flowing more or less freely by their bottle, infrastructure bottlenecks, Russia can't experts more because of infrastructure. And there are also some issues because of the sanctions. Food is not directly sanctioned, but you know, it's takes time more time to get used to get payments. Everything takes more time. But again, it just probably it's not the biggest problem biggest pressure is tax, which was introduced in 2021. So you might have heard about Argentina, they've been messing with the farmers for the caves. And as then those days they have inflation and for deflation wasn't 100% year on year now because we're saying that, you know, we can protect the domestic consumer and that motif that we need to protect domestic consumers It was similar motif in case of Russia, in 2021 Zach's interviews with experts, and that's the biggest problem for farmers. So just update so 1/3 of their revenues been taken out of the pocket because of all of the text. So currently, farmers somewhere in invoke Valley might get only $110 per turn. $120 A ton of hard to convert. But yeah, that's around $4 per bushel.

Paul Yeager   I'm asking you to do math in real time. Sorry about that. Yeah, no, no, no,

Andrey Sizov   it's $4 per bushel, you can open Chicago and see prices like steel, six 6.5 $7 per bushel. So here's the prices, here's the interim prices because of the tax, and because of high stocks that Russia is currently sitting on.

Paul Yeager   Okay. Two countries to me. I want your take on on what their influence is having on all of this discussion we're having China and India. What is their influence on any of the talks between the Kremlin and Ukraine? And Turkey? You mentioned Turkey's influence here, but give me a little take about what China and India's influences in this discussion.

Andrey Sizov   So yes, you know, the Kremlin has been isolation of scrambling is sorry, I just made a mistake and didn't turn off my phone now. Just randomly crazy.

I'm sorry. So, China, so Okay. India? Yes. So the criminal isolation is becoming bigger because of the war, number of allies or partners not long to my allies to cover ours is shrinking. So, yes, the Kremlin has to rely more on small number of countries, and probably you mentioned all the key ones, China, probably the most important one, Turkey is probably number two. And India's number three, I won't go into energy, and oil trading, which is obviously a way more important part for Russian budget and Russia as a whole. But if you talk about Greensand, more political stuff. So yes, I think so. So it's up there are several thoughts related to question. One, Kremlin has to listen to those guys. And he is, it depends on those guys. So for example, I think this is good, because for example, China could come down Kremlin, if it wants to do something very strange or dangerous for the whole world. Because China, I don't think it will tolerate it. For example, Putin is Putin is had to, to remain friends, more or less with me again, and again, this is, on one hand, Turkey probably is helping Russia to facilitate payments to the rest of the world and get payments from the rest of the world. It also helps Russia to sell its gas, for example. So Russia depends on Turkey. And at the same time, if the gun says, Okay, I want a Green Deal, I want a green deal for my political reasons, because I want to say that it says what I wanted to get reelected and want to be a Father of the Green Deal. And Kremlin says, Okay, you got your green deal. But there was a again, it helps the whole world. I mean, it's, it's not black and white. It's great. So Turkey is important, because just it helps Russia to survive economically. And the West doesn't like that. But the same time Turkey helps the rest of the world to get the green out of the Black Sea. So he's, so here's how it works. If we talk about the Green Deal again. Okay, we talked about that, China, probably, they are interested in the Green Deal extension. And so there was some speculation about that, but there was so called the so called peace plan, Chinese peace plan. 12 points, it's a bit vague. But at the same time, there's just a few clear points in that peace plan, and one of them was extension of the Green Deal. So China said yes, want the Green Deal. And again, as I said, because Putin has to rely on citizen pin more and more, he has to listen to him quite closely. So basically, I'm just getting so I think people I don't know when people will be watching this, but I think as we talk, they will have full Green Deal. And that's one of the reasons why we think there is still there high probability that Green Deal will be extended. Maybe not on May 18. Or maybe on this week, but at the same time when talking about ones that when China wants that. And probably India also wants that badly. We don't know that we can assume that. I think there are not so many partners left. And some of them say ones that extension things is good. I mean, the promo has to follow, even if if he if it doesn't want to extend the deal.

Paul Yeager   Okay. All right, let's, let's wrap up with this. What does the American farmer who actively watches both the corn and wheat markets of what we've been talking about? What do they need to be watching? You mentioned the Green Deal, kind of neat to see where that thing lands. But what are a couple of other things we need to watch here in the next month to two months?

Andrey Sizov   So yeah, but okay, so obviously, you could talk about what's happening now in the Green Market. So 1000 American, whereas it has been priced in I think, more or less, we now have justice club and Argentina. A very good crop in Brazil. US dryness, especially, that's a big story for wheat. And we just saw some improvement of crop conditions, but they're just marginally above record low. If you look at the EU EU currently looks quite good when you crop and that's, that's mainly with France looks good. Germany wants, okay. It's been with about them, but it's not the biggest supplier. And yes, Black Sea is going to be still a very important piece of a puzzle, as I mentioned, to low supplies from Ukraine because of lower crop, but Russia will still very likely to remain number one wheat exporter in the next season as well. We expect to see a substantial decline in production in Russia because of we won't get such ideal weather probably by because of huge carry out stocks from the current season. We talk about that briefly. Russia still have a supply of wheat almost similar to its current season. So still a lot of weed going out of Russia. And we talked about the Green Deal. But apart from Green Deal, I think there is still a possibility Russia will try to at least make more verbal interventions about its own experts, not Ukrainian experts, how it can mess with them, but how it can mess with its own experts. Because you know, when you the issues, I think the crown is running out of playing cards in this game where it looks like it's not it's not winning, and one of the cards I think it would be its own experts, despite huge storms despite all the promo for farmers. Despite a phone price in sight. I think there was a high, relatively high chance that the Kremlin could try to mess with its own exploits, in place threatened to mess with its own Russian experts, not Ukrainian, Russian. So

Paul Yeager   mess with their own. Yes. Ah, all right, Andre, I appreciate the insight, always good to hear that other global perspective, from a few timezones away that we need to be watching. So thank you.

Andrey Sizov   Thank you. Thank you both. Thank you for having me.

Paul Yeager   Thank you to Andreu Sizov for his insight today on what's going on in that region. Always a fun discussion with him and thought provoking as well. If you like what we're doing here, tell a friend share an episode. We'd really like it if you do that. Thank you so much for watching, listening or reading. We'll see you next Tuesday with another new episode.

Contact: paul.yeager@iowapbs.org