- Production of oilseed crops is perspective for Kazakhstan. What are the main production trends?

- According to the Bureau of National statistics, planted area under oilseed crops almost reached 3 mln ha in Kazakhstan this season. Planted area under flaxseed reached record high and exceeded 1.5 mln ha. At the same time, farmers cut significantly the area under rapeseed due to the low yield obtained last year, when pest outbreak required multiple plant treatment. Planted area under rapeseed decreased to 127 thsd ha. Flaxseed, rapeseed and sunflower seed are the key oilseed crops produced and exported in Kazakhstan.

-  Kazakhstan is the leading exporter of flaxseed and flaxseed oil. What are the crop and export potential in 2020/21 MY?

- Planted area under flaxseed has been growing in recent seasons due to attractive prices. Today, flaxseed is one of the most profitable crop in Kazakhstan. Kazakh Grain Union estimated planted area under flaxseed at 1.2 mln ha in 2020/21 MY, down slightly from the last year. Oilseed production totaled 883 thsd tonnes. 

Export of Kazakh flaxseed remained quite stable at about 500 thsd tonnes in 2019/20 MY. However, there was some changes in export geography. Belgium was the main destination for Kazakh flaxseed in 2018/19 MY. It imported more than a half of total volumes (245.1 mln tonnes). The share of Belgium declined to 40% in 2019/20 MY (170.1 thsd tonnes). We expect the country to import up to 205 thsd tonnes of Kazakh flaxseed in 2020/21 MY.

China was one of the leading importer of Kazakh flaxseed in 2019/20 MY with the share of almost 20%. Kazakhstan has not exported flaxseed to China before, as the countries agreed on phytosanitary norms in 2019. China certified Kazakh exporters in 2019 and the mass supply of flaxseed to Chinese market started in last November.

Export pace of Kazakh flaxseed over the forth months of 2020/21 MY (September-December) was lower than year ago. The country shipped 193.8 thsd tonnes of flaxseed compared to 227 thsd tonnes in September-December of 2019/20 MY. China imported about 60.4 thsd tonnes. The current situation at the border between Kazakhstan and China (Dostyk, Altynkol stations) complicates the trade. Chinese government banned acceptance of packed cargoes due to risks of coronavirus. It resulted in mass accumulation of rail cars at the border. Up to 90% of Kazakh cargoes exported to China are packed. Many rail cars have already stayed at the border for 90 days and there is no clear understanding how long they are going to be there. 

Current problems will affect further export of Kazakh products to China, particularly flaxseed. We expect Kazakhstan to export 150 thsd tonnes of flaxseed to China compared to 104 thsd tonnes in 2019/20 MY. This volume could be significantly higher. However, export in December was almost absent due to ban on loading imposed by administration of Kazakh railways KTZ JSC amid accumulation of rail cars at the border. Anyway, there are prospects for trade as the demand from China for Kazakh flaxseed remains high.

We expect Kazakhstan to export 540 thsd tonnes of flaxseed in 2020/21 MY.

- Prices of flaxseed are record high in Kazakhstan this season. What are the reasons? Will the prices grow further?

- The prices of Kazakh flaxseed rocketed over the last 4 months, as the prices on the global market were quite volatile. The average monthly growth of prices was 60-80 USD/t. This raised the margin of flaxseed and interest from farmers.

If we look at the price trend of the last 7 years, we see that the spread between domestic price of Kazakh flaxseed (EXW basis) and European price was 120-150 USD/t. Today this spread is minimal and does not cover logistical expenses. That is why Kazakh exporters prefer to sell to China, as the delivery cost is about 35-40 USD/t compared to 115-125 USD/t to Europe. That is the main reason why Chinese market the most attractive for Kazakh exporters.

Prospects of further growth of prices of oilseed crops, particularly flaxseed, will depend on the demand from the key importers - the EU and China as well as possible supply to China. However, redistribution of export flows to these directions between three leading global exporters of flaxseed (Kazakhstan, Russia and Canada) will not have sizable impact on pricing in importing countries. Strong demand and limited supply are the main drivers of flaxseed prices. I suppose that the prices of flaxseed will grow further this season.

- Kazakhstan is one of the leading suppliers of flaxseed oil to China. However, the logistical problem was the main obstacle for trade in recent months. What will be the influence of this factor on volumes of export of flaxseed oil in 2020/21 MY?

- Kazakhstan sells up to 97-99% of the total export volume of flaxseed oil to China. Kazakhstan is the leading supplier of flaxseed oil to China. The share of Kazakh product reached 49% (24.5 thsd tonnes) in the overall import of flaxseed oil to China in 2019/20 MY (50.3 thsd tonnes). The share of Russia was 28% (14.2 thsd tonnes). Despite the current logistical problems, we expect Kazakhstan to export 28 thsd tonnes of flaxseed oil in 2020/21 MY, up from 25.3 thsd tonnes in 2019/20 MY and remain the leading supplier of the product to China.

- Rapeseed is another interesting oilseed crop for Kazakhstan. What are the prospects for export of rapeseed this season? What are the market trends observed this season?

- Peak of interest to rapeseed was observed in 2018/19 MY. After that, the planted area has been declining. Farmers planted 355.4 thsd ha with rapeseed in 2018/19 MY and only 127.4 thsd ha this season. Harvested area totaled 124.1 thsd ha in 2020/21 MY.

Thus, the export of rapeseed decreased over this period. Kazakhstan exported 154.6 thsd tonnes of rapeseed in 2018/19 MY and only 69.6 thsd tonnes in 2019/20 MY due to lower production and higher internal processing amid growing demand for rapeseed oil and cake from China. Kazakhstan has exported only 12.3 thsd tonnes of rapeseed since the start of the current season compared to 47.5 thsd tonnes in the same period of the last MY. We expect the overall external supply of Kazakh rapeseed to decrease to 45 thsd tonnes in 2020/21 MY.

Speaking of prices, Kazakhstan also stepped in and used general global upward price trend. Thus, while earlier there was a wide price spread between Kazakh and European rapeseed (around 100 USD/t), currently it is much lower (around 20 USD/t). Especially fast price rise for Kazakh rapeseed is observed for last 3-4 months.

- How do You estimate a competitiveness of Kazakh rapeseed oil?

- If we look at the production and export of rapeseed oil in Kazakhstan they are constantly growing. Currently domestic processors set a trend on the domestic market of rapeseed despite the fact that Kazakh processors don’t have enough raw materials. Last season there was a high import of the oilseed (as of our estimates – up to 60 thsd tonnes against 4 thsd tonnes in 2018/19 MY), 96% from Russia. In general, out of total rapeseed oil produced in Kazakhstan more than 60% is exported to China, and also some volumes to Iran, Tajikistan, Afghanistan and Uzbekistan. In 2020/21 MY we expect rapeseed oil export from Kazakhstan to decline to 40 thsd tonnes against nearly 54 thsd tonnes previous season due to wide known logistical problems and lower export to China after discovery of GMO traces in Kazakh and Russian production in the summer of 2020.

Current situation will also influence the Kazakh purchases of rapeseed from Russia, because earlier there was no GMO found in Kazakh oilseed. In total, as of our estimates, in 2020/21 MY the country can import up to 50 thsd tonnes of rapeseed, mostly from Russia.

- Sunflower seed is one of the main crops produced in Kazakhstan. Has the demand and consumption of the oilseed changed over the past few seasons?

- While flaxseed is quite new crop for Kazakhstan, sunflower seeds is a traditional crop. In the current season according to National bureau of statistics of Kazakhstan the harvest area under sunflower seeds in Kazakhstan totaled 750 thds ha, which corresponds to our estimates, but lower than Regional agricultural department estimates – around 900 thsd ha.

Owing to high demand for sunflower seeds the interest to export product is high. The biggest volume of sunflower seeds export was observed in 2018/19 MY – around 451 thsd tonnes. Last season it has slightly declined (to 356 thsd tonnes), because since March till June the export of sunflower seeds and by-products was restricted owing to implemented state of emergency in Kazakhstan, and then it was carried out only at the request of exporters. The main buyers of Kazakh sunflower seeds are China (57% of total export in 2019/20 MY) and Uzbekistan (29%). The decline of export is observed also in the current season owing to implementation of export tax in Russia and expected similar measures in Kazakhstan. After government of Kazakhstan decided not to implement taxes and restrictions for oilseeds export (at least now) the trade has slightly increased. There is information about export of large volume of sunflower seeds from Kazakhstan to Russia in January of 2021. Besides, oilseed export to China is expected to decline because of logistics problems at the border. At the same time, in terms of structure of Kazakh oilseed importers for the 4 months of the current season, Uzbekistan bought the most – 71.8 thsd tonnes.

I should note that price for sunflower seeds, as well as for other abovementioned oilseeds, is also increasing on the domestic market: while in December of 2020 the price totaled 475 USD/t, in January it was over 500 USD/t. The demand in very high due to implementation of export duty in Russia.

- How do You estimate the prospects of Kazakh sunflower seeds export in 2020/21 MY? Can You tell us the price trends in this segment this season?

- In 2020/21 MY we expect the production of refined and crude sunflower oil to increase in Kazakhstan to the maximum – 335 thsd tonnes (318.3 thsd tonnes in 2019/20 MY), out of which 195 thsd tonnes of crude and 140 thsd tonnes of refined oil. Also, the export of any type of oil is expected to increase to 100 thsd tonnes. In particular, since the beginning of current season with the same production the import declines – to 30.1 thsd tonnes against 32.4 thsd tonnes in the first 4 months of 2019/20 MY. The main buyers of Kazakh sunflower oil of all types are China and Uzbekistan, which in 2019/20 MY imported 46.6 and 44.6 thsd tonnes respectively, out of total 109.7 thsd tonnes. According to our forecast, in 2020/21 MY export of sunflower oil from Kazakhstan will declined by 10% to 100 thsd tonnes, because of high prices, logistical problems at Kazakh-China border and high domestic demand.

If we analyze the price, we can also state their sharp rise on the global market, and price for sunflower oil in Kazakhstan is not an exception.

- Which oilseeds are the future? What target markets do You consider the most perspective?

- Upward trend of planting areas under oilseeds will continue in 2021. First of all, it is flaxseed, sunflower seed and also soybeans and safflower (on the south of Kazakhstan). It is stipulated by high prices for oilseeds in general. Rapeseed areas are expected to decline.

Traditional target markets of oilseeds and oils – Middle Asia, Afghanistan and China are the main markets in 2020/21 MY. China market is highly perspective. Its size, geographic proximity, common border, high effective demand, make it perspective for increase of delivery volumes. Annual growth of deliveries of Kazakh agriproducts, including oilseeds, oils, meals and cakes, demonstrate it. The solution to logistical problem: development of additional infrastructure for receiving, transshipment, storage, increase in the length of railways, etc. – is in focus of both China and Kazakhstan. As far as these problems are solved the export volume from Kazakhstan to China will increase. Businesses of both countries are interested in this.

- Owing to actively developing oilseeds market in Kazakhstan, how do You estimate the potential of this segment and demand for Kazakh oilseeds and byproducts on the global market?

- Features of geographic location of Kazakhstan, its isolation from direct access to global sea routes, long distances and high cost of delivery of Kazakh products to main global target markets significantly decline the competitiveness of our products on these markets. However, there are many examples of successful trade operations with Kazakh flaxseed, soybean, safflower to the EU countries and Turkey. Kazakhstan is one of the main suppliers of flaxseed to the EU and is largest supplier in terms of delivery volumes – 304.7 thsd tonnes with share 45% of the total flaxseed import by the EU (674 thsd tonnes) in 2019/20 MY. Russia is the second – 252.7 thsd tonnes and Canada (38%) is the third – 91.2 thsd tonnes (13%). 

Thus, with the proper quality of product, its market demand, logistics optimization and desire of sellers to explore new markets Kazakh exporters have very good prospects to increase their presence on traditional markets, and new markets as well!

- In conclusion I want to thank You for very interesting conversation and want to ask You to share Your expectations of Kazakh oilseed market development until the end of a season.

- According to analysts of S&P Global Platts, high demand and prices for food products, including oilseeds and by-products, will last for next two seasons. This trend is caused by higher reserves which is based on concerns over stable supplies of goods due to quarantine restrictions around the world, production deficit, weather conditions (for example El Nino in Southern Hemisphere), lower stocks in main producing countries, prospects of crude oil price rise.

In such conditions Kazakh oilseeds and grains producers have a unique possibility to draw additional profit. I don’t remember the time when high prices last for all food and feed crops for so long. Of course, domestic processors and exporters also should use this opportunity. And on this encouraging note I would like to finish my interview!

Interviewed by Polina Kalaida