Profitability Returning to Russian Pork Farming

In the second quarter the largest Russian holdings have noted an improvement in the pork market as it gradually makes its way out of recession. Cherkizovo observes the improved market situation, reported the Group in a report. Prices on grain, according to their data, are falling: the price on wheat was at nine rubles per kilogram by May, 30% lower than its peak value. 

In addition, at the beginning of May pork prices grew by more than 10% and the Russian government announced an allotment of direct subsidies for Russian livestock farmers in the amount of nine rubles per kilogram of pork and 3.5 rubles per kilogram of poultry meat.

The Group anticipates receiving a subsidy of approximately 600 million rubles. “These three factors overall are pushing the domestic meat production industry in a more positive direction, and we expect further improvement,” considers Cherkizovo.

Cherkizovo Group, one of the largest meat producers and processors in Russia, finished the first quarter of 2013 with a loss of 17 million rubles, while the corresponding period in the previous year saw a 1.2 billion ruble profit. The group’s total earnings grew by 8.3% to 11 billion rubles.

Cherkizovo CEO Sergei Mikhailov explained the loss as “the intersection of particularly adverse conditions”: grain prices reached a historic high (in February the price on wheat reached 12-13 rubles per kilogram), while pork prices dropped throughout the quarter, falling 28%, from 80.5 rubles per kilogram in the first quarter of 2012 to 57.6 rubles per kilogram in the first quarter of 2013.

Pork producers, according to Mikhailov, were forced to sell below cost price, and as a result the pork division of the agricultural holding suffered a negative EBITDA (-$2.2 million).