Ukraine Warns of Further Fall in Grain Harvest
Russia’s invasion deepens disruption of agricultural exports, prompting some farmers to switch to other crops
Ukraine expects its farmers to harvest up to 15% less grain this year than last, showing how the war is further hindering one of the world’s largest agricultural exporters.
With Russia’s invasion continuing to disrupt exports, some farmers have switched to crops that are easier to get out of the country, like sunflower seeds and soy, Mykola Solskyi, Ukraine’s minister of agrarian policy and food, said in an interview.
The war severely curtailed Ukraine’s globally important agriculture industry throughout last year, contributing to a rise in food prices, and Kyiv expects disruption to continue.
Russia on Monday threatened to pull out of a deal that allows Ukraine to ship agricultural products via the Black Sea from three ports around Odessa earlier than expected. Both countries had agreed to extend the United Nations-backed pact on Friday.
Amid the difficult and uncertain export environment, Mr. Solskyi said farmers had chosen to shift to crops that yield fewer tons per hectare. That means the farmers have less to export in terms of amount and weight. To avoid relying on Black Sea ports, Ukraine has pivoted to export more of its goods via land borders, though this is more expensive and time consuming.
“You have less logistics (issues) because you have less to export,” Mr. Solskyi said.
In Ukraine, corn typically yields 7 metric tons per hectare and wheat is about 4 tons, but sunflowers and soybeans both yield 2.3 tons per hectare, according to Mike Lee, owner of Green Square Agro Consulting, a crop forecasting company that specializes in the Black Sea region.
Corn also uses more fertilizer and energy than other crops, both of which are in short supply.
The shift among farmers means that, allowing for normal weather, production of corn, wheat and other grains are forecast to be 10% to 15% less in 2023 than last year, Mr. Solskyi said.
Ukraine’s grain harvest last season was 53 million metric tons, a 20% reduction from the average over the past five years, according to the Ministry of Agrarian Policy and Food. The country’s combined harvest of all grain, sunflower seeds and soya came in at 63 million metric tons, a 52% drop compared with the previous year’s output.
Ukraine’s grain exports had picked up toward the end of last year to near prewar levels, partly thanks to the Black Sea export deal with Russia. Both countries on Friday agreed to extend the deal, which had been due to expire at the weekend.
On Monday, Russia’s Foreign Ministry said that it would suspend its participation in the grain deal on May 18 if no progress is made on easing obstacles to its own food exports resulting from sanctions imposed on Moscow in response to the invasion.
Ukraine had announced a 120-day extension, the standard period articulated under the deal first signed last year, but Russia said the deal was only extended for 60 days.
“In this agreement it was stipulated that it would be extended for 120 days,” said Mr. Solskyi. “These terms were approved by all the sides that signed the agreement.”
The text of the agreement says it can be automatically renewed every 120 days unless one party triggers an exit clause.
Russia, which has threatened to back out of the agreement before, said it wants to see progress on reconnecting the state-owned Russian Agricultural Bank, Rosselkhozbank, to the SWIFT global financial messaging system, the resumption of supplies of agricultural machinery and the restoration of a pipeline that ships ammonia, often used as a fertilizer, from Russia through Ukraine, among other requests.
“Without progress in implementing said requirements, which are absolutely not new and should be settled within the framework of the Russia-U.N. Memorandum, our participation in the Black Sea initiative will be suspended,” the Foreign Ministry said.
While the war initially spurred the cost of grain, prices later eased. So far this year prices have fallen partly because of large wheat harvests in Russia and Australia.
An up to 15% fall in the grain harvest, and an increase in sunflower seed and soy production, could impact prices again.
Less corn would be costly for the Chinese and European buyers who are dependent on Ukraine’s crop, said Masha Belikova, a grains analyst at price-reporting company Fastmarkets. Given that Ukraine exports up to 70% of the world’s sunflower oil, any change in that crop would have an impact, she said.
Checking in on SoftBank
Shall the sins of Credit Suisse be visited upon the Son?
Won’t somebody please think of Masayoshi Son?
As the tide goes out and we learn who has been mauled by sharks, SoftBank — perhaps the most totemic financial group of the waning zero-rates era — is bound to be on many financial-accident bingo cards.
Citi analysts say their clients have been “increasingly querying the investment performance of the SoftBank Vision Fund and the vulnerability of SoftBank Group to fundraising market changes” over the past fortnight, as banks flop on both side of the Atlantic.
Their takeaway: yeah it’s pretty bad. Mitsunobu Tsuruo and Tailai Qui write:
We think the uncertain credit situation is a pressing issue for SBG . . . SBG is now in a tough position, sandwiched between the possibility of a margin call on the margin loan on President Masayoshi Son’s SBG shares and the need to keep LTV below 25%.
Readers may remember Son’s IOU headaches from a Robert Smith piece in November 2022. Just over a third of Son’s SoftBank shares are currently posted as collateral for margin loans. From Rob’s write-up for Alphaville:
To summarise, SoftBank is extending credit to its CEO to invest in a fund it manages. The loan is secured on a) his equity in the fund b) a bunch of SoftBank shares and c) his personal wealth. Just try to wrap your head around what would happen in a scenario where massive investment losses at SoftBank trigger a share price slide that wipes out most of Masa’s net worth.
Is that doomsday scenario beginning to emerge? Kind of, reckons Citi (with our emphasis below):
Driven by Internet/AI expectations, the so-called unicorn bubble is one of the bubbles created by the excessive liquidity that central banks have been competing to provide in response to the pandemic. SBG—and its SVFs—could be hard hit by the collapse of the unicorn bubble. The longer economic stagnation and elevated interest rates persist, the tougher funding conditions get for unlisted companies, generally.
Moreover, financial institutions could become more cautious about lending to these unicorns, as SVB, which had a track-record of funding unlisted firms, went bankrupt, and unease has been mounting about similar banks following the SVB bankruptcy. While the percentage of SVF portfolio companies that are set to deplete their funds in the next twelve months is a mere 1% at SVF1, it is 10% at SVF2 and 21% at the LatAm Fund, and these percentages are rising. Additional valuation losses look likely at end-March (Q4) results, given the recent operating environment changes.
Also notable in this story is the role of WeWork, which is currently restructuring debt that SoftBank holds. The tl;dr, via Citi:
The situation is clearly fluid and it is hard to estimate SBG’s NAV accurately.
They estimate the red line for #drama would be a share price of ¥4,300, at which level Son pledged some 6mn shares as collateral for a 2020 loan.
So, how does SoftBank look at the moment?
Deliveroo accused of hitting earning power of riders
Company blocks third-party app that lets gig economy workers compare fares across rival delivery platforms
Deliveroo has been accused of damaging the earning power of riders by preventing access to online systems that allow gig economy workers to more easily see if rival companies are offering better fares.
Rodeo, an app that lets riders track earnings across different delivery platforms including Just Eat and UberEats, told its almost 10,000 users on Sunday that Deliveroo had blocked its access to the platform, in an email seen by the Financial Times.
Many couriers work for several different delivery companies, juggling jobs between Deliveroo and its competitors. With a rider’s consent, Rodeo allows them to see their earnings data in one place and identify which jobs pay the best rates.
Deliveroo has blocked Rodeo, payroll provider Argyle and other third-party technology from accessing its platform in recent weeks as part of a security update of its rider app.
Shaf Hussain, a rider for delivery apps, said the move would take power away from riders. “The data that Deliveroo collects on us belongs to us,” Hussain said. “[But] it’s data that they don’t want getting out.”
Alex Marshall, president of the union IWGB, which represents gig economy workers and is challenging Deliveroo in the Supreme Court next month to gain collective bargaining rights, said: “It’s an example of them blunting the tools workers have to make informed decisions.”
In May, Deliveroo signed a voluntary agreement with the GMB Union that classed its riders as independent contractors. Alfie Pearce-Higgins, the co-founder of Rodeo, said the move showed Deliveroo’s “inconsistency” towards rider independence.
“Independence when it works for their business is great,” he said. “When riders exert that independence, taking control of their data or sharing with another service, it seems to be looked at slightly differently.”
The move comes after Deliveroo released full-year results last week that showed sluggish growth in 2022, with gross transaction value, a measure of orders placed on Deliveroo’s platform, growing by just 9 per cent, compared to a 70 per cent increase in 2021.
Deliveroo is under pressure as consumers cut back on spending on non-essential items such as takeaways, and it faces pressure to increase wages with inflation.
Rodeo published data in January showing that the average Deliveroo fare per order fell by 0.3 per cent in 2022 compared to 2021. UberEats pay per order fell 1.3 per cent and Just Eat fares dropped 6.1 per cent in 2022.
“Deliveroo supports Rodeo’s objectives of supporting riders and providing insights into how they work. However, Rodeo and its partner Argyle accessed Deliveroo’s rider app without authorisation,” Deliveroo said.
“Our concerns have been communicated to Rodeo and, despite this, they have continued to attempt to gain unauthorised access. A planned security update has prevented this . . . Riders themselves remain free to access their data via our platform, which is unchanged.”
Pearce-Higgins said: “The authority to access a rider’s account is given by the rider, whose data it is.” Argyle did not respond to a request for comment.
Trian Fund Management's Nelson Peltz CNBC interview: The peak of the banking panic is behind us; He is not out of Disney (DIS) stock, but he is not in as much as used to be
- Consumers should pay to insure banks with deposits over $250K.
- Most of his money is in Bank of America (BAC) so he feels comfortable.
- Velocity of money moving out of the regional banks has come down a huge amount.
- The peak of the banking panic is behind us.
- He is not out of Disney (DIS) stock, but he is not in as much as used to be.
- The Fed should stop raising interest rates.
Credit Suisse AT1s: investors go loco after Coco no-no
Current rout raises awkward questions about how useful these instruments are as capital buffers
Asian bond investors woke up with a big problem on Monday. Sunday’s emergency takeover of struggling Swiss bank Credit Suisse by its rival UBS deepened a rout in AT1 bonds. These instruments are designed to be wiped out when an issuing bank hits financial trouble, reducing its debts.
Swiss regulators obliterated about $17bn of Credit Suisse AT1s on Sunday, as local rules evidently allow. That triggered drops in other European and Asian AT1s, which had begun falling heavily last week.
AT1s, which are sometimes classed as contingent convertibles or “Cocos”, are senior to equity but junior to other debt instruments in the capital stack. Coupons are correspondingly higher.
Owners of Credit Suisse bonds are furious because UBS will pay equity investors $3bn for their shares in UBS stock. This is a fraction of Credit Suisse’s recent market worth, but a payout nevertheless.
But because Credit Suisse was taken over, rather than filed for bankruptcy, these arguments may not hold up in court. Triggers for voiding AT1 bonds differ by country and according to individual terms.
The European Central Bank and other EU regulators pointed this out in a statement that criticised the Swiss authorities and attempted to calm investors.
Their confidence in this $275bn market has taken a blow, even so. The perpetual notes of important lenders in Asia, including Hong Kong’s Bank of East Asia and Thailand’s Kasikornbank, fell to about 80 cents to the dollar, levels rarely seen for these banks.
Prices for European AT1s were lower in some cases. On Monday morning, instruments issued by UBS were at 84 cents but Deutsche Bank and BNP Paribas were at about 70 cents on the dollar.
AT1s were initially seized on by Asian hedge funds, who saw them as offering high returns at low risk. But the yields — for many banks almost double that of senior debt — have attracted more funds from institutional and retail investors in Asia in recent years.
The impact of the AT1 rout will be biggest in Europe. European issuers account for more than 80 per cent of the total market. Almost all of them are lenders, the rest are insurance companies.
AT1s have helped them fulfil regulatory capital requirements. But the current rout raises awkward questions about how useful they are as capital buffers. If national financial authorities can wipe them out before equity, investors will have to price AT1s accordingly. They would then trade on yields that would be prohibitively high for issuers.
One obvious conclusion would be that investors who read AT1 small print carefully should find some bargains. But a problem remains: financial authorities may override contractual small print in future, even if Swiss watchdogs did not do so in this case.
Research Calls
- Upgrades:
- Aspen Aerogels (ASPN) upgraded to Buy from Hold at The Benchmark Company; tgt $14
- Azul S.A. (AZUL) upgraded to Neutral from Sell at UBS
- Brookfield Corp. (BN) upgraded to Outperform from Neutral at Credit Suisse; tgt $41
- Cleveland-Cliffs (CLF) upgraded to Peer Perform from Underperform at Wolfe Research
- Conagra (CAG) upgraded to Hold from Sell at Deutsche Bank; tgt $35
- Coinbase Global (COIN) upgraded to Buy from Hold at US Tiger; tgt raised to $200
- Dow (DOW) upgraded to Buy from Hold at Deutsche Bank; tgt $60
- EastGroup (EGP) upgraded to Buy from Neutral at Mizuho; tgt raised to $185
- Enphase Energy (ENPH) upgraded to Outperform from Mkt Perform at Raymond James; tgt $225
- Glencore Intl plc (GLNCY) upgraded to Buy from Neutral at UBS
- GOL Linhas Aereas Inteligentes S.A. (GOL) upgraded to Neutral from Sell at UBS
- Kimberly-Clark (KMB) upgraded to Hold from Sell at Deutsche Bank; tgt raised to $123
- Kroger (KR) upgraded to Buy from Neutral at Northcoast; tgt $60
- Live Nation (LYV) upgraded to Buy from Neutral at Northcoast; tgt $85
- LyondellBasell (LYB) upgraded to Buy from Hold at Deutsche Bank; tgt $100
- Meta Platforms (META) upgraded to Buy from Hold at Edward Jones
- New York Community (NYCB) upgraded to Outperform from Mkt Perform at Keefe Bruyette; tgt raised to $11
- New York Community (NYCB) upgraded to Outperform from Neutral at Wedbush
- NRG Energy (NRG) upgraded to Buy from Neutral at BofA Securities; tgt raised to $36
- PepsiCo (PEP) upgraded to Mkt Perform from Underperform at Bernstein
- Portillo's (PTLO) upgraded to Buy from Hold at Stifel; tgt $24
- PowerSchool (PWSC) upgraded to Outperform from Mkt Perform at Raymond James; tgt $22
- Sonoco Products (SON) upgraded to Buy from Neutral at Seaport Research Partners; tgt $65
- Thales (THLEF) upgraded to Overweight from Neutral at JP Morgan
- The Beauty Health Company (SKIN) upgraded to Neutral from Underperform at Exane BNP Paribas
- U.S. Steel (X) upgraded to Peer Perform from Underperform at Wolfe Research
- U.S. Bancorp (USB) upgraded to Outperform from Neutral at Robert W. Baird; tgt $52
- UBS AG (UBS) upgraded to Buy from Neutral at BofA Securities
- Unum Group (UNM) upgraded to Buy from Hold at Jefferies; tgt raised to $50
- V.F. Corp (VFC) upgraded to Buy from Sell at Williams Trading; tgt $27
- Verisk Analytics (VRSK) upgraded to Neutral from Sell at Redburn
- WestRock (WRK) upgraded to Buy from Neutral at Citigroup; tgt lowered to $32
- Youdao (DAO) upgraded to Outperform from Hold at Daiwa Securities; tgt raised to $9.50
- Downgrades:
- Cyxtera Technologies (CYXT) downgraded to Market Perform from Outperform at TD Cowen; tgt lowered to $1
- Eni S.p.A. (E) downgraded to Hold from Buy at Berenberg
- Lifecore Biomedical (LFCR) downgraded to Equal-Weight from Overweight at Stephens; tgt lowered to $2
- UBS AG (UBS) downgraded to Hold from Buy at Societe Generale; tgt $18.86
- UBS AG (OBS) downgraded to Underperform from Neutral at Oddo BHF
- Others:
- CareCloud (CCLD) initiated with a Buy at EF Hutton; tgt $8.50
- Carnival (CCL) named short-term buy idea at Deutsche Bank
- Dell (DELL) initiated with a Buy at Goldman; tgt $43
- ESAB Corp. (ESAB) initiated with a Neutral at BofA Securities; tgt $63
- Ferguson plc (FERG) initiated with an Overweight at JP Morgan; tgt $150
- Genius Sports (GENI) initiated with a Buy at BTIG Research; tgt $6
- Genius Sports (GENI) initiated with a Mkt Outperform at JMP Securities; tgt $7
- Hewlett Packard Enterprise (HPE) initiated with a Neutral at Goldman; tgt $15
- Home Bancorp (HBCP) initiated with a Mkt Perform at Raymond James
- Hostess Brands (TWNK) initiated with a Neutral at UBS; tgt $26
- HP Inc. (HPQ) initiated with a Neutral at Goldman; tgt $26
- Lion Electric (LEV) initiated with a Market Perform at BMO Capital Markets; tgt $2
- Prologis (PLD) initiated with a Buy at Mizuho; tgt $140
- Roper (ROP) initiated with a Buy at Truist; tgt $510
- TreeHouse Foods (THS) initiated with a Buy at UBS; tgt $60