Swedish-listed agricultural company Trigon Agri A/S (TAGR.SK) is holding on to much of its output in hopes that crop prices will continue to rise in the wake of the worst U.S. drought in more than half a century.
Trigon Agri Chief Executive Ulo Adamson, in an interview with The Wall Street Journal, said that while local crop prices in Ukraine and Russia, where the company grows its grains, have risen as a result of the U.S. drought and dry conditions at home, a further increase could be in the cards.
Mr. Adamson said local prices are expected to rise gradually on the back of a weaker-than-expected local harvest and strong international crop prices.
"We have seen an increase in prices locally, but it has not been the same as in Chicago," Mr. Adamson said. "We believe local prices will go up further in Russia and Ukraine even if Chicago drops to some extent because the harvests in both Russia and Ukraine are significantly down from last year."
Estonia-based Trigon Agri relies on the fertile Black Earth region for the production of its crops. The company's core crop is wheat, but it also grows sunflower, soybeans, rapeseed, barley and corn.
Much of its harvest ends up abroad, and while the split between domestic and international sales usually varies, Mr. Adamson expects to sell about 50% to 65% of its harvest in Ukraine and Russia this year, while the rest is shipped off to places like the Middle East, North Africa and China.
Trigon Agri has seen a dry spell affect 35% of its 86,000 hectares of harvest this year. Still, the company expects higher prices to help make up for the lost harvest so that 2012 financial results will be on par with last year, during which it made its first-ever profit, Mr. Adamson said.
"At the moment, there is a possibility to see similar results like last year's, if we see a further increase in local prices," he said.
The company has presold 30% of this year's harvest at locked-in prices and is holding back 70% to be sold at a later date.
"Our strategy at the moment has been to hold on to the crop and wait for local prices to go up further," Mr. Adamson said.
The U.S. is the world's top exporter of wheat and corn. While the nation's worst drought since 1956 has severely affected America's so-called Grain Belt, it also has put a crimp on world supplies, driving up prices.
Chicago wheat prices have risen as much as 50% over the past three months, while wheat prices in the Ukraine and Russia are up 10% and 25%, respectively, according to Mr. Adamson.
The CEO said he doesn't expect a repeat of the export restrictions imposed by both Russia and Ukraine in 2010 after droughts and fires devastated crops there.
The bans were removed in the summer of 2011. Mr. Adamson said that while such restrictions pose a risk to its strategy, both nations have signaled no new bans are planned...
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Source: Argentine Beef Packers S.A.
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