Feelings of the market

Iurii Diachuk, CEO of the Investment Company INTELEVRAZ

We are talking to the CEO of the Investment Company INTELEVRAZ Iurii Diachuk.

─ High grain prices always stop the sale of corporate rights to farms. Therefore, we will not see any proposals from the west of Ukraine in the near future. There are offers of the bankrupt or close to bankruptcy enterprises from the south, Odesa and Mykolaiv areas. There was burned down in Central Ukraine and it can intensify the processes. Prices for agricultural products are peak and continue to rise. I believe that this growth will continue until the harvest in South America.

─ Prices are already at historical highs.
─ Not yet. Remember the period when sunflowers were worth $ 1,000 12 years ago. Now it worth $ 17, 000, there is still a reserve for growth.

─ Sunflower is an internal Ukrainian situation. It is not taken out.
─ However, oil is exported, and Ukraine is a heavyweight in the oil market. South America will affect corn, soybeans. There is also a close connection with animal husbandry. Rising basic crops prices cause prices for livestock products to rise. Either livestock prices will rise or livestock will decrease. We may witness the bankruptcy of livestock enterprises. There will be some failure, the biggest companies will resist, and others will be bought by strong players.

─ Next year’s land market is a reality in fact. What are going different groups of agricultural enterprises, farmers, medium-sized, large companies, holdings plan to do at the first, when the purchase of only 100 hectares will be permitted? And what are the shareholders’ plan?
─ Small companies are already aimed at buying land, many have encouraged the sale of anti-terrorist operation participants, who received several hectares with the right to sell. We are talking about several million hectares that are already on the market, and the market is being tested. Sales prices are different. There is $1,300, $1,500, $1,700 per hectare. They talk about higher figures, but I personally did not take part in such agreements and I cannot confirm. The value of any asset is calculated from the income it can bring. If we consider the land as an asset, then there is a rate of return, which focuses on each of the investors. Many people in Ukraine confuse the profitability of agribusiness with the profitability of renting land. And these are two different businesses. The owner of the land, renting the land, after paying taxes receives a net profit. For land, there are multipliers and ratios that reflect how much a person wants to get by selling a plot. Long-term parameters are applied to land plots, I think 10-15 years is close to reality. The average rent in Ukraine today is about $ 150 per hectare per year. Based on this, you can make the price of the plot. I see that the price will range from $ 1,500 to $ 2,000 per hectare. This figure can be increased by several factors. One of them is land consolidation. It optimizes logistics, allows forming a pledge for the bank. Anyone who consolidates land can make money by buying $ 1,500 per hectare, and the output will be from $ 2,000 to $ 2,500 per hectare. And this is much more interesting, because the entrepreneur, pledging to the bank, can return working capital to the core business. This leads to the emergence of a new market.

─ That is, the market is comprehending reality?
─ Yes. There will be people who will buy land, will resell lots.

─ These people, land collectors, have existed before, collecting shareholders for large companies.
─ At one time in the real estate market until 2008 gathered players of all directions who carried out some operations in the market. The same situation awaits the land market. By 2024, everybody will be on this market. The limit of 100 hectares will lead to someone will buy for relatives, acquaintances, employees. Someone will buy for controlled persons, so that in 2024 the consolidated arrays will be put up for sale, increasing the rent for this period, increasing the rate of return.

─ Should this process be regulated, or should regulators intervene?
─ It is impossible to overcome. If there are real earnings, people go there. If you put fuses, impose restrictions, the market will lose its appeal to normal investors. Resellers also fulfil their mission, they raise the price in the market, and this is not bad for the market. I think by 2024 the price will be $2,500 – $3,000. So there is a simple piece of advice for shareholders: sell consolidating. For example, a group of shareholders may merge, form a limited liability company, enter into lease agreements and sell corporate rights.

─ For Ukrainians to unite…
─ Yes, this is a fantastic scenario, but it is quite real because uniting 25 shareholders can create a 100-hectare array, which will cost one and a half times more than each share.

─ Yes, it is really an incentive. And what do you advise farmers who will buy 100 hectares?
─ It is important for them to show income to be able to buy land. The farmer is the closest to the land, he really understands the potential of the land, its future profitability. He will always give the best price to his shareholder.

Source: Magazine “ZERNO”, 2020 №7 (172)