Avangard seeks 600 ths mt of wheat at below market price

AvangardCo (LSE: AVGR LI) plans to purchase up to 600 ths mt of wheat and expects to pay up to USD 105 per mt (+10.5% y-o-y) via forward contracts concluded this past April. Ruslan Patlavskyy: Based on our conversation with company management, grain purchases on a 2-4 month forward basis is a usual practice for Avangard, whereas the substantial volumes the company consumes to feed its 16.1 mln hen flock allows for significant bargaining power over suppliers. However, given strong market prices for wheat of USD 170/mt (EXW) for grade 6 type in Ukraine, or 63% over the expected price, we see a moderate probability of Avangard succeeding with these plans. This said, should the company be able to execute its forward contracts at below the market price, this should serve as a strong profitability driver over 2010 since grain is responsible for 75% of egg costs.