By John Buckley
Sustained export competition, especially from the Black Sea region, has combined with reports of improving global crop prospects for 2024 to check the stronger wheat price trend we recorded in our last report. On the bellwether Chicago futures market, prices didn’t quite backtrack to the multi-year lows we saw last autumn – thanks largely to concerns about the impact of interrupted ocean traffic through the Suez Canal. However, they had to struggle harder to stay much above the US$6/bushel level for long (about $220.50/tonne). A similar deflation has been seen on the EU market, Paris milling wheat futures shedding as much as 15 percent of their October peak value. Corn prices have dropped too amid rising supply estimates, contributing to the generally flatter trend across grain markets.
A key bearish factor in the past month or so has been Russia’s still very active export campaign, taking the largest share of fought-over import tenders at knockdown prices – despite its supposed price ‘floor’ (which now seems likely to be officially reduced) and its export levies on top of the fob price. Two factors are driving this trade. First and foremost is a larger than expected 2023 crop, variously estimated around 91/93m tonnes – much the same as the record 2022 crop, despite earlier estimates it would drop back by some five million to ten million. (though we should note yet again that some sources always thought the 2023 crop was actually much larger than 92m, possibly significantly above 100m). Clearly Russia still has plenty of old crop to sell – a situation that may contain the zeal with which it executes a new export quota policy starting February 15. This looming restriction was probably a factor behind recent aggressive Russian pricing as exporters tried to clear as much grain as possible before quota applied. Russia’s January 1 stocks were estimated at 36.5m tonnes, a new record high, and the US Agriculture Department thinks it will still have 14.6m left at the start the next season on July 1 (compared with 12m last year and as little as 7m two years before that). At the same time, Russia’s 2024 crop prospects may be improving. Weather has not been bad this winter, mild with probably adequate precipitation, if possibly more exposed than usual by lack of snow cover to protect against any late freezes. The planted area has also risen by an estimated 300,000 hectares.
The Ukraine factor has also played less to the bullish side of the market in recent weeks. Official figures show exports through its key port Odessa getting back to pre-invasion levels and other new routes, e.g. through Rumania’s Constanza/Danube, increasing their contribution to grain movement. Meanwhile, the European Commisssion has been forced by farmer protests in France and other member states, to start taking a firmer line on Ukrainian grain entering the Union, supposedly for onward transit, but ending up weighing on domestic EU market prices and farm incomes. However, while all of this looked rather bearish as the New Year unfurled, the Black Sea region’s influence retains its potential to flare up bullishly, if the military situation takes on an unexpected nasty turn.
In the same vein, those thinking it time to sell more wheat, have been given some pause by the Houthi attacks on Red Sea shipping, forcing up the transit cost of war risk premiums and diverting some shipping to other longer, more costly routes – a firming influence across the dry bulk freight market generally. Yet even that factor has had some mitigation. While the UN Food & Agriculture Organisation reported wheat shipments through Suez fell 40 percent in first half January, analysts at Agri-Census estimated only 4.5 percent of total dry bulk trade actually moves through the canal normally, which should hopefully limit the overall impact. Again, though, the potential for conflict spread to other parties like Iraq, Syria (possibly Iran too?) keeps commentators worried about a conflagration that could be net bullish for food transport and commodity costs generally – so no room for complacency.
Turning to other suppliers, the news was somewhat brighter. After a three-month dry spell, much of Australia’s wheat belt was getting what some observers said was its greenest summer in memory. That’s encouraging for the wheat crop outlook in a normally dry El Nino year, some analysts adding as much as two million tonnes to their crop forecasts. Canada has also been getting some rain and snow after a warm dry period, perhaps improving the outlook for its spring planting. The government body AAFC recently estimated Canada’s planted area for non-durum wheat would drop by about three percent from last year’s two-decade high but remain five percent better than the five-year average at some 20.4m acres, suggesting a crop of around 27.9 million tonnes. Durum wheat area was expected to edge up, however, promising around 5.43 million tonnes – so total Canadian wheat output of around 33.3 million versus last year’s 32 million and the previous year’s 34 million tonnes. That should, AAFC thinks, allow steady non-durum exports of 20m tonnes and a bit more durum trade at around 4.35 million tonnes.
Among other major wheat exporters, Argentina’s crop has benefited from recent rains after a dry period and is now seen around 15.5 million tonnes versus last year’s poor 12.6 million. The latest number is still well below the previous three-year average (almost 20m tonnes) but significantly better than earlier expected.
One time top exporter, the USA has apparently trimmed its winter wheat area this year by about six percent to some 34.4 million acres (13.9m hectares) but that too is a smaller cut than the markets had been expecting after the price retreat from recent years’ record levels. Some private analysts are far more optimistic on US winter wheat planted area, however, Farm Future recently forecasting as much as 37.26 million acres. Probably of much greater importance, though, may be the actual condition of the US crop. In top wheat state Kansas, 54 percent of this was recently rated in the higher ‘good/excellent’ bracket against 43 percent at end-December and in January 2023, just 22 percent. Similarly another key player Oklahoma’s wheat had a GE rating of 63 percent versus a mere 17 percent this time last year. The clear implication – assuming no weather upsets in the coming months – is that much the US crop may be set for far better yields this summer. (The last US crop produced 49.3m tonnes on a yield of 48.6 bu/acre and 37.3m harvested acres).
Another recent influence on the wheat market has been doubt shed on EU 2024 crop potential after a rain delayed start in top producer France as well as some other member states. Some analysts have been marking down estimates of planted area and are looking for a potentially smaller EU total crop. However that may be offset by higher starting stocks which, after a slower than expected 2023/24 export campaign, were recently estimated at some 16.5 million tonnes – three million more than last year.
As mentioned in our last review, China has been an important wheat import buyer around the turn of the year, one of the few bright spots for French wheat exporters and even more so for the USA. Although China’s own crop (the world’s largest after the combined EU) remains at an apparently comfortable 136.5m tonnes (only 1m or so under the previous year’s), grain pundits still expect it to lead world wheat imports in the 2023/24 season, taking perhaps 12/13 million tonnes with the emphasis on higher grades for blending up quality of its domestic supplies. So further Chinese forays into the import market remain a potentially firming influence on prices, albeit probably only on a temporary basis.
Summing up, wheat supply is currently described by many in the trade as ‘more than enough to round’ with prices near the low end of their recent 3-5-year range. Further forward we have to see how the weather behaves, bearing in mind that the global stock, as mentioned in our last review, has been on a multi-year downward trend, leaving less room each season for crop upsets. CBOT futures say wheat will be worth about 5.8 percent more by the close of 2024 and 8.5 percent more by mid-2025 although distant ‘price revelation’ of this nature can be unreliable, it suggests a less loose supply bias in the medium/longer-term.
Maize prices hit three-year low
If Latin American weather had sustained a more typical pattern for an El Nino year, it might all have worked out so differently for the corn market. In latter 2023, market talk was dominated by fears that hot dry weather, especially in Argentina, would foil plans to sow large maize crops, resulting in major trimming of export capability from this key supplying region. In the event rains do seem to have come in time to prevent a crop collapse. Largest regional producer Brazil’s harvest does now look more likely to end up somewhere in the 115m to 125m tonne range – rather than the earlier hoped-for repeat of last year’s record 137 million. But it still looks on target to be one of the largest yet produced. Prior to last year, the three-year average was under 102m tonnes. Carrying in from last season a record stock of 10 million tonnes – three times the previous season’s level – Brazil will clearly remain a key influence on corn export pricing, its potential 58 million tonne trade offering strong competition to the once-dominant USA and other suppliers. Argentina meanwhile seems to be making up for some of Brazil’s crop trimming, recent private estimates for its coming harvest around 59 million to 60 million tonnes against earlier forecasts closer to 55 million. That’s not just a record number but a huge improvement on last season’s drought-reduced 34 million tonnes. Argentina’s exports alone should reach that level at least, maybe more versus under 26 million last season.
Good news for maize consumers continues from other major supplying countries. In the USA the government raised its estimate of 2023 crop yield by over two percent to 177.3 bu/acre. Although it also trimmed the estimate of harvest area, that pushed up the official crop figure from 387 to 389.7 million tonnes – a full 12.4 percent better than the 2022 result. Many analysts had expected the number to go down rather than up so this had a bearish impact on US markets. Although the US is using more corn for ethanol bio-fuel and exporting 25-30 percent more than last year, it still expects to finish this season (at end-August 2024) with over 20 million tonnes more carryover stock than last season at over 55 million tonnes.
Another reason for restraint in maize prices has been better than expected shipments out of Ukraine where re-routing traffic through the EU combined with fewer interruptions through sea ports like Odessa has boosted private analysts estimates of its 2023/24 exports from 21 million to over 29 million tonnes.
Adding all these positive supply developments up, the global maize trade now looks likely to benefit from a 10 percent increase in export shipments. This is fortuitous at a time when key consumer China is expected to use about 7 million tonnes more, over half of that extra imported from around the globe.
To feed its own maize deficit – which has grown in recent years – the EU will vie with China for the role of top importer, both expected to take around 23 million tonnes. Moderate and smaller maize importers should also benefit from the decline in global maize costs that has accompanied the rise in supply. The past calendar year, saw the biggest drop for a decade – around 30 percent. Even amid the rising strength of the US dollar, the currency in which most commodities get traded, that’s a hefty discount. That said, looking toward the Northern Hemisphere spring planting season, we must also note the possibility that farmers might sow less corn for 2024, especially if its main rival for US farmland, soybeans, continue to offer a better profit ratio. US farmers are already said to be gloomy about their income outlook for the year ahead in which many expect lower commodity prices generally and, worse still, rising production costs. Currently, the Chicago forward futures market suggests corn will cost almost nine percent more by the end of this year, expanding the rise to 13 percent by mid-2025 but sowing is dictated by prices now.
No lack of soya meal
Like the cereals, prices of the dominant oilmeal component – soybeans – have responded to improving supply by testing old lows. In February the Chicago futures market traded at its cheapest since November 2021 although, unlike the grains, soya’s forward profile offers relatively little threat of higher prices ahead.
Here too, a key factor has been improving weather in South America, offering a scenario of record export soya supply, increasing competition for the USA and a probable buildup of global stocks of the raw material.
Overall, world soybean production is estimated 23 million tonnes or 6.4 percent higher for 2023/24 season at almost 400 million tonnes.
Crush and meal output therefrom will rise at a slower rate but still provide an ample increase in soya meal supplies of some 11m tonnes – just under 90 percent of the total increase in world oilmeal production and enough to feed expanded world soya meal demand and still build some stocks. Other, smaller oilmeal sectors expecting increased meal production are mainly rapeseed, cottonseed and palm kernel.
