by John Buckley

Grains mark time ahead of next harvest

Spring is often a time when grain markets pause ahead of the world's main Northern Hemisphere harvest period. Crops are expected to be record large this year, but some weather issues suggest that can't yet be taken for granted. This mostly concerns abnormal dry conditions in the US, Europe, Russia and Ukraine, some relieved by recent rains but with more moisture needed to assure yields, especially in Russia, France, Rumania and parts of the US.

Among the key export players, Russian crop estimates fall in a fairly wide range of 75m to 80m-plus tonnes versus last year's 73.6m, 2018's 71.7m and the peak 85.2m of 2017. Although a very mild winter was initially expected to deliver a yield bonus, a dry spring has given recent official forecasts a downward bias. That helps keep the market guessing about Russia's 2020/21 export availability, especially after an unexpectedly early close to its 2019/20 sales campaign, which helped firm the world wheat market last month. Russian crop issues have been a key factor in several bull runs for wheat over the last decade or so, the peaks usually coinciding with crop problems in other supplying countries too. In 2013 severe harvest shortfalls helped push CBOT wheat futures over US $9 and in 2008 as much as $13 per bushel compared with (more typical) mid-$5's this month. Owing much to speculative backing, these past spikes were usually short-lived but still lasted long enough to dramatically raise costs of those consumers who were carrying light stocks, so were forced to buy at the peaks.

Ukraine, which has also begun to curb late season export trade, is expected to produce 24.5m tonnes this year versus 2019's 29.2m after delays and downsizing of wheat area. It is already thinking of capping new crop foreign sales at some 12/15m versus this season's estimated record 20.5m which will reduce the intensity of next season's wheat export competition.

Rain-disrupted planting could cut this year's EU wheat harvest by as much as 10 or 11m tonnes. The European Commission recent forecast a decline of about 4% in this year's EU soft wheat crop while French analyst Strategie Grains estimated a near 8% fall.

Overall though, with global stocks still running at or near record levels wheat supply shouldn't be a bullish issue for the current year – normal spring and summer weather permitting.

The giant 2019 EU harvest of 154m tonnes, with help from a weak euro, has been piling onto export markets, giving the bloc its best season in years. At 33m tonnes, the USDA's forecast for total 2019/20 EU exports are almost 50% up on the year. Soft wheat alone is currently running 61% higher but the lead might be expected to shrink somewhat as demand edges back in the final quarter of the season. Top EU supplier France's shipments have maintained a stellar pace, reaching a 10-year high last month to countries outside the bloc, helped by a weaker euro. Germany and the Baltic States have also expanded sales to countries including China, Iran and some African nations.

In Asia, largest wheat producer of all, China, has so far reported no serious weather problems. However, even while carrying half the world's 'surplus' stock in its strategic reserves, China has still emerged as a supportive factor for wheat prices in recent weeks, taking more US and European grain than for years to improve the quality of its domestic flour grist (much of the huge China stock is thought to be of dubious food use).

India is meanwhile on course for a bumper, probably record crop that could allow significant exports to the world market – presenting another potentially bearish factor on the horizon.

Things also look quite promising at this early stage for the two big southern hemisphere wheat exporters – Argentina and Australia where pre-sowing rains have broken droughts – in Australia's case, one of the most severe dry stretches on record. If weather stays favourable, recent US attaché reports suggest, its production could surge back (later this year and early next) to as much as 23m tonnes from the low average 16m tonnes of the past two seasons – most of that increase likely going to export

Argentina's crop outlook meanwhile seems to be going from strength to strength amid talk of record 21m tonne harvest (last year 19.5m). This should cement its return as a key wheat exporter.

The demand side of the wheat market has been interesting recently with US, Europe and other regions experiencing huge growth in buying of flour and pasta from COVID-wary consumer stockpilers. However, in recent weeks the emphasis seems to have shifted less bullishly. The miller demand in Europe at least seems to have slowed, possibly because consumers are sated for now and calming down amid much talk that an easing of coronavirus lockdowns could be underway around the developed world.

There has also been speculation that global economic slowdown will curb demand for commodities including wheat, especially among the big importing nations of the Middle East/North Africa (MENA) whose spending power is being squeezed by the collapse of their revenue from tumbling oil prices. No-one is quite sure how that will pan out longer term, not least because it all depends on whether the COVID-19 menace is truly being put back in its box or will re-emerge later in second or further waves. The International Grains Council recently cut is global wheat consumption estimate by 5m to 755m but this is still plus 7m on-year. On a related note, wheat prices may also be held in check by the need to respect weakness in prices of maize as a competitor in some industrial outlets.

Recent wheat news

  • It has been a volatile month. Bellwether CBOT nearby wheat futures at one stage fell to four-month lows under $5 per bushel before bouncing back almost 18% last month. EU wheat hit six-month lows but also rallied back
  • On paper there is no shortage of wheat this season, but hoarding can give that appearance from time to time. A reminder of ample global stocks, in April the USDA hoisted its US estimate by 5.5m to a new record 293m tonnes although half of these are effectively 'off market' in China. The US itself is expected to end this crop year with about 26.6m tonnes of stocks – about half of them hard red winter bread wheat – not far off what it normally exports in a full year
  • World wheat trade is seen rising by 4.6% or over 8m tonnes in 2019/20, led by Europe (+10.2m) and Ukraine (+4.5m). Import gains are led by Turkey (+4m) with its smaller 2019 crop and a growing migrant population to feed. China is importing more wheat, partly due to its 'phase one' trade deal with President Trump. Morocco has a weather-reduced crop while Mexico, Algeria, Nigeria and several smaller importers may be building a bit more stock after the corona virus questioned the adequacy of their food staple cover. Recent big purchases by countries including Saudi Arabia and Algeria suggest stocking up is still active but top importer Egypt has been a slower buyer, possible restrained by its financial problems.

Energy slump slashes maize price

US maize prices fell to their lowest level in four years in April as traders pondered open-ended cuts to usage in the US corn ethanol sector – normally home for over 40% of the domestic crop. The collapse in global energy markets, led by crude oil, has followed the slump in fuel demand as corona virus lockdowns shut down international and domestic travel outside of (and often including) the commercial sphere. Traders have also been concerned that a global economic recession could significantly cut consumer spending power, always closely linked to meat and feed usage. In the US itself, some of the major meat supplying countries have already closed or reduced throughput at plants. At this stage, no-one yet knows how deep the reduction in total demand for corn will turn out – i.e. how the COVID-19 factor will evolve.

On the CBOT futures market, the maize price collapsed close to $3/bushel. To find appreciably lower prices we have to go all the way back to September 2006 when the market was coming out of a near 10-year stretch nearer $2 than $3. It's interesting to note, those lows were followed within less than three years by highs in excess of $8 after some crop failures.

It's small comfort for producers that prices would have been even lower (and might be yet) were it not for the fact that global corn production has been running behind consumption for the past three seasons, reducing the world's estimated carryover stock of the grain from about 352m tonnes in 2016/17 to a forecast 303m for 2019/20.

On the supportive side for prices, China does seem to be importing more while Brazil has recently had some dry weather problems that could trim quite a bit off this year's final crop number. It would still be another large one, but Brazil's own demand has been rising, so exports might not be quite as brisk in coming months as expected earlier. Largest maize supplier, the USA, has meanwhile started to see a bit more trade in recent weeks, boosted partly by the China business.


Cheap soya to continue?

A big US crop this autumn, on top of hefty South American South American production for the past two years, suggest the soya market will remain well supplied in the season ahead. The USDA expects the US am extra 7.4m planted acres and a return to trend yields (from last year's lower ones) to deliver a 112m tonne crop (97m). Some analysts are even higher, expecting a bigger farm shift out of maize and into soya – currently being sown at a fast pace under good weather conditions. The USDA also makes an early stab at the 2020/21 Latin American crops – suggesting a potential 10m tonne increase there too – although this is really too far away to be reliable and will depend on weather and prices when sown in Setember/October.

USDA 26.7m tonne increase for the global 2020/21 crop meets its expected 11m tonne rise in world crush. Including direct food use, it would leave the world stock slightly lower at the end of next season and about 16m tonnes under the 2018/19 record but it would still be ample, even in the US, where it is forecast to drop from last season's 24.7m to 11m.

That move would also depend heavily on China help the US export 10m tonnes more beans next season. While Chinese sources say they will honour pledges under a 'phase one' trade deal with the US and have been actively buying this month, traders are worried that President Trump's mounting criticism of the PRC over COVID-19 might jeopardise that – which could lead to lower US and world soya prices. (USDA forecasts China will increase purchases from all sources by 4m to 96m tonnes).

Our guess is that, barring a total falling out between the two, China will continue buying what are historically cheap beans from the US. But even in this expected season of shrinking stocks USDA does not expect this to stop US seasonal average soya prices dropping further - from an average $8.50 per bushel ($312/tonne) to $8.20. The futures markets show a similar outlook - no real increase in prices far into 2021.

Rapeseed meal outlook still finely balanced

Top rapeseed supplier Canada's government this month estimated its mainly spring planted crop would cover a slightly smaller area than last year's at 8.34m ha, a seven year low but with some modest yield improvement, the tonnage would work out similar, around 19m. The USDA has slightly more bearish numbers - area of 8.7m ha and a crop of 19.9m tonnes.

USDA also offered its first forecasts for world rapeseed production in 2020/21 of 70.8m tonnes, up from last year's 68.2m but below 2018's 72.4m tonnes. It saw a marginal 1% gain for Europe (17m tonnes) but a 15.4% rise for key EU supplier Ukraine at 4m tonnes. It also match other recent estimates that Australia – another important exporter – could see two years of drought-depleted output followed by a 33% (770,000 tonne) rise to 3.1m tonnes in 2020/21.

The early supply forecasts come amid some weather issues in Europe, the former USSR and Canada as well as some downward revisions to stock estimates for the latter (smallest March stocks for three years) although Canada is unlikely to run short before the season closes with some 2.5m tonnes.

The global market for rapeseed remains fairly finely balanced but prices are held back by two factors – a flat to lower trend in the much bigger soya meal market and the loss of much bio-diesel demand for the primary crush product, rapeseed oil.

REGISTER FOR FREE today or LOGIN to continue to read
the full article and receive full access

You might also like

Latest Videos

Leave A Comment

Don’t worry ! Your email address will not be published. Required fields are marked (*).





QR Code