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China’s Pork Plight in the Year of the Pig

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7 May, 2019

China’s pork plight in the Year of the Pig …

Since the outbreak of African Swine Fever (ASF) in the northeast of China in August last year the contagion has spread nationwide and has now crossed the border into neighbouring Vietnam and Mongolia. Most recently, the same strain of the virus has been detected further south in Cambodia.

The virus causes haemorrhagic fever, similar to the Ebola virus that afflicts humans. Mortality rates are incredibly high in domestic pigs with some strains causing death as quickly as one week after infection. Unlike swine flu, ASF poses no direct health threat to humans as it is not zoonotic meaning it cannot jump from animals to people. Nevertheless, it is incredibly contagious among pigs and can have severe economic impacts.

The virus that causes the fever cannot replicate outside of a living cell, but it can survive for extended periods without a host. It is also able to endure harsh environments and extreme climatic conditions.

Transmission of the virus can be by ticks, direct contact between infected animals, contaminated animal feed, food scraps, swine offal and people travelling between infested places, all of which make the fever extremely difficult to control and eradicate.

There is currently no approved vaccine for ASF, so control of the disease relies on rigorous sanitary measures such as early detection of outbreaks, destruction of contaminated carcasses and products, disinfection of sites, and most importantly movement restrictions in and away from affected areas.

ASF is widespread in Africa where at least 23 strains of the virus have been identified, and it is mostly spread by wild boar. The virus has also spread through parts of Europe and more recently established itself in Russia, but it has always been relatively well contained.

It is believed the Chinese outbreak spread from eastern Russia as analysis of the virus genome revealed it was almost an exact replica of the virus that was discovered in Siberia in March 2017. This was the first time the disease had been detected in the eastern parts of Russia, and it was only 1,000 kilometres from the Chinese border. The Kremlin denies this, saying it was transported from the Europe in contaminated pork products.

The eventual spread to China was expected, but the way the virus has reacted to its new environment has caught experts across the globe by surprise. Somewhere along the journey, the virus has mutated, and the strain that has infected the Chinese pig herd thrives in the new environment.

The situation has been exacerbated by extremely poor biosecurity protocols and the free movement of potential vectors across the country in relatively short time frames. Beijing’s reaction to the outbreak was slow and inadequate, and authorities have actively downplayed the severity of the disease from the outset.

Additionally, it seems that not all outbreaks are being conveyed to the authorities due to mistrust and inadequate compensation arrangements. There are reports that some farmers who suspect infection in their herd have been selling animals that do not demonstrate symptoms for fear of massive livestock and financial losses.

Beijing recently reported that 1.02 million pigs had been culled from 129 reported cases in the eight months since the outbreak was detected. Unofficial reports suggest the cull is much higher.

According to China’s statistics bureau, there were 428 million pigs in the country in December last year. This is about half of the world’s pig population. However, by the end of March, that figure had fallen to 375 million head. Pork producers will undoubtedly be reluctant to restock with the ongoing threat of ASF, but that is a huge decrease in a relatively short time frame.

According to Rabobank, China could lose up to 200 million pigs as a result of the epidemic, with fatalities expected in all 31 of its autonomous regions and provinces. That is nearly triple the pig population of the United States (US), and if it came to fruition, there would not be enough pork in the world to fill the void.

China is the biggest global producer and consumer of pork by volume. At 34 kilograms per head, the population is also the third largest per capita consumer in the world. That is expected to rise to more than 50 kilograms by 2026 when the population is projected to be more than 1.4 billion. That is a lot of pork demand.

Domestic supply is reportedly down by as much as 20 per cent already this year, and prices have risen by more than 70 per cent. The Chinese government is struggling to fill the demand gap. If the availability of pork falls or it becomes too expensive, it could create the kind of domestic unrest Beijing is desperate to avoid.

The ongoing US-China trade war is adding to the woes. The outbreak couldn’t have happened at a worse time. When Beijing levied additional import tariffs on US pork last year, many Chinese traders were forced to stop buying as it became too expensive. Now that the requirement for imports has increased, government tariffs as high as 70 per cent on some products are standing in the way.

The decrease in pork production in China will undoubtedly reduce demand for imported grains such as soybeans, corn and sorghum. If pork production drops by 30 per cent, demand for soybeans could reportedly fall by as much as 5 per cent. This would severely hamper China’s capacity to increase imports of US soybeans.

Demand for imported grains may decrease in China, but it will most likely increase the demand for feed grains such as corn and soybean meal in the major pork exporters such as the US and Canada (assuming they can both work through their existing China issues), Brazil, Germany and Spain.

The Australian farmer will not be immune. Demand for feed barley will potentially fall as well as it is a vital ingredient in the Middle Kingdom’s stockfeed rations, a significant proportion of which goes to the pork sector. This is on top of the ongoing anti-dumping investigation which has gone extremely quiet in recent months.

The Year of the Pig is quickly turning into hog hell…

Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.

Canadian farmers react to market and political influences …

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30 April 2019

Canadian farmers react to market and political influences …

Canada’s national statistical office, Statistics Canada (Stats Can), provides insights into the state of their economy, society and the environment. Included in the Stats Can charter is the provision of regular updates on agricultural intentions, production and exports.

The agency conducted a farmer survey in March and issued its annual intended acreage report last Wednesday (April 24). It seems that Canadian farmers have reacted to recent trends in crop prices, old-crop stocks and the disastrous Chinese canola situation.

The total area planted to the major agricultural crops is unchanged from the previous two years, but the allocation among crop types reveals historically significant year-on-year changes. Farmers have said that they will plant 4 per cent more wheat, 11 per cent more barley, 7 per cent less canola, 12 per cent more peas, 10 per cent fewer lentils, 21 per cent less soybeans and 17 per cent more flax than in 2018.

Looking at the data in more detail, all wheat planting intentions were pegged at 25.7 million acres (10.4 million hectares). However, there were significant changes among wheat types, with the durum area expected to see its biggest single-year drop since 2010, falling 19 per cent to 5.02 million acres (2.03 million hectares).

Conversely, the spring wheat area is predicted to increase by 12 per cent to 19.39 million acres (7.85 million hectares), the highest in 18 years. The area sown to winter wheat in the autumn fall was estimated to be only 1.26 million acres (0.50 million hectares), down from 1.34 million (0.54 million hectares) a year earlier.

The area intended to be sown to barley came in at 6.82 million acres (2.76 million hectares), and the soybean area is projected to be down significantly from 6.3 million acres (2.55 million hectares) to 5.69 million acres (2.3 million hectares). The latter is primarily due to poor yield results and lack of suitability compared to alternatives.

Canola is the second biggest crop in Canada, and the seeded area was forecast to be 21.10 million acres (8.54 million hectares) in the three prairie provinces of Alberta, Saskatchewan and Manitoba. This represents the lowest area in three years and compares to a five-year average of 21.72 million acres (8.79 million hectares).

The Chinese embargo on canola imports has undoubtedly had an impact on planting intentions, as has the recent downward price trend. Canola is a high input crop, and with on farm stocks currently at their highest ever level, the market uncertainty is rattling the Canadian farmer.

It is highly possible that the Stas Can report could understate the swing away from canola as the farmer survey was conducted before the enormity of the China situation was known. It is entirely possible that the final area could be less than 20 million acres (8.09 million hectares).

Canadian farmers are reportedly returning expensive canola seed and chemicals and cancelling or changing fertiliser orders, as they swing acres away from canola in favour of wheat and barley.

Canada and China have been locked in a trade and political dispute since the chief financial officer of Chinese telecoms giant Huawei Technologies was arrested in Vancouver on December 1 on a US extradition request. The Chinese responded by detaining two Canadian citizens, stripping two major Canadian grain companies of their canola export licenses and has subsequently stopped purchasing Canadian canola seed altogether.

Over half of the agri-food products grown in Canada are exported, and China is one of the key destinations. Canola exports to China in 2018 were worth US$2.7 billion. Around 90 per cent of the canola seed grown in Canada is exported, and 40 per cent of that total goes to China. The loss of the Chinese market hits Canadian producers directly, and the flow on effect for the economy will be severe.

Canadian farmers are also less than happy with the response of their government. According to reports, this has become the norm under the Trudeau led parliament. Since he became Prime Minister, Canadian farmers have lost more and more access to the global grain markets on which they depend for their livelihood.

Italy has locked out Canadian durum wheat, and India has imposed punishing tariffs on Canadian pulses (they are not alone there). Vietnam has stopped importing Canadian wheat supposedly due to thistle seed contamination. And now China has placed an embargo on Canadian canola. What will be next they are asking?

Meanwhile, in Australia, the east coast drought appears no closer to an end, and winter crop production will be impacted as a result. The one exception is Central Queensland where April rainfall across the entire region has been above average or well above average, and planting of the wheat and chickpea crop is in full swing.

The Bureau of Meteorology (BOM) released a climate outlook last Friday (April 26) and they suggest that May is likely to be drier than average in eastern South Australia, Victoria, and the grain growing regions of both New South Wales and southern Queensland.

According to the BOM, the warmer than average days are expected to continue for the next three months for almost the entire country. Whilst this is great for crop establishment, the lack of subsoil moisture and accompanying rainfall is a major concern.

We are now well into the ideal planting window for many areas. Some growers are planting dry, but the areas are relatively small at this stage. In many districts, the appetite for risk is low after a poor 2018, and most growers are waiting for additional rainfall to provide a degree of production certainty before going all in.

Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing ne

Wheat values being driven by the supply side …

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23rd April, 2019

When it comes to agriculture across the globe the name of the game is production, and global grain markets are definitely being driven by the production side of the equation at the present time.

The northern hemisphere wheat crop is looking good on the whole. There are always pockets here and there that are too dry, too wet, too hot or too dry, but the good areas tend to make up for the bad ones and the really good areas much more than makeup for the poor ones.

At the moment the crop is getting bigger rather than smaller. That said, we all know it can all turn around very quickly, and it is still far too early to call the crop “made”, or otherwise. The one thing that really counts for wheat is adequate moisture during the grain fill stage, and in the northern hemisphere that generally does not occur in the month of April.

The critical grain fill stage for the European wheat crop is usually June & July, in Russia it is July and August, and in the United States (US) the hard red winter (HRW) crop is commonly made in May, and the soft red winter (SRW) is traditionally made in June.

If there is an issue in the US, it is the slow pace of the spring wheat planting program due to too much rain and wet paddocks. Last week the United States Department of Agriculture (USDA) reported the crop was 2 per cent planted against an average of 13 per cent for the date. However, with much warmer weather on the way, no one seems to believe that there is a danger of not getting most of the intended acres in the ground.

The USDA reported that the winter wheat crop was 6 per cent headed versus 9 per cent average, and the crop rated 60% good to excellent versus 60% last week. This is significantly better than the 31 per cent reported at the same time last year and is the best rating in the last 5 years.

Winter crops across most regions of Europe have benefited from the predominantly mild weather conditions and are advanced in their stage of development. The crop is said to be in good shape and production is expected to be significantly higher than last year. Almost every state is currently forecasting yields at or above the five year average with the exceptions being Slovenia, Hungary, Bulgaria and Greece.

In Germany, the country’s association of farm cooperatives (DRV) have forecast wheat production at 24.4 million metric tonnes (MMT). The is an increase of almost 21 per cent compared to last year’s drought-reduced harvest of only 20.3MMT.

Government agency FranceAgriMer estimates that 81 per cent of the French soft wheat crop is in good to excellent condition, down slightly from 83 per cent last week. They also have the good to excellent condition rating of both the winter and spring barley crops down two percentage points week-on-week to 77 per cent and 89 per cent respectively. All ratings are well above the same week last year.

The accuracy and credibility of Russian forecasts and estimates are always quite problematic and none more so than last week. Moscow based agricultural consultancy firm IKAR released its latest 2019 Russian wheat crop estimate mid-week, raising it by 1MMT to 79MMT.

Within 24 hours, Russia’s oldest agricultural markets and consultancy company SovEcon had raised its Russian wheat crop forecast by more than 4 per cent from 80MMT to 83.4MMT. This was on the back of what is described as good conditions across a majority of the country’s cropping regions.

The SovEcon number is almost 12MMT higher than the current USDA forecast, and if it came to fruition, would be the second biggest Russian wheat crop on record, behind 2017. A crop of that size would mean at least 40MMT would be available for export and could even challenge the export record of 41.3MMT set in 2017.

In South America, summer crop estimates are definitely in bull mode with local scouts increasing the size of the Brazilian soybean crop by 1MMT to 116MMT. They have also increased the size of the Argentinian crop by the same amount to 56MMT.

The corn crops are heading in the same direction with Brazilian production estimates increasing by more than 3MMT to almost 98MMT, and in Argentina, the government is forecasting a corn crop as high as 55MMT. Some analysts are suggesting that the South American corn harvest will be 30MMT more than last year.

In China, there are rumours that the government may have sold down as much as 90 per cent of its reserve stocks of corn, and that temporary state reserves could be as low as 10MMT. This probably explains why there have been no reserve auctions of late.

This will be music to the ears of US exporters as the one thing that could change the burdensome US corn balance sheet at the moment is a substantial Chinese buying program to replenish reserves and attack the balance of payments deficit.

Back to wheat, where a rebound in northern hemisphere production, burdensome stocks in the US and relatively static year-on-year demand has turned it into a supply driven market where the bears definitely outnumber the bulls. The strengthening US dollar is also pressuring markets to the downside.

Global wheat values are unlikely to rally in the current environment unless there is a weather-driven problem in a major producer that severely impacts production, or prices get down to a level where the demand curve starts to rise again.

Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.

Bearish News Pushes Markets Lower

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Bearish news pushes markets lower…
Market news and market actions late last week were highlighted by the release of the latest International Grains Council (IGC) market report on Thursday followed by the release of prospective plantings and grain stocks reports by the United States Department of Agriculture (USDA) on Friday.
The IGC report was their first complete set of supply and demand numbers for the 2019/20 season (July 2019 to June 2020). In summary, the forecast increase in total wheat and coarse grains production will compensate for lower opening stocks, but with a substantial increase in demand expected, a further drawdown of closing stocks is forecast. Closing wheat and coarse grain inventories are estimated to fall by 29 million metric tonnes (MMT) over the 2019/20 season to 575MMT.
This drawdown is primarily due to corn, where opening stocks are down for the third successive season and demand is expected to increase year on year. The small increase in estimated global production of 10MMT is not nearly enough to cover the lower opening stocks and an expected rise in consumption of around 14MMT.
Global wheat production is forecast to increase to 759MMT, a rise of 24MMT over the 2018/19 season, but still 4MMT short of the record of 763MMT set in 2016/17. Global consumption is forecast to increase in 2019/20 but by less than production leading to a relatively minor increase of 6MMT in ending stocks to 270MMT.
Looking at individual producers, the IGC pencilled in Australia for a modest 22.9MMT, a significant rebound on the drought-ravaged production of 17.3MMT in 2018/19. Argentinian production is forecast to fall fractionally to 19.1MMT. In North America, Canada is expected to reap 32.6MMT of wheat, up less than 1MMT on last season, and the United States (US) harvest is expected to be 50.7MMT in 2019/20, compared to 51.3MMT this season.
The European Union (EU) is forecast to increase wheat production by 7 per cent from 137.9MMT in 2018/19 to 149MMT next season, the Russian wheat crop is estimated at 77.1MMT compared to 71.7MMT this year and the IGC has projected that their Black Sea neighbour, Ukraine, will have a 10 per cent increase in wheat production to 27.5MMT.
The number with the most room to move at the moment appears to be Russian production. In 2017/18 initial forecasts started below the current IGC forecast of 77.1MMT and finished up at a record 85.1MMT. Current conditions are reported to be extremely favourable for the maturing winter crop, and rumours emanating from Russia suggest that the record could be in jeopardy if these conditions continue through to this year’s harvest.
International barley production is forecast to rebound by 5 per cent, or 7MMT, to 149MMT in 2019/20. Global barley stocks are currently forecast to end the 2018/19 marketing year at a 23 year low of around 23MMT, but the IGC expects a small turnaround in that trend, finishing the 2019/20 season up around 2MMT at just under 25MMT.
US corn futures fell 4 per cent on Friday, their biggest single-session drop since July 2016, after the USDA released their latest grain stocks report and results of their annual planting survey. Soybeans and wheat followed the downward trend despite the USDA’s lower than expected spring wheat and soybean acreage projections.
The USDA forecast the corn area at 92.8 million acres across the US in the next marketing year. This is up 4 per cent on the current season and is a three-year high. The forecast was 1.5 million acres higher than trade expectations. Not surprisingly, the rise in the corn area came at the expense of the soybean acreage, which fell by 5 per cent to 84.6 million acres. This compared to trade expectations of 86.2 million acres.
On the wheat front, the USDA estimates that US farmers will plant 12.8 million acres of spring wheat this season. This compares to the long term average of 13.4 million acres and is 3 per cent lower than the 13.2 million acres planted last year. Winter wheat plantings were estimated at 31.5 million acres, down more than 3 per cent from the 32.5 million acres in the 2018/19 season. This means total wheat plantings in the US are estimated at a record low of 44.3 million acres.
The grower survey was conducted in the first two weeks of March, so there is significant uncertainty around how much the planting intentions will be impacted by the floods across the Midwest in the last three weeks. The growers who completed the survey early may have done so before the flooding. Those that completed it at the back end of the survey period may well have made some adjustments to their projections as a result of the floods.
Don’s Party (the US-Chine trade war) has obviously had a massive impact on US grain stocks. Export sales struggle to meet expectations and the negotiations continue with Beijing without any signs that the impasse will be resolved any time soon. As at March 1, the USDA pegged domestic corn supplies at 8.6 billion bushels (218.5MMT), down 3 per cent on the same time last year but the third biggest on record.
US wheat stocks came in at 1.59 billion bushels (43.3MMT) the second largest March 1 number in 31 years and is 6 per cent higher than last year’s 1.5 billion bushels (40.8MMT). The most significant year-on-year increase belongs to soybeans which posted their largest ever March 1 figure of 2.72 billion bushels (74MMT). This is a whopping 29 per cent increase on the same time last year.
On the whole, last week’s IGC and USDA reports were bearish, and the US futures markets reacted accordingly. In addition, the northern hemisphere winter crop appears to be progressing well, and there are currently no red flags to raise production concerns in any of the crucial winter crop jurisdictions.
Big wheat stocks in the US, the potential for a huge Russian wheat crop and a general rebound to near-record global wheat production is not the recipe for an escalation in global values. The autumn break is yet to arrive in many areas of Australia, but as production certainty increases current new crop prices should provide growers with enough incentive to lock away some production margin before the northern hemisphere harvest commences.
Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing

Frost – Special Market Update, 21 September, 2018

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Frost – Special Market Update, 21 September, 2018

After the weather events over the past week, many of our members are faced with challenging circumstances. The dreaded ‘F’ word is something close to the heart of our Albany broker, Sheldon Miller, who grew up on a farm. He talks through a few tips to help you manage your situation.

  • Get in front of the situation and keep as much in your control as possible.
  • Information is your friend so arm yourself with as much as you can.
  • Two sets of eyes are better than one so take a look at your crop with someone.
  • Take a moment and have a break
  • If you think you will have production issues, please get in touch with your broker who is more than happy to discuss your options.
  • Remember, you are not alone so make sure you reach out to your support network if you need to.

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