Misc Archives | Grain Brokers Australia

Northern hemisphere harvest commences amid a cloudy demand outlook…

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The northern hemisphere winter crop harvest is underway amid escalating fears that a second wave of COVID-19 infections, particularly in the United States and Brazil, will lead to new lockdowns, lower global grain demand and exacerbate the enormous economic impact of the worldwide pandemic.

Wheat futures were punished with technical liquidation and abundant global inventories pressing all three US wheat bourses – Chicago, Kansas and Minneapolis – to new contract lows in last Friday’s session. Trade on the day was highlighted by the absence of substantive buying interest on both the domestic and export front.

Matif milling wheat futures also slipped to a three-month low on Friday. Still, they may find support this week after the European Commission further reduced its forecast for this season’s European Union soft wheat harvest by 4.3 million metric tonne (MMT) to 117.2MMT.

This estimate excludes the United Kingdom, and if their wheat crop is 10MMT, plus an EU durum harvest of 7.4MMT, the combined total is well below the USDA’s June estimate of 141MMT for the EU27 + UK. However, many in the trade see the Commission forecast as far too low with crop conditions improving in Germany, central Europe and the Baltic States throughout June.

Last Monday the USDA pegged the US winter wheat harvest at 29 per cent completed, and that number jumped sharply to 41 per cent in this week’s report after 7 days of favourable harvesting weather. The winter wheat conditions were reported at 52 per cent good-to-excellent, slightly higher than a week earlier.

The surprise in last week’s numbers was the deterioration in the condition of the US spring wheat crop, falling six percentage points to 75 per cent good-to-excellent. Despite beneficial weather across the northern plains that number fell a further 6 points to 69 per cent in the latest crop progress update released on Monday (US time).

In Europe, the French wheat harvest is picking up in the south, but there are fears of fusarium developing in the northern areas following recent rains. Initial cuts in the south-west are showing good protein and test weights, but yields are well below the exceptional levels seen last year. France AgriMer estimated that 56 per cent of the country’s wheat crop was in good-to-excellent condition, unchanged from a week earlier.

The French barley harvest is fractionally further advanced with early yields and test weights generally good, and certainly better than the very dry spring conditions indicated. France AgriMer rated the winter and spring barley crop conditions as 51 and 54 per cent good-to-excellent respectively.

Harvest in the Black Sea region has finally commenced after low temperatures, and some wet weather in late May and early June delayed ripening of the crop. The market is eagerly awaiting early winter crop yield trends as this will set the tone for global export values over the next few months.

The Stavropol region in the south of Russia is a key export producing region. The winter crop harvest is reported to be around 9 per cent complete, predominantly barley at this early stage. Anecdotal reports put early yields down around 40 per cent compared to last year but cannot be considered representative of all crops in the region at this early stage of harvest.

Further east in Krasnodar, Russia’s second-biggest wheat-producing region, early barley yields are down year-on-year but are broadly in line with local trade expectations. This bodes well for wheat production as it was sown later and is not expected to have been as severely impacted by frosts and the early spring dryness.

Spring wheat crops in Russia and Kazakhstan still have at least six weeks to go before they are out of jail. It has been relatively dry throughout June but the chances of rainfall over the next few weeks has improved. However, despite record temperatures in parts of northern Siberia last week, the spring wheat regions remain abnormally cool.

The Ukraine harvest is lagging last year’s early pace but has commenced ahead of the five-year average. Around 125,000 metric tonne was in the bin as of late last week. Again, this is predominantly barley, and early yields are poor, averaging about 3 metric tonne per hectare, but higher numbers are anticipated as the harvest accelerates.

The size of the Russian crop is the pressing question. The Russian Agriculture Ministry has it pegged at 75MT; the June USDA number was 77MMT; IKAR consultancy has increased their forecast to 79.5MMT. And SovEcon, who have been above 80MMT for the entire campaign, raised their estimate mid-month to 82.7MMT.

The lack of demand and commercial activity in the export market remains notable with consuming nations waiting on the European and Black Sea harvests to ramp up to full pace, and the weight of new crop supply to pressure prices lower, before extending cover.

However, there already appears to be tightness in Black Sea wheat due to the lack of farmer selling. According to local analysts, this could easily extend well beyond July as Russian farmers are on the cusp of a huge sunflower seed crop, which is worth a lot more than wheat and takes up double the storage capacity.

After getting their butts handed to them last year, there is a decided reluctance on behalf of exporters to go hard at selling new crop ahead of harvest, especially with historically low carry-out stocks. Based on last years’ experience, going short harvest positions in front of the Russian farmer is quite a high risk, low reward strategy.

Except for Australia and Russia, wheat production estimates appear to be on the decline – ironically at the same time as most futures markets are falling to multi-month lows. Moreover, carry-out stocks amongst the major exporters are estimated to hit multi-year lows. Nevertheless, it is the demand side of the equation that continues to cloud the picture.

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

Wheat production concerns in Europe spook the market…

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The world wheat market is certainly at the whim of the weather right now with futures markets bouncing sharply off an eight-month low set early last week as concerns for the state European Union (EU) winter crop start to outweigh those of the Russian crop.

As the world emerges from the global coronavirus shutdown, northern hemisphere weather, especially in the EU, Russia and Ukraine, will most likely be the key wheat market drivers over the next six weeks.

The buyers supposedly came back into the market on talks of decreased production in Russia, but most analysts appear to be holding their estimates firm in the 75-77 million metric tonne range, well up on last year. The winter wheat areas have received some rainfall in recent weeks and are holding production but the spring wheat areas, particularly Siberia, do appear to be suffering from lack of moisture and the 14-day forecast is not favourable.

There has been very little chatter about the growing production concerns across many parts of the EU. The newswires tend to focus far too intently on Russian crop prospects these days, as they are the world’s biggest exporter of wheat, and tend to set global export values.

Interestingly, with restrictions on Russian wheat exports for the last two months of the current marketing year, the EU has usurped their crown for the 2019/20 season, as their exports pass the 35 million metric tonne mark, with six weeks of the old crop year remaining.

Large swathes of western and central Europe have received insufficient spring precipitation to replenish soil moisture levels as the crop moves into its reproductive phase, the peak water use growth stage. Daytime temperatures have also been above average and radiation levels have been extremely high.

Consequently, crop biomass accumulation has slowed considerably with actual crop conditions generally worse than in 2019. Additionally, many spring crops were sown into inadequate moisture and germination has been poor.

The forecast for dryer than average conditions for many parts of France, Germany and Poland for the next couple of weeks will undoubtedly stress the crop in some regions. There is some rain in the forecast, but it is much less than what is being lost to evapotranspiration. Much more is needed in the next few weeks to maintain yield potential.

Romania and Bulgaria would appear to have serious production losses in the offing as drought conditions persist. Soil moisture is so poor in some areas that crops are reported to be stunted and showing signs of wilting and early leaf senescence. No amount of rain will prevent severe production losses in the affected plants.

While not as acute, there are production issues in Austria, Slovakia and the Czech Republic, namely, soil moisture deficits and daytime temperatures up to 2°C above the long term mean. This is hampering winter crop development, bringing their yield outlook below the five-year average.

European crop monitor, MARS, called the new crop milling wheat yield 5.72 metric tonne per hectare (MT/ha) compared to the 2019 yield of 6.00MT/ha. This down from April’s forecast of 5.87MT/ha and is almost 1 per cent below the five-year average of 5.77MT/ha. Durum wheat yields were also lower at 3.38MT/ha compared to 3.47MT/ha last year, 3.43MT/ha last month and a five-year average of 3.49MT/ha.

These yields put the total EU wheat crop at around 139 million metric tonne. This is 4 million metric tonne lower than last week’s forecast from the United States Department of Agriculture (USDA) of 143 million metric tonne and is 16 million metric tonne lower than the 155 million metric tonne produced in 2019/20.

Contrary to some news reports last week, the window for serious damage to the northern hemisphere crop is still wide open. All the major crop failures in Russia of recent times have been a result of the weather problems in June, July and August, so there is still oodles of time for production prospects to worsen; or improve.

In last week’s global supply and demand update for the USDA, total 2020/21 wheat production in the seven major exporters was 1 million metric tonne higher than last year at 378 million metric tonne. However, a production decrease amongst the northern hemisphere exporters of 10 million metric tonne was more than offset by a 12 million metric tonne production increase by the southern hemisphere exporters: namely Australia and Argentina.

In other words, the global wheat balance sheet is relying heavily on the increase in southern hemisphere production. The challenge is the Australian and Argentinian winter crops are still being sown. They have the entire production cycle ahead of them, and the resultant output won’t hit the export market for another six months.

And that is using an EU wheat crop estimate that is much bigger than most of the European trade is forecasting. Additionally, the USDA report had the combined Russian and Ukraine wheat production at 105 million metric tonne, which also appears to be on the optimistic side compared to estimates from several industry pundits.

The washup here is the EU, Russian and Ukraine winter crops need rain, and they need it quickly. And well above average precipitation, coupled with favourable crop conditions, are required through to harvest for current yield estimates to be maintained.

The big unknown in the whole equation is what impact has the coronavirus had on global wheat demand? If demand recovers quite quickly, then further supply issues will be bullish for new crop values. If there has been some severe erosion of global wheat demand in the 2020/21 marketing year – which is the most likely scenario – then the market can absorb further northern hemisphere production issues with minimal upward pressure on price.

Of course, if the EU and/or Russian 2020/21 winter crop production stabilises, or surprises to the upside, then last week’s futures low will likely be tested as the new crop harvest approaches.

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

Mixed fortunes for Canadian farmers…

Canadian farmers can’t take a trick this year…

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Canadian farmers produced the smallest canola crop in four years on the back of lower plantings and unusually wet autumn weather that left crops sitting in the paddock unharvested, the latest blow in a miserable year which started with the Chinese ban on canola imports.

The heavy snow and rain during harvest across the Canadian Prairies have left around 810,000 hectares of canola buried under snow until spring.

Crops that remain in the fields over the winter are subject to wildlife damage and moisture spoilage, but some of it can usually be salvaged and marketed at a discount in the spring. However, the need to harvest the previous crop once fields dry can seriously delay the commencement of the spring planting program in affected districts.

Statistics Canada released their Production of Principal Field Crops report last Friday the more than 700,000mt was dropped off the countries 2019/20 canola production. Estimated production came in at 18.65 million metric tonne (MMT), down 8.3 per cent on last season, and 2.9 per cent below the five-year average.

The total harvested area fell 8.8 per cent to 8.34 million hectares but yields did rise by 0.5 per cent compared to the 2018/19 season to 2.24 metric tonne per hectare.

Canada is the world’s biggest producer and exporter of canola, and the crop has long been regarded as the most profitable for the Canadian farmer. China, Japan and Mexico have traditionally been the key export destinations, with the seed primarily used for the production of cooking grade vegetable oil and canola meal for stockfeed rations.

In the absence of their largest export customer, demand has been falling, inventories have been rising, and prices have been lower as a result. Nonetheless, Canadian farmers are adjusting to the reality of life without China by working on cutting costs, improving efficiency and modifying crop rotations to decrease their reliance on canola.

As of November 24, Canadian canola exports had decreased by 9.5 per cent compared to a year earlier. But the decline is much less than many had feared and is a reflection of the success in finding alternative consumers for the surplus export stocks. Several European countries are importing more Canadian canola for biofuel production, and shipments to the Middle East have also picked up in recent months.

In terms of wheat, Statistics Canada estimated current season production at 32.3MMT, a minor reduction of 140,000 compared to their previous all wheat production forecast. This put production around 0.5 per cent higher than last season and 6.5 per cent above the five-year average.

While all wheat classes were revised lower compared to the September estimates, it was a year-on-year rebound in spring wheat production that drove wheat production higher overall.

Spring wheat production is forecast to rise by 7.2 per cent to 25.67MMT, the largest spring wheat crop in six years. The harvested area is estimated to be 6.5 per cent higher than last year, and the average yield of 3.48 metric tonne per hectare is slightly higher than the 2018 harvest.

Canada western red spring makes up 86.4 per cent of all spring wheat produced, up from 83.7 per cent in 2018/19, well above both the five and ten-year averages. Durum production was estimated to fall by 13.4 per cent to 4.98MMT, with a year-on-year increase in yield unable to offset a 22.6 per cent decline in the harvested area.

Barley estimates were revised higher compared to those released earlier in the northern hemisphere autumn. Statistics Canada put total production at 10.38MMT, an increase of 23.9 per cent over the 2018 number and 28.2 per cent above the five-year average. The increase was due to harvested area, up by 13.9 per cent, and yields, which rose by nearly 9 per cent to 3.81metric tonnes per hectare.

Agriculture and Agri-Food Canada are suggesting that year-on-year barley stocks will double, quite a bearish scenario, particularly for the Canadian farmer. Up to the end of November total barley exports for the current marketing year sat just north of 600,000 metric tonne, 4.4 per cent behind the 2018/19 pace. With the world well supplied for malting barley requirements, feed channels would appear to be the best hope of boosting exports.

Even the humble oat, now considered a ‘superfood’ in eateries across the globe, benefitted from the swing away from canola with the crop 21 per cent up on last year, at 4.16MMT, and 23.7 per cent above the five-year average.

Statistics Canada revised both the soybean and corn numbers lower compared to their September estimates. Soybean production came in at 6.05MMT, down 18.5 per cent from 2018 and 11.7 per cent below the five-year average. The corn crop is forecast at 13.40MMT, down 3.5 per cent from 2018, just below the five-year average. 

Unlike Australia, where a dry season has decimated national grain production, in Canada the wet has made 2019 a year to forget. Not only has it severely hampered the winter crop harvest, summer crop farmers are calling it the ugly trifecta. Late planting, far too much rain and snow through harvest and high-moisture grain meaning substantial drying costs will be incurred to bring it down to a market acceptable level. On top of the unharvested winter crop area, the adverse autumn weather has left many farmers facing unharvested corn paddocks into December and possibly beyond. Of all the issues the Canadian farmer has faced this year corn left standing in the paddock deep into the winter is perhaps the one they dread most.

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June 25, 2019

Sea surface temperatures are moving in the right direction…

The earth’s climate is primarily driven by energy from the sun. Most of the sun’s energy is reflected back into space, but some is trapped by gases in the atmosphere and retained by the sea, air and land.

Astronomical variations and atmospheric shielding lead to the incoming solar radiation falling unevenly on the surface of the earth. Winds and ocean currents further redistribute the heat and moisture around the globe, creating climate zones.

Local oceanic, atmospheric, and temperature phenomena within these climate zones generate the weather that we experience on a localised basis across the globe. Here in Australia, two of the key drivers of local weather and climate variability are the Indian Ocean Dipole (IOD) and the El Niño Southern Oscillation (ENSO).

The IOD, also known as the Indian Niño, is an irregular oscillation of sea-surface temperatures in which the tropical eastern Indian Ocean becomes alternately warmer and then colder than the western part of the ocean. The IOD measures the difference between the seas surface temperatures in the two ocean regions and oscillates between, ‘positive’, ‘neutral’ and ‘negative’.

In the negative IOD phase, the sea surface temperatures are warmer than average around Indonesia and off the north-west coast of Western Australia and cooler than average in the western Indian Ocean. This leads to stronger westerly winds across the Indian Ocean, higher convection near Australia, and generally results in enhanced rainfall across the Australian continent.

The positive phase sees colder than average sea surface temperatures in the eastern Indian ocean and the opposite in the western Indian Ocean.  There is an increase in the easterly winds across the Indian Ocean in association with this sea surface temperature pattern, while convection near Australia reduces. This tends to lead to dryer than average seasons or even drought situations in Australia.

While the IOD looks at water temperatures in the Indian Ocean, the ENSO looks at water temperatures in the Pacific Ocean.  ENSO is an irregularly periodic variation in sea surface temperatures and winds over the tropical eastern Pacific Ocean, and it influences the climate of much of the tropics and subtropics.

The cooling phase of ENSO is known as La Niña, and the warming phase is known as El Niño. The Southern Oscillation refers to the accompanying atmospheric component. The El Niño phase is usually accompanied by high air surface pressure in the tropical western Pacific and La Niña phase with low air surface pressure in the same region.

The two phases relate to another phenomenon called the Walker circulation. This is a model of the lower atmosphere airflow over the tropical regions of the Pacific Ocean. The Walker circulation arises from a pressure gradient caused by a warm and wet low-pressure area in the western Pacific around Indonesia, accompanied by a cool and dry high-pressure area over the eastern Pacific.

An exceptionally strong Walker circulation causes a La Niña, resulting in cooler ocean temperatures in the eastern Pacific due to increased upwelling of the cold deep seawater. A reversal or weakening of the Walker circulation eliminates or decreases the upwelling, resulting in above average ocean temperatures off the coast of Peru, Ecuador and Columbia.

So, what are the sea surface temperatures doing at the moment?

The Pacific Ocean is currently near El Niño thresholds, and the IOD is in positive territory – both suggesting dryer than average conditions for the balance of winter and into the critical spring period.

The Bureau of Meteorology (BOM) is calling the current ENSO status as El Niño watch. However, the BOM is forecasting it to shift to a more neutral outlook in coming months. The IOD is currently sitting in positive territory, and according to the BOM, this is likely to persist and dominate the weather patterns across the Australian continent into the spring.

Nevertheless, looking at the change in equatorial sea surface temperatures in June, the trend is encouraging. Cooling is evident in the eastern Pacific, and western Indian Oceans and the required warming is evident to the north of Australia in the western Pacific and eastern Indian Oceans. The graphic above reveals the change over the week to June 23.

The burning question here is, will the trend continue, and will it persist long enough to change the spring rainfall outlook? Two or three weeks of encouraging data does not represent a sustained trend in the meteorological world. The trend needs to persist for at least a couple of months before a wide-scale change in local weather patterns is likely.

Despite recent precipitation events, year to date rainfall registrations across almost all of Australia’s cropping regions are still below average. In some parts of New South Wales and Queensland, the rain gauge has rarely been bothered in the last 18 months, and they are still in the grip of the drought that plagued east coast grain production in 2018.

The crop may be in the ground through southern New South Wales, Victoria, South Australia and Western Australia but many areas will require above average winter and spring rainfall just to achieve average yields.

Continued warming off the western Australian coast and cooling in the eastern Pacific Ocean are critical ingredients for a long term change to more normal, or even wetter than normal, precipitation events in Australia for the balance of 2019.

Let’s hope that recent changes become a long term trend that manifests itself in a spring conducive to above average winter crop yields and enough early spring rain in the summer cropping regions to get a widescale sorghum plant.

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

Strap in for the Annual Volatility Rollercoaster

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Strap in for the annual volatility rollercoaster…
After an extremely dry summer, grain growers in Queensland and parts of northern New South Wales, received some very welcome rainfall over the weekend. This was the first significant rain event for 2019 and hopefully signals a change to the abnormally dry weather pattern experienced over the summer.
Many of the regions summer crops have already been harvested or are so close to harvest that the rain will not provide any meaningful benefit. However, there are significant areas of sorghum and cotton that were sown after storms just prior to Christmas and those crops will undoubtedly be feeling much happier after receiving their first drink since being planted.
March temperatures have been well above average across most of the summer cropping region, and the late crops were certainly feeling the pinch. Many growers were looking at spraying out their crops because yield prospects were poor, and they were looking to conserve what moisture was still there for a possible winter crop program.
Whilst the falls were nowhere near enough to guarantee a plant, they will definitely provide a massive boost to winter crop prospects in the districts fortunate enough to be under the storms. No doubt there will be some early crops planted, but the main planting window is still at least 4 weeks away, and much more rain will be required to ensure all of the intended winter crop area is sown into moisture.
Despite the top up in Queensland and northern New South Wales over the weekend, soil moisture levels across almost all of Australia’s grain growing districts remain below average, or well below average for this time of the year. There are many districts where soil moisture levels are at or close to the lowest on record.
This will make it extremely difficult to achieve anything more than average production in Australia this season unless there is a significant move to a wetter than average bias for the remainder of the year.
The latest climate outlook from the Bureau of Meteorology suggests that the tropical Pacific is likely to warm to El Niño levels during the Australian autumn. The key here will be if that pattern continues into the winter as its drying influence, particularly over eastern Australia, is stronger in winter than in autumn.
Prospects are obviously much better on the other side of the Pacific where wheat plantings in Argentina are forecast to rise for the fourth consecutive season. Forecasters are suggesting that the area planted to wheat could reach 6.9 million hectares this season, a rise of almost 10 per cent from the 6.3 million hectares sown in the 2018/19 season.
Argentina produced a record 19.5 million metric tonnes (MMT) of wheat last season and have been a significant exporter into some of Australia’s traditional Asian customers in the last six months. However, Australian exporters have been finding some Asian love in recent weeks with a number of sales reported, including to traditional destinations such as the Philippines, Indonesia and South Korea.
United States (US) wheat export sales continue to disappoint the market and time is quickly running out to make sizeable sales before new crop Black Sea stocks will be available at a significant discount to old crop. Much of the hope and expectation has been around China and their requirements once an agreement is signed to end the trade war. Alas, no deal has been signed as yet.
On the other hand, French wheat exports have picked up significantly in the last month. French farming agency FranceAgriMer has increased forecast for French soft wheat exports outside the European Union in the current marketing year from 8.85MMT to 9.5mmt. It said that there was also the potential for more upgrades as competitively priced French wheat draws late-season demand from importers.
The huge South American summer crop harvest continues without too much interruption. The official Brazilian agency Conab has reduced their summer corn crop forecast slightly to 26.2MMT, but the Safrinha (second) corn crop has been increased to 66.6MMT. That makes the total corn crop 92.8MMT, up from 91.6MMT last month and up 15 per cent on the 80.7MMT produced last year.
Conab’s soybean production estimate has been reduced to 113.5MMT, down from 115.3MMT in February. Last year’s soybean crop was 119.3MMT, so year-on-year production is now down 5.8MMT, or almost 5 per cent. The Brazilians will have to wait another year to steal the mantle as the largest global producer of soybeans from the US
In Argentina, the Rosario Grain Exchange is calling the Argentine corn crop 47.3MMT. This is an increase of 800,000 tonnes compared to their last estimate. The big mover was soybeans where the Rosario Grain Exchange called the crop 54MMT, up a whopping 2MMT from their previous estimate in February.
The South American summer crop is the final piece of the 2018/19 crop year puzzle. While final production is not locked in just yet, global markets are becoming increasingly comfortable with the levels of production and the harvest prospects.
The focus is now turning to the 2019/20 crop. The northern hemisphere winter crop is the first cab off the rank, and it is entering a very critical phase of development. It is now spring and depending on location the crop has emerged, or it is emerging from dormancy, and it is very susceptible to weather damage. Any sudden change in the weather pattern that exposes the crop to an extreme cold spell can damage or even kill off the plant.
The other big swinger at this time of the year is the summer crop planting intentions, particularly in the US. A little bit of cold and rainy weather and very quickly there will be talk that farmers won’t be able to plant corn, and there will be a swing to soybeans. The reality is the US farmer has consistently shown that they have no problem seeding corn in tight windows.
The new crop uncertainty is ultimately reflected in global futures markets. As a result, they tend to be quite volatile at this time of the year. Last week was a classic example with the recent downtrend in wheat broken with a couple of big rallies. That volatility will most likely continue as there is a lot of northern hemisphere weather risk in the coming months. This could provide some juicy new crop pricing opportunities here in Australia once the rain arrives and production certainty increases.
Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.

Strong demand continues in the midst of production uncertainty…

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12th March, 2019
Strong demand continues in the midst of production uncertainty…
The Australian cattle market has been in retreat in recent weeks as the continued dry on the east coast forces cattle producers to sell down their herd. There is little or no pasture across most of New South Wales and southern Queensland, water supplies are drying up on many farms, and the cost of supplementary feeding is exceptionally high.
Traditional livestock selling centres such as Dubbo, Wagga Wagga, Casino and Tamworth in New South Wales and Dalby, Roma and Emerald in Queensland have all seen a substantial increase in yardings over the past few weeks. Some of these cattle will go direct to slaughter, but those that are suitable will make their way into the feedlot sector.
Meanwhile, the number of cattle on feed in Australia fell modestly in the final quarter of 2018, according to the latest Australian Lot Feeders Association (ALFA) and Meat and Livestock Australia (MLA) quarterly feedlot survey. The numbers, released last week, revealed that 2018 closed with just over 1.11 million head in feedlots across the country, a fall of just 1.4 per cent from the previous quarter’s record.
The result means that 2018 is the first year in history where there have been over one million head of cattle in the Australian feedlot system for the entire year. The unrelenting drought in the eastern states has been a significant contributing factor, with primary producers forced to offload their stock earlier than usual and in higher numbers.
The overwhelming sentiment is that feedlot numbers will remain strong in the first quarter of 2019. Export demand for Australian beef, particularly from China, remains strong, and the falling Aussie dollar has been assisting the cause. February shipments of Australian beef increased 11 per cent compared to the same month last year.
The state of Queensland dominates the Australian feedlot sector with just over 631 thousand head, or 56.7 per cent of the total number of cattle on feed. New South Wales has the second biggest herd, with around 326 thousand head, or 29.5 per cent of the total. Collectively, these two eastern states make up 86.2 per cent of cattle on feed in the country.
It is this dominance and concentration of demand that has been the overriding driver of feed grain movements from west to east over the last fifteen months. Poor grain production in northern New South Wales and Queensland for the previous two winters and three summers (including this summer) has led to a huge deficit.
If you add demand from the pig and poultry sectors, and from the specialised milling wheat and malting barley consumers, total wheat and barley movements into the ports of Brisbane, Newcastle and Port Kembla will most likely exceed 4 million metric tonnes (MMT) by the end of the third quarter in 2019.
On the international front, yet another month has passed, and yet another World Agricultural Supply and Demand Estimates (WASDE) report has been released by the United States Department of Agriculture (USDA). On the whole, it was quite benign, and futures markets reacted accordingly.
World wheat production for the 2018/19 marketing year is forecast to fall by 1.7MMT to 733MMT compared to the February estimate. Kazakhstan was the big mover with production down 1MMT, Argentina was down 0.3MMT, and Australia was up 0.3MMT to 17.3MMT.
Global wheat demand has been lowered by 5.1MMT to 742MMT compared to last month. The big mover here was India where demand was reduced by 3MMT, but their ending stocks were increased by 3MMT. The USDA have to balance the books somehow! US ending stocks were up 1.2MMT which is more than 1MMT below last year’s carry out, and the US wheat plantings are the lowest in more than a hundred years.
World barley production was increased by a meagre 0.1MMT compared to the February forecast. However, Australian production was increased by 1MMT to 8.3MMT and is now broadly in line with trade consensus in Australia. Global demand was decreased by 0.4MMT, but within that number was a decrease in China by 0.5MMT and an increase in Australia of, you guessed it, 1MMT.
Speaking of barley, there was a significant turnaround in market sentiment last week with old crop grower bids firming in both South Australia (up around $10) and Western Australia (up around $20). The renewed interest came from the big end of town, so it is most likely export driven.
Market rumours suggest that there may have been a delay to the imposition of Chinese import restrictions stemming from the current anti-dumping investigation. The Australian government and exporters have been expecting a decision for the last two weeks.
China has reportedly realised that they will need more Australian barley, particularly malting barley, before new crop Black Sea stocks become available in July. Sources suggest that Beijing may have deferred a decision until May. Maybe just a rumour or maybe it has some substance. Only time, and the Chinese, will tell.
In the meantime, grain consumers in northern New South Wales and southern Queensland are getting increasingly concerned about the continued dry and its impact on winter crop production in their back yard. New crop stocks would generally be available to the consumer when harvest ramps up early in the fourth quarter of the year.
However, several big end users are believed to have taken some risk off the table by locking away a proportion of their wheat and barley requirements through to the end of the year, and even into the first half of 2020. Soil moisture levels across the entire region are well below average for this time of the year and the wet season is winding down, so the chances of an above average crop are very low, and the chances of a below average crop are quite high at the moment.
The carry-in stocks will be zero, and any production will be keenly sought so it would seem quite prudent to take some cover at this juncture. If it is the highest price that these consumers pay for their 2019/20 requirements, then happy days!
Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.

Desperately Seeking Saudi

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Desperately seeking Saudi…

Global barley values have been in decline for much of this year as the lack of demand from key importers continues to weigh heavily on international markets. This is despite the latest World Agricultural Supply and Demand Estimates (WASDE) having demand outstripping supply in the 2018/19 marketing year (July 2018 to June 2019).

Droughts in Australia and parts of the European Union in 2018 underpinned global values early last year. World supplies were forecast to drop to a 35 year low. However, it appears that the higher prices last year led to a decrease in demand as consumers turned to cheaper alternatives such as corn.

The downturn in demand is being reflected by the absence of both Saudi Arabia and China in recent months. The Saudi Arabian Grain Organisation (SAGO) has purchased 5.4 million metric tonnes (MMT) since the marketing year began. This is approximately 17 per cent higher than at the same time last year.

But SAGO has not issued a barley import tender since early November 2018, when it booked just over 1MMT for January and February delivery. Most of the barley imported into Saudi Arabia goes to domestic farmers to feed their sheep, goats and camels. Pasture has reportedly been abundant over the winter as a result of above average rainfall, and this is forecast to continue for at least another two months.

The washup here is that Saudi Arabian demand could fall by up to 800,000 metric tonnes (MT) to around 7.7MMT in the current marketing year. This would lead to a reduction in SAGO imports, possibly to as low as 7.5MMT. This is a decrease of 500,000MT compared to the 2017/18 trade year.

This is also a full 1MMT lower than the latest official USDA forecast of 8.5MMT, released in the WASDE report earlier this month. If Saudi Arabian imports do end up at 7.5MMT this season, this will naturally decrease world demand, add to global ending stocks and take a little bit of pressure off the very tight barley stocks to use ratio of 12.6 per cent.

According to trade sources, barley prices in the EU have fallen by more than US$20 in the last five weeks. Long holders, particularly of French barley, have reportedly folded to market pressure and liquidated their positions in the last few weeks, pushing prices dramatically lower. French feed barley closed last week offered at US$203 free on board (FOB). German and Baltic offers are holding up a little better, closing last week at a US$10 premium to French values.

Black Sea exporters appear to be out of the old crop game at the moment, being quoted at US$230FOB. But the new crop is a different story. Conditions across Europe and the Black Sea region have been quite favourable for the maturing barley crop. As a result, new crop Black Sea values are sub-US$ 200FOB and exports will be available in July. As the availability of new crop stock gets closer, this inverse will have serious implications for old crop demand and global values.

The other major barley supply and demand change in the February WASDE report was a decrease in Chinese demand of 1MMT. This was the major contributor to the forecast increase in global ending stocks of almost 500,000MT. Small increases were also made to Argentinian and Saudi Arabian ending stocks and the EU number was decreased slightly.

Australia is traditionally the leading supplier of feed and malting barley into China. However, the current anti-dumping investigation by China has had a dramatic impact on forward demand, and the Australian barley market is starting to feel the pinch.

Exporters have been frantically executing most of the China business that was on their books when the anti-dumping action was announced back in late November, and a significant proportion of barley currently on the export stem for the last half of February and for March is believed to be destined for China. It is demand beyond that point that is the issue.

Both the trade and the government have submitted the required paperwork and delegations have met with Chinese officials in recent weeks. It is basically a waiting game at the moment, with an interim measure announcement expected from the Chinese in the next few weeks.

Domestic corn is currently filling much of the demand void in China but there is an expectation within the trade that they will need to buy some Australian barley before the new crop Black Sea is available. Only time will tell.

Australian barley production from the last harvest ended up at around 8.5MMT. This was much bigger than expected leading into harvest, with Western Australian production surpassing 5MMT for the first time ever. While not a record year, the South Australian barley harvest also pleased to the upside compared to preharvest expectations.

Both the South Australian and Western Australian grower has sold around 90 per cent of their barley production and, as a consequence, the long now sits with the domestic trade. With China out of the market and uncertainty around Saudi Arabian intentions, exporters are anxious to exit their positions ahead of the new crop inverse.

This has placed significant downward pressure on domestic prices and has flowed onto export values which have decreased to around US$220FOB Western Australian ports. At this level, Australia is well placed to pick up Saudi Arabian demand when they eventually tender.

This decrease is also being reflected on the east coast. Late last week feed barley was trading at around $380 delivered Darling Downs, a fall of about $20 this month. Wheat values delivered Darling Downs have also decreased over the same period but not to the same degree. As a result, feed barley is now trading at about a $55 discount to wheat.

The sorghum crop is getting smaller by the day and the market closed last week at $360 delivered Darling Downs. This is only $20 under feed barley. At these spreads, the feed barley inclusion rate in stockfeed rations will be maximised at the expense of wheat and sorghum. This, in turn, will mean increased domestic demand for Western Australian feed barley, but it will certainly not be enough to soak up the bigger than expected exportable surplus.

The global barley market is on the back foot due to the ongoing absence of Saudi Arabia. With China not buying, Saudi Arabia is the only other volume home for Australia’s exportable surplus. The sharp fall in global prices bought Tunisia to the table last week. If it doesn’t draw out a SAGO tender in the next few weeks, the Aussie trade will get increasingly anxious and will be forced to have a serious look at overall Saudi Arabian demand for the last quarter of the current marketing year.

Peter McMeekin is a consultant to Grain Brokers Australia. Call 1300 946 544 to discuss your grain marketing needs.

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