Misc Archives | Grain Brokers Australia

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.

Trying to forget the politics for a moment…  

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Trying to forget the politics for a moment…

A lack of adequate snow cover to protect the winter crop against cold weather is raising some concerns in parts of the northern hemisphere. The snow cover acts as an insulation layer for the hibernating wheat and barley crops. If this is not present the exposed crop becomes susceptible to damage, and even death, from freezing winter temperatures.

The areas of adequate snow cover are confined to eastern Europe and the Balkans. This leaves the crop in the central and western regions susceptible to the sub-zero temperatures that are forecast for most of Europe over the next few weeks. Rainfall will alleviate the immediate issue in isolated regions, but an exposed crop remains very susceptible to a cold snap.

No such issues exist in Russia or their Former Soviet Union (FSU) neighbours where the snow cover is reported to be excellent and the winter crop in good shape. The snow cover is so thick it has actually been playing havoc with the movement of wheat and barley to the Black Sea ports for export in recent weeks.

Across the Atlantic, it has been bitterly cold in the northern parts of the US. The market has been finding support on worries that recent snowfalls and the forecast snowstorms may not be extensive enough to protect the winter crop adequately. Freezing temperatures are forecast for much of the Plains and Midwest through to the end of January. The snowstorms are expected to be less severe in the Southern Plains, but so too are the temperatures, reducing the potential weather and production risk in those counties.

US wheat futures closed out last week in positive territory on the back of firmer Black Sea export values. There appears to be a renewed feeling that the market and price will ensure Russian domestic requirements are met by restricting exports enough to negate the need for government intervention. Available shipping data suggests that there has been a sharp drop in Black Sea wheat loadings to open the New Year despite their dominance of recent Egyptian tenders.

Rumours also abound of fresh US export wheat business being concluded along with reports of optional origin sales being switched to US execution. US hard red winter wheat is now around US$3-5 cheaper than both Russian and EU origin wheat. However, all of this remains anecdotal as long as the government shut down continues and the key United States Department of Agriculture (USDA) market data is not being collated.

The window for the US and EU to gain wheat export traction before new crop grain is available gets smaller with every unsuccessful Egyptian tender, not that they are the only option. The market is also expecting vastly improved supplies in 2019/20 as global cereal production rebounds from drought reduced production in many jurisdictions this season.

European Union wheat production, for example, is forecast to be 147 million metric tonnes (MMT), an increase of 16% on this season’s production of 127 MMT. With a return to more normal seasonal conditions, both Australian and Russian production could easily be up at least 6MMT. That will bring production in the major exporting countries back to around 400MMT, up from 364MMT this season.

Weakness in corn futures values in the middle of last week bought out some buyers with South Korean importers booking around 260,000 metric tonnes (MT) in snap tenders. The biggest purchase of 135,000MT was made by the country’s largest stockfeed manufacturer, Nonghyup Feed Inc (NOFI).

The export interest, and the ongoing weather concerns in South America, pushed corn futures higher into last week’s close. US corn exported from the Gulf of Mexico is now cheaper than Ukraine origin corn delivered into many Mediterranean destinations. Pacific North West (PNW) export prices are also competitive trading on a par with Argentinian values into the Korean Peninsula.

Total precipitation in the Brazilian state of Mato Grosso this summer crop season is running around 35 per cent below last year. The state produces almost 40 per cent of Brazil’s safrinha corn crop. The first corn crop only makes up about a third of Brazil’s total corn production with the second crop (safrinha) making up the balance. This crop is planted immediately after the soybean crop is harvested and is the major contributor to their export program. With the soybean harvest ramping up in Brazil at the moment the safrinha plantings have also just commenced, with harvest expected in May.

Market talk suggests China is bidding for Ukraine corn at evens to PNW export values. Given the freight spread is around US$18 in favour of the US, significant sales to China are indeed possible if a resolution can be found to the ongoing China-US trade war.

Speaking of China, African swine fever is still a significant concern with 916,000 pigs culled after around 100 outbreaks of the disease had been recorded in 24 provinces since August last year. While that seems a high number, it is small relative to the total pig population of around 430 million head. China slaughtered almost 700 million pigs in 2017.

With US corn prices now competitive internationally, downside from current price levels appears limited. US corn is currently the cheapest in the world and will most likely remain so until the new crop South American harvest comes on stream in the second quarter of the year. Here again, the shutdown means we have no idea if the US is gaining traction in global markets.

The political issues of recent weeks have been a massive distraction in global grain markets. The dearth of crucial information and statistics has created a market that is merely treading water, with no direction and no rudder. As a result, the trade focus has now turned to the weather extremes being experienced across the world and the possible global supply ramifications. But that is only one side of the critical supply and demand equation.

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

A new year starts with the same old stories …  

Posted by | Misc, Weekly Commentary | No Comments

A new year starts with the same old stories …

The New Year celebrations are now behind us and 2018 has been happily farewelled by many growers across the globe, particularly by a vast majority of eastern Australia’s winter crop farmers. Nonetheless, many of the same old issues continue to generate volatility on both global futures and domestic grain markets right across the globe.

World wheat values remain supported as rumours of supply tightness, and possible export restrictions, in Russia linger. Fresh news is limited as most of the Black Sea region only return to work from holidays this week. Russia has been dominating global wheat trade so far this marketing year but US hard red winter wheat is now priced to buy demand, trading last week at a US$10 discount to Russian export values. That said, the trade is waiting on a sustained improvement in US export sales before slipping into their buying shoes.

The market did rally late last week on the news that Algeria had rejected a cargo of Argentine wheat on the grounds that it was below contractual quality standards. Argentina exported around 900,000 metric tonnes of wheat to Algeria last year.  The north African country is Argentina’s second-biggest wheat client. Argentine authorities are confident that the quality issue is an isolated case.

The trade stand-off between China and the United States (US) appears no closer to a resolution despite mutterings from the White House, and tweets from The Don himself, suggesting all is on track. There are also unconfirmed rumours of more purchases of US soybeans by the Chinese government owned Sinograin. One day the soybean market is up on speculation of a resolution and sales. The next day the market falls as profit takers jump in to take risk off the table.

A US trade delegation is due in Beijing this week. Some reports say it is to continue the discussions (meaning progress has been slow) and others say it is to finalise an agreement (maybe the Don’s “going well” tweets are accurate). Nevertheless, one fly in the ointment could well be President Xi Jinping’s recently enunciated position on the reunification of Taiwan. Me thinks this stalemate may well continue for some time yet.

And now we have another game in play in the US. In simple terms, Trump wants to build a wall between the US and Mexico, but the Democrats don’t agree with his border control policy. The impasse has led to the shutdown of non-essential government services across the country. More than 800,000 federal government workers have been without pay since the 22nd December.

One such non-essential agency is the United States Department of Agriculture (USDA). The lapse in funding means that key USDA reports, due for release this week, will not be published. Reports such as the World Agricultural Supply and Demand Estimates (WASDE) along with US production and US stock reports will be delayed until at least one week after funding has been restored. With the Democrats now in control of the House of Representatives it could be a long wait!

The WASDE report is a monthly publication that includes production and trade forecasts for the US and world wheat, rice, coarse grains (corn, barley, sorghum, and oats), oilseeds (soybeans, rapeseed, palm), and cotton. For many traders and consumers across the globe, this report is an essential component of their market analysis and strategy development.

The January WASDE report is particularly important as it will likely contain the final production numbers for the US corn and soybeans crops as well as updating the South American summer crop production estimates. There are growing trade expectations of a lower final US corn yield compared to the December WASDE estimate.

The December weather concerns across many regions of Brazil (extremely dry) and Argentina (exceptionally wet) have continued into the new year putting downward pressure on both soybean and corn production forecasts in both countries. The dry is also having a detrimental impact on summer crop production in neighbouring Mercosur trade pact member countries, Uruguay and Paraguay.

Another victim of the partial US government shutdown has been the trade aid payments to US farmers. The payments are designed to help (and appease) farmers affected by the US trade war with China. A second round of payments was authorised just prior to Christmas but they have not been paid. This comes at a time when US farmers are securing finance for their next summer crop program and it may reduce the amount of money banks are prepared to lend farmers.

Harvest here in Australia is now winding down with pockets in the Western Districts of Victoria, small areas of the lower south-east and lower Eyre Peninsula regions in South Australia and some late Albany and Kwinana crops still to be harvested. Favourable weather will see most of this knocked over in the next week or so.

Receivals in Western Australia have now exceeded 16 million metric tonnes (MMT). Wheat makes up around 9.3MMT of this total, barley around 4.7MMT and canola just over 1.4MMT. In South Australia total bulk handler receivals are approaching 4MMT and are expected to surpass that number by the time final harvest deliveries have been received.

Major bulk handler receivals in the eastern states total around 2MMT and probably constitute around 35% of the total crop. The balance is either sitting in private stores, on-farm or has already been received directly into consumer storage facilities across Queensland, New South Wales and Victoria.

Experience says that no two years are ever the same in agriculture. New global supply and demand challenges will emerge in 2019 as old ones are resolved. But for now, political interference in the jurisdictions of Presidents XI, Trump and Putin continue to dominate grain market news wires.

As legendary American folk rock duo Simon and Garfunkel wrote and sang many years ago: It’s the same old story!

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

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