Weekly Commentary Archives | Grain Brokers Australia

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.

Over the thirsty paddocks…

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Grain Brokers Australia Weekly Market Report
5th March, 2019
Over the thirsty paddocks…

On Thursday of last week, the Bureau of Meteorology (BOM) provided an insight into the weather experienced across the country in the previous three months and released their latest three-month outlook. It has certainly been a summer of extremes with heatwaves, dust storms and bushfires experienced across much of the continent, particularly the eastern states, and then, for parts of northwestern Queensland, unprecedented floods in February.
The temperature summary for the December to February period revealed that Australia endured its hottest ever summer, breaking the previous record set in 2012/13. The mean summer temperature was at least 2ºC above the 27.5ºC benchmark that the BOM considers normal, based on the 30 years from 1961 to 1990.
Early last month the BOM confirmed that January was the hottest month ever recorded in Australia. The mean temperature across the country of 30.8ºC was 2.9ºC above the 1961 to 1990 average. Maximum and minimum temperature records were broken across the country, and the Queensland town of Cloncurry endured 43 days in a row in excess of 40ºC.
In terms of rainfall, a massive part of southern and central Queensland and northern New South Wales experienced their lowest registrations on record. Those districts that didn’t post a record were very much below average. The shrinking Australia sorghum crop is undoubtedly a reflection of these statistics.
Whilst the rest of the Australian winter crop belt traditionally has a winter dominant rainfall pattern, some summer rainfall is quite normal. That has not been the case for the South Australia grain grower this summer where the entire state, save for a small pocket in the lower south-east, recorded below average or very much below average rainfall. The story in Western Australia was much the same.
The hot, dry trend is set to continue for much of the continent according to the BOM’s latest three-month outlook. All districts east of a line from Darwin to Port Lincoln on South Australia’s Eyre Peninsula are expected to have a drier than average autumn (March to May). The Western Australian grain belt is likely to receive average rainfall for the same period.
The BOM suggests that warmer than average autumn days and nights are very likely for almost all of the Australian landmass. They also predict that there is more than an 80 per cent chance of being warmer than the median for both days and nights for most of the country.
Time is running out fast for the winter cropping regions of Queensland and northern New South Wales. These regions have a summer dominant rainfall pattern, and grain growers in these regions rely on the summer wet season to replenish the soil moisture profile ahead of the traditional winter drought. This moisture is critical for the winter crop ahead.
Most districts have now had three consecutive summers where rainfall registrations have been significantly below average. Rainfall, in the two winters sandwiched in between those summers, has also been well below average.
The amount of rain required to fill the soil profile varies depending on the success, or otherwise, of last season’s cropping program. A considerable part of the region in question failed to plant a crop last winter. Some of these areas may only require 100mm of rainfall to join up with the moisture which may be as close as 30 centimetres from the soil surface.
Those who planted a crop, and it managed to struggle into the spring, and even to harvest, will require much more rain as the subsoil moisture level will be much lower down the profile, and therefore more precipitation will be required to join up with the existing deep soil moisture.
The required summer rains could still come, albeit a little late. It has happened many times in the past. Nonetheless, the further we go into autumn the lower the chance. The soils are parched, and there is little or no ground cover, so the first rains need to be slow and steady. However, with unseasonable and extreme weather events now the norm, the biggest fear is that the long dry spell will finish with a big wet.
It is far too early to make a call on the impact of the dry summer on New South Wales and Queensland winter crop production forecasts. Australian farmers are a resilient bunch, none more so than the north western New South Wales grower, many of whom have only had one crop in the last five years. If sufficient rain arrives, the crop will be planted.
Meanwhile, domestic wheat and barley values continued the recent downward trend last week. This appears to have been led by falling United States futures values and trade longs here in Australia desperately looking for export homes. New crop Black Sea harvest is fast approaching.
Open demand ahead of their harvest is diminishing, and the market inverse will make it extremely difficult for Australia to compete in the third quarter of the year without a lot of financial pain. Asian millers have reportedly turned to Argentina for wheat, and there still hasn’t been a Saudi Arabian feed barley tender since November last year.
Western Australian ASW wheat bids fell around $15 across the week, and the northern feed market mirrored that move, down $15 and trading at just under a spread of $100. Feed barley bids in the west fell by about $11 week-on-week. The delivered Darling Downs price closed the week down $15 and is trading at a spread of $106 over the west.
On the other hand, delivered Darling Downs sorghum values were relatively unchanged. The discount to feed barley is now into $20, and the wheat spread closed the week at $50. Again, the diminishing spreads are a reflection of lower sorghum production as a result of the parched summer. However, the resultant increase in demand for Western Australian grain will only absorb a small portion of the long positions currently sitting in the hands of the domestic trade.
Call Grain Brokers Australia on 1300 946 544 to discuss your grain marketing needs.

Will the deal be Don or will pigs fly?

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Will the deal be Don or will pigs fly?

No matter what news source you read, watch or listen to at the moment, China seems to be dominating the daily news cycle, particularly in the rural commodity sphere.

All the talk in agriculture circles late last week was around progress in the China-United States (US) trade deal. Last week’s negotiations went so well that they have been extended across the weekend and work has reportedly commenced on a draft memorandum of understanding (MoU) that will finally put an end to Don’s Party (China-US trade war).

The US and China have been desperate to finalise a deal before March 1, when additional US tariffs are scheduled to be introduced. US President Donald Trump announced on Monday of this week that “As a result of these very productive talks, I will be delaying the US increase in tariffs now scheduled for March 1”. He went on to say that “assuming both sides make additional progress, we will be planning a summit for President Xi and myself to conclude an agreement”.

China is reportedly proposing to buy an “additional” US$30 billion worth of US agricultural produce per year. These purchases would be on top of pre-trade war levels and would continue for the period covered by the MoU. The major bulk export commodities such as soybeans, corn and wheat would be included.

To put this in perspective, in 2017 Chinese agricultural imports totalled US$125 billion. Imports of US farm products in the same year were more than US$24 billion, or 19 per cent of the total. Bulk commodities made up almost US$15 billion, with soybeans accounting for just under US$12.5 billion. Wheat, corn and sorghum made up most of the balance. In 2018, the value of US farm produce exports to China fell by a third, to US$16 billion, as a result of the trade conflict.

Using last Friday’s futures close, the current value of projected US ending stocks for soybeans, corn and wheat were US$8 billion, US$6 billion and US$5 billion respectively. In other words, China could buy the sum total of US ending stocks for these three commodities and still have US$11 billion left over to splurge on other US agricultural produce such as meat, cotton, dried distiller’s grains (DDGs), ethanol, seafood and sorghum.

The MoU under discussion is also believed to cover areas such as intellectual property, non-tariff barriers, technology transfer, telecommunications and services. However, the verification and enforcement mechanisms remain unclear. If past actions are any indication of future behaviour, I have no doubt that President Trump would be threatening to reimpose tariffs if the conditions of the MoU are not met.

The potential impact of such a deal on the US farm sector and US agricultural markets could be huge, as long as the agreement also includes measures to stabilise currency values. US negotiators have been seeking China’s agreement to decrease manipulation of the value of the yuan to gain a trade advantage.

If China does agree to purchase an additional US$30 billion of US agricultural products each year, this is much more than the year-on-year increase in demand. There will almost certainly be collateral damage as a result, most likely the Chinese farmer and other agricultural commodity trading partners, Australia key amongst them.

Early last week the Chinese government outlined its latest rural policy. At its heart are three primary goals: improving rural incomes, improving rural living standards and supporting domestic agricultural production. But agricultural production systems in China are relatively inefficient, primarily due to scale and the tyranny of distance.

In a scenario familiar to many farmers across the globe, Chinese farm incomes have been under threat from rising input costs, rising labour costs, rising freight costs, large inventories and competition for cheaper imports.

The rural policy outlined plans to increase soybean production while stabilising wheat and corn production. In other words, they are aiming to increase total farm productivity. If imports of US soybeans increase in conjunction with rising domestic production, then imports from other global trade partners such as Brazil and Argentina will have to decrease. Ironically, Brazil has been one of the biggest beneficiaries of the recent trade war.

China has long been a traditional market for Australian cereal grains such as barley, wheat and sorghum. While not in the same volumes as soybeans, any decrease in demand for Australian agricultural produce from mainland China will undoubtedly have an impact on competition for Australian exports, and potentially on farm gate returns.

The ongoing barley anti-dumping investigation by China is a complicating factor. Australian barley exporters are waiting in trepidation of a Chinese government ruling that may close the gate on Australia’s biggest barley market. Rumours were circulating late last week that an announcement would be made sometime this week and that it would be quite prohibitive.

Market sources suggest that any trade restriction will take the form of a deposit paid to Chinese authorities to allow the cargoes to enter the country. This deposit will be returned to the remitter if the governmental investigations do not implement prosecutions against Australian barley exporters. A comparable deposit scheme on US sorghum imports last year effectively closed the door to US sellers and foreshadowed an official tariff.

There are a number of Australian barley cargoes currently discharging at Chinese ports, more shipments on the water and the export stem still has barley vessels yet to load with China as the nominated destination. I suspect that the respective exporters will be having a few sleepless nights ahead of the announcement, whenever it may be.

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

Barley Market Strategy Update

Barley the Big Winner

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From the Grain Industry Association of WA:

BARLEY was the big winner in Western Australia’s grain harvest with an increased production of just over 5.1 million tonnes, up 35.1 per cent on 2017.

In releasing its final crop report for the 2018 harvest last Friday, the Grain Industry Association of Western Australia (GIWA) said WA’s final grain yield for the 2018 season was 17.9mt.

This includes the 16.4mt delivered through the CBH network plus on-farm seed and feed requirements and grain traded outside of CBH.

GIWA confirmed that it was WA’s second biggest harvest ever and the most valuable at just under $7 billion.

The end result is somewhat a surprise for the State.

Earlier predictions of 14mt following the dry spring and several severe frost events were eclipsed by a nearly 4mt turnaround over most parts of WA, due to the late soft finish and mild temperatures during grain fill prior to harvest.

Total tonnage for the Kwinana port zone was up 2.2mt from 2017 and Geraldton port zone was 2mt up from 2017.

The Esperance and Albany port zones were both down from 2017 with a decrease of 0.5mt for Esperance port zone and 0.2mt for the Albany port zones, reflecting the poor growing season in the western and northern areas of the Esperance port zone and the east Albany port zone.

According to the GIWA report, the standout crop in 2018 was barley with an average grain yield of 3.19 tonnes per hectare, well above recent averages.

“The percentage of barley making Malt grades was up by nearly 10pc on historical averages, with a record total tonnage produced of just over 5mt,” it said.

Wheat production was an interesting one to come out of the breakdown with only 54pc of the crop area in WA planted to wheat in 2018, which was the lowest on record.

Despite the low plantings, it was also only the fourth time WA has produced 10mt or more of wheat, with three of those years in the past seven years, including a trend over that time of declining area.

Grain weight was high in most regions of WA, a function of the soft slow finish to the season.

Screenings were generally low except for some very high yielding barley varieties such as Planet when grown on the eastern fringes of the medium rainfall regions.

GIWA said in the southern regions of the State there were reasonable tonnages of Malt grade barley downgraded to feed from germ end stain due to rain and humidity during grainfill and prior to harvest.

Wheat grain protein was lower than in recent years, influenced mainly by the dilution from higher than expected yields.

A noticeable recent trend is that wheat grain protein is more likely to hold up on ameliorated soils where crops are more able to use the available soil moisture “bucket”.

This gives growers more confidence in fertilising for maximum potential.

About 40pc of all barley deliveries made Malt grade which is about 10pc more than normal.

The percentage of Malt grade deliveries were nearly 50pc in the Albany port zone, although this was biased by a greater percentage of feed barley production acquired privately in the zone than other regions of the State.

The late start impacted the amount of canola planted, with programs revised and barley went in to replace canola as the break to the season was delayed.

This meant the canola production of 1.45mt was down 23.7pc from what was produced in the previous year.

Canola oil quality was down slightly from recent years and generally lower than expected by growers considering the soft cool finish to the season.

Most oil percentages were in the mid 40s rather than the high 40s.

Canola grain yields were very erratic in 2018 with no single factor influencing the final result and this may have contributed to average oil percentages being lower than recent years.

Lupin area continues to climb on the back of the more determinate rather than indeterminate growth habit types recently released.

GIWA said “new varieties have more suitable adaptation in the southern areas and whilst producing less growth, are very good yielders for grain”.

The only downside is the prevalence of more split seed in the harvest sample, which appears somewhat to be due to variety, and possibly to higher yields requiring more manganese.

Milling oat demand continues to increase and WA’s reputation for producing a premium product was again enhanced with most milling grade oats delivered or privately acquired of very high grain quality.

Field peas continue to be grown in small quantities in the State’s southern regions.

Many crops were hit by frost and produced low grain yields, although in the absence of frost, grain yields were good.

The smaller areas of lentil, faba bean and chickpea are growing, although GIWA said they were still too small to report on.

In terms of the grain pricing, AgFarm WA regional manager Reid Seaby said the market was pretty lacklustre at the moment.

“The market has been very quiet of late,” Mr Seaby said.

“I think given where cash prices were over the harvest period, most guys would be relatively well sold at this point in time.

“WA pricing has eased slightly and new crop prices have fallen away.

“Wheat supplies globally are starting to run out, which might see export demand shift to Australian and US supplies.

“The government shut down in the US has limited USDA reporting recently, but we should start to get a little more clarity on global trends in the next couple of weeks.

“ASW should be well supported, driven by demand to the Philippines and obviously there is still demand coming from the east coast, so the lower grades will be supported by those two factors I would imagine.

“WA is still competitive globally in terms of barley, but there is no resolution to the China situation in sight, so that is hurting export demand.”

Looking forward Mr Seaby said growers were still assessing programs and waiting for an indication of how the season may play out.

“In terms of forward selling, you look at new crop values compared to old crop and growers were getting $400 a tonne for ANW, if you forward sell at $300 it doesn’t seem that attractive right now,” he said.

“But if you look at historical values, $300/t was the magical figure that everyone tries to start their marketing campaign at, with $400 fresh in their minds, however, $300 looks a little bit soft at the moment.

“I would say consultants would be advising growers to take the emotion out of it and focus on their budget and if $300 works for their figures then the advice may be to start there.”

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.

This little piggy went to market…

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This little piggy went to market…

The big news in Agricultural markets last week was the release of a plethora of data by the United States Department of Agriculture (USDA). Most of the reports had been delayed due to the partial shutdown of US government agencies.

The biggest of these reports was the World Agricultural Supply and Demand Estimates (WASDE) which incorporated two months of data. The January report could not be collated as USDA employees were furloughed throughout the record 35-day shutdown.

Surprisingly, there weren’t any significant surprises. The USDA trimmed world wheat ending stocks from 268.1 million metric tonnes (MMT) to 267.5MMT. Nothing there to scare the market. They left the United States (US) and European Union (EU) wheat exports unchanged at 27.2MMT and 22MMT respectively, but they did decrease Australian wheat exports to 10MMT. This is now roughly in line with most domestic trade estimates.

Interestingly, the USDA increased Russian wheat exports by 0.5MMT to 37MMT. There has been much speculation around the unsustainable pace of Russian exports and possible restrictions as internal wheat prices soar. Rouble-denominated prices for Russian milling wheat have hit an all-time high, while those in US dollar terms are reported to be the highest since July 2014. Growers are holding back sales given shrinking stocks and continually rising prices.

Russian export wheat prices increased around US$4 last week, closing at a four year high. Russia is now largely uncompetitive in the world wheat market. This was reflected in last week’s Egyptian (GASC) wheat tender, where Russian prices were too high to compete. This was the second successive tender where Russia was unsuccessful. All this will surely keep Russian wheat exports well below the USDA number.

GASC purchased a total of 300,000 metric tonnes (MT) of wheat in their snap tender last Friday. The US sold 120,000MT of soft red winter wheat, the French also sold 120,0000MT, and the remaining 60,000 was traded by Ukrainian exporters.

The US was the lowest free on board (FOB) offer by around US$10, and despite the US$10 freight disadvantage, the US number landed in Egypt was still slightly cheaper than both the French and Ukrainian offers. The average cost and freight (C&F) price was approximately US$2 lower than the late January tender.

The Chinese will be back at work this week after their traditional Chinese New Year festivities. There are 12 Chinese zodiac animals used to represent years, and 2019 is the year of the Pig. The Lunar New Year, as it is also known, is celebrated by more than 20 per cent of the world’s population, with countries such as North and South Korea and Vietnam commemorating it as well.

In China, you will also hear the New Year referred to as ‘chunjie’, or the Spring Festival. It may still be winter, but the holiday marks the end of the coldest days and the approaching spring, which officially commences in March. From an agricultural viewpoint, it is a time to pray to the gods for a good winter crop harvest and summer crop planting season.

With the return to work comes a new round of trade talks between the US and China. They begin in Beijing on Monday, after last week’s negotiations in Washington concluded without a deal. Reports suggest that a lot more work needs to be done before a formal agreement is reached. Plenty of talk from both sides but who really knows what is going on?

Despite the rhetoric, the two sides are desperately trying to thrash out a deal ahead of the March 1 deadline. This is when the US tariffs on over US$200 billion worth of Chinese imports are scheduled to increase from 10 per cent to 25 per cent.

Early in the trade negotiation process, China stated that it would purchase 5MMT of US soybeans as a goodwill gesture while the negotiations were in progress. After a spate of buying in late January and the first four days of February, it appears that purchases well and truly reached the target ahead of the Spring Festival vacation period. With the USDA still catching up on the sales data, there are reports that the Chinese acquisitions could be as high as 10MMT since the talks began.

Moving to the northern hemisphere winter crop where warmer weather and rain across many parts of the Balkans and western Europe has reduced the protective snow cover. The weather forecasts are kind in coming weeks but any return to cold winter conditions could have serious winterkill implications in the absence of adequate protection.

In the Black Sea region, unseasonal mild temperatures have also melted the protective snow cover, particularly through the southern areas of Ukraine and Russia. There have been no reports of crop losses and local Ukraine estimates have stated that between 96% and 99% of winter grains in Ukraine are in a “viable state”. I guess this means they aren’t dead.

A large part of the US winter wheat area received heavy rainfall, and subsequent minimum night time temperatures have been close to the theoretical winterkill thresholds. This follows the extremely low temperatures through many of the Midwest states in late January. Up to 20 per cent of wheat land had limited or no snow cover. If there has been some damage, it will not become evident until the crop breaks dormancy in early spring and recommences its growth phase.

One number that did surprise last week was the area sown to winter wheat in the US. The USDA rolled out a planted area of 31.1 million acres. This is a 110 year low and is 4.3 per cent lower than last year’s area of 32.5 million acres.

Unseasonable weather conditions seem the be a global norm these days, and Australia is no exception. While the prolonged dry continues in southeastern Australia, many parts of Northern Queensland are the complete antithesis. Unprecedented flooding has come to areas that have been in drought for up to eight years. The resultant livestock losses have been huge and remind us of the harsh and unrelenting environment in which we live and work.

Unfortunately, the flooding will be no help to the ailing Murray Darling basin system on which so many Australians depend.

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

The big news in Agricultural markets last week was the release of a plethora of data by the United States Department of Agriculture (USDA). Most of the reports had been delayed due to the partial shutdown of US government agencies.

The biggest of these reports was the World Agricultural Supply and Demand Estimates (WASDE) which incorporated two months of data. The January report could not be collated as USDA employees were furloughed throughout the record 35-day shutdown.

Surprisingly, there weren’t any significant surprises. The USDA trimmed world wheat ending stocks from 268.1 million metric tonnes (MMT) to 267.5MMT. Nothing there to scare the market. They left the United States (US) and European Union (EU) wheat exports unchanged at 27.2MMT and 22MMT respectively, but they did decrease Australian wheat exports to 10MMT. This is now roughly in line with most domestic trade estimates.

Interestingly, the USDA increased Russian wheat exports by 0.5MMT to 37MMT. There has been much speculation around the unsustainable pace of Russian exports and possible restrictions as internal wheat prices soar. Rouble-denominated prices for Russian milling wheat have hit an all-time high, while those in US dollar terms are reported to be the highest since July 2014. Growers are holding back sales given shrinking stocks and continually rising prices.

Russian export wheat prices increased around US$4 last week, closing at a four year high. Russia is now largely uncompetitive in the world wheat market. This was reflected in last week’s Egyptian (GASC) wheat tender, where Russian prices were too high to compete. This was the second successive tender where Russia was unsuccessful. All this will surely keep Russian wheat exports well below the USDA number.

GASC purchased a total of 300,000 metric tonnes (MT) of wheat in their snap tender last Friday. The US sold 120,000MT of soft red winter wheat, the French also sold 120,0000MT, and the remaining 60,000 was traded by Ukrainian exporters.

The US was the lowest free on board (FOB) offer by around US$10, and despite the US$10 freight disadvantage, the US number landed in Egypt was still slightly cheaper than both the French and Ukrainian offers. The average cost and freight (C&F) price was approximately US$2 lower than the late January tender.

The Chinese will be back at work this week after their traditional Chinese New Year festivities. There are 12 Chinese zodiac animals used to represent years, and 2019 is the year of the Pig. The Lunar New Year, as it is also known, is celebrated by more than 20 per cent of the world’s population, with countries such as North and South Korea and Vietnam commemorating it as well.

In China, you will also hear the New Year referred to as ‘chunjie’, or the Spring Festival. It may still be winter, but the holiday marks the end of the coldest days and the approaching spring, which officially commences in March. From an agricultural viewpoint, it is a time to pray to the gods for a good winter crop harvest and summer crop planting season.

With the return to work comes a new round of trade talks between the US and China. They begin in Beijing on Monday, after last week’s negotiations in Washington concluded without a deal. Reports suggest that a lot more work needs to be done before a formal agreement is reached. Plenty of talk from both sides but who really knows what is going on?

Despite the rhetoric, the two sides are desperately trying to thrash out a deal ahead of the March 1 deadline. This is when the US tariffs on over US$200 billion worth of Chinese imports are scheduled to increase from 10 per cent to 25 per cent.

Early in the trade negotiation process, China stated that it would purchase 5MMT of US soybeans as a goodwill gesture while the negotiations were in progress. After a spate of buying in late January and the first four days of February, it appears that purchases well and truly reached the target ahead of the Spring Festival vacation period. With the USDA still catching up on the sales data, there are reports that the Chinese acquisitions could be as high as 10MMT since the talks began.

Moving to the northern hemisphere winter crop where warmer weather and rain across many parts of the Balkans and western Europe has reduced the protective snow cover. The weather forecasts are kind in coming weeks but any return to cold winter conditions could have serious winterkill implications in the absence of adequate protection.

In the Black Sea region, unseasonal mild temperatures have also melted the protective snow cover, particularly through the southern areas of Ukraine and Russia. There have been no reports of crop losses and local Ukraine estimates have stated that between 96% and 99% of winter grains in Ukraine are in a “viable state”. I guess this means they aren’t dead.

A large part of the US winter wheat area received heavy rainfall, and subsequent minimum night time temperatures have been close to the theoretical winterkill thresholds. This follows the extremely low temperatures through many of the Midwest states in late January. Up to 20 per cent of wheat land had limited or no snow cover. If there has been some damage, it will not become evident until the crop breaks dormancy in early spring and recommences its growth phase.

One number that did surprise last week was the area sown to winter wheat in the US. The USDA rolled out a planted area of 31.1 million acres. This is a 110 year low and is 4.3 per cent lower than last year’s area of 32.5 million acres.

Unseasonable weather conditions seem the be a global norm these days, and Australia is no exception. While the prolonged dry continues in southeastern Australia, many parts of Northern Queensland are the complete antithesis. Unprecedented flooding has come to areas that have been in drought for up to eight years. The resultant livestock losses have been huge and remind us of the harsh and unrelenting environment in which we live and work.

Unfortunately, the flooding will be no help to the ailing Murray Darling basin system on which so many Australians depend.

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

It’s off to work we go…

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It’s off to work we go…

The partial United States (US) government shutdown finally came to an end last week, and over 800,000 non-essential government employees returned to work. This means that the United States Department of Agriculture (USDA) is back up and running and staff are frantically collating all the reports that were due over the last 35 days as well as those due in the near future.

There will be a lot of information to hit the market in a short period. Around 62 reports that measure US farm production, foreign purchases of US commodities, the size of domestic stockpiles and US plantings of winter wheat were all delayed by the shutdown and they will be published in coming weeks.

However, the January World Agricultural Supply and Demand Estimates (WASDE) report is not being collated. Material originally intended for the January WASDE will be combined into the February edition which is due for release this Friday.

The other significant news last week was the return to the market of Egypt’s state grain buyer, the General Authority for Supply Commodities (GASC). This was the first tender since GASC secured a new credit facility, updating its payment terms in a bid to drum up greater selling interest and to lower costs at its tenders.

The tender results reveal that GASC purchased 360,000 metric tonnes (MT) of wheat, and none was from Russia. This is a complete turnaround from the January tender where it all went to Russian exporters and is the first major sign of a slowdown in the pace of Russian wheat exports.

Russian offers were more than US$255/MT free on board (FOB) and were simply too expensive compared to Romanian offers at just under US$251/MT FOB and French at almost US$248/MT FOB. GASC booked 180,000 (3 cargoes) from each origin for the March 11 to 20 delivery window.

This is the first sale of French wheat into the GASC tenders since July 2017. The average delivered price came in at US$262.77 cost and freight (CFR), a fall of US$2.17 on the January tender price. US wheat was offered at $US243 FOB but couldn’t quite compete on a CFR basis due to the unfavourable freight spreads compared to France and Romania.

However, one of the first USDA reports to hit the wires was the US weekly sales report for the week ending December 20. It revealed that two cargoes of US hard red winter (HRW) wheat had been sold to private Egyptian buyers. This is undoubtedly a good sign for the competitiveness of US wheat into the Mediterranean, African and Middle Eastern destinations and maybe a precursor for more such news as the delayed USDA reports are released in coming weeks.

Another factor favouring the US presently is the fall in international sea freight rates. This is reflected in the dramatic fall in the Baltic Dry Index (BDI) over the last month. The BDI is a shipping and trade index created by the London-based Baltic Exchange and was first published in January 1985.

It measures changes in the cost of transporting various goods around the world and gives investors and the trade an insight into supply and demand trends in the global dry bulk shipping market.

The index is calculated using charter rates for the full range of ship sizes – from Handysize (ships that can carry 15,000 to 35,000 deadweight tonnes) to Capesize (ships that can carry more than 100,000 deadweight tonnes). The figure for each ship size is based on an average of rates on a series of routes representative for each size.

The BDI is traditionally a good indicator of global economic health and worldwide demand for commodities and raw materials, such as iron ore, coal, steel cement and grains. The fact that the BDI focuses on raw materials is crucial because the demand for raw materials provides a glimpse into the future.

The index has lost more than 50 per cent of its value since the beginning of the year and is now at its lowest level in almost 2 years (see chart). January is historically slow for dry bulk markets, particularly in the Pacific as the far east prepares for Chinese New Year. However, this year the Atlantic rates have also fallen significantly.

The short term sentiment has been intensified by two factors. Firstly, the lack of soybean exports from the US to China as a result of Don’s Party (US-China trade war). And secondly, the tragic dam break at Vale’s Corrego do Feijao iron ore mine in southeastern Brazil. This is a huge mine, and the disaster has sparked concerns that it could lead to a substantial decrease in iron ore production and exports from Brazil which will impact the capsize sector of the shipping market.

One thing is certain, the decrease in sea freight rates is increasing the competitiveness of the US into important markets such as the Mediterranean, African and Middle Eastern regions. These are markets that have been dominated by Russia so far this season. The US needs to find demand for wheat. The challenge is the amount of open old crop demand in those markets is shrinking every week as new crop Russian and Ukrainian wheat will be available in July.

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

It’s hot! Damn hot! Real hot!

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It’s hot! Damn hot! Real hot!

Extreme heat wave conditions have been experienced across many parts of south eastern Australia over the past week with temperature records tumbling in many regions. South Australia appears to have been the worst affected with seventeen official temperature records broken across the state last Thursday.

Adelaide posted a new record of 46.6 °C (115.9 °F) compared to 46.1 °C (115.0 °F) set on January 12, 1939, more than 80 years ago. In Port Augusta, the thermometer peaked at a scorching 49.5 °C (121.1 °F) which was terribly close to the highest official temperature ever recorded in Australia. This is 50.7 °C (123.3 °F), and it was logged at Oodnadatta (also in South Australia) on January 2, 1960. Incidentally, the official highest ever recorded temperature on earth is 56.7°C (134°F), which was measured on 10 July 1913 at Greenland Ranch, Death Valley, California, USA.

The sweltering temperatures extended east into most parts of Victoria and inland regions of New South Wales but not as many records were broken in those states. The neighbouring regions of the Mallee in northern Victoria and the Riverina in south western New South Wales were the hardest hit.

In Queensland, the temperatures were above average but certainly not as extreme as those experienced further south. However, it is the extreme dry that is the biggest challenge for sunshine state grain growers at the moment. Unlike the southern parts of the continent where summer drought is normal, Queensland has a summer dominant rainfall pattern.

The combination of hotter than normal temperatures and well below average summer rainfall is starting to have an impact on the state’s sorghum production. This year’s harvest is going to be a drawn-out affair as seeding in southern Queensland began in early September and planters were still active in late December on some parts of the inner Downs.

Harvest of the crops that were sown in early spring has commenced. Initial quality reports are mixed with screenings issues starting to surface, particularly on the Western Downs. It is far too early to make a call on crop quality and the influence on production, but the unseasonable weather pattern is definitely going to have an impact, particularly if it continues.

If that impact manifests itself in a higher than usual percentage of sorghum 2, then the market has a challenge. It has to try and find a home for the downgraded product. Grower selling has reportedly slowed to a trickle due to the quality uncertainty. They are frantically trying to get sorghum 2 options on their sales to cover the downgrade risk.

However, most stock feed consumers have traditionally been very reluctant to buy sorghum 2. Some take it, but many don’t. If they do, it is only in relatively small quantities and at a significant discount. The focus for many these days has turned to a consistent ration aimed at maximising daily weight gain as opposed to chasing the cheapest grains available.

The Darling Downs market closed last week pretty close to where it started. Stock feed quality wheat was trading at around $450 delivered. Feed barley was around $50 cheaper at $400 delivered, and sorghum was a further $40 discount at $360 delivered. Discounts being applied to sorghum 2 reportedly range from $20 to as high as $35.

All market participants will be keeping a keen eye on the quality trend as harvest ramps up. If test weights are lower than usual and downgrading becomes an issue, then the current discount structure will have to change.

At the current price spread to white grains, domestic sorghum demand could be as high as 1.6 million metric tonnes (MMT). However, with much of Central Queensland still to plant (window closing quickly) and northern New South Wales production well below average, total production is probably going to be less than 2MMT. It could easily be as low as 1.8MMT already.

If there are further production issues the sorghum balance sheet begins to tighten. And that is without and any demand from China. The market will have to react. Firstly, if downgrading increases to such an extent that supply of sorghum 2 outstrips demand, then the sorghum 2 discount will widen as a reflection of the oversupply.

Secondly, if production decreases, and/or China enter the market, to such an extent that supply has to be rationed then the sorghum 1 discount to wheat and barley will be pressured to narrow. This, in turn, will encourage consumers to decrease their sorghum demand by increasing white grain inclusion in their ration at the expense of sorghum.

I guess the next question is will that have an impact on white grain prices delivered to the Queensland consumer? The quick answer is unlikely, unless there is movement in international values or a politically motivated change in demand for Australian wheat or barley.

The prices quoted above are a reflection of full execution from Western Australia. There is an exportable surplus of both wheat and barley in that state, and both grains are seeing export interest at current values. However, a decrease in domestic sorghum production on the east coast will mean that exports of white grains from Western Australia to the east coast will have to increase to fill the void. This will be at the expense of wheat and barley available for international sales.

Trade eyes will be firmly fixed on sorghum production and quality as the harvest ramps up over the next month. If the hotter and drier than normal conditions continue then the northern feed grains market is in for some increased volatility.

The latest Bureau of Meteorology three month (February to April) outlook doesn’t provide much solace. The chances of a warmer three months are higher than 80% over large parts of western and eastern Australia.

It reminds me of the 1987 American war comedy Good Morning Vietnam. When US Armed Forces radio DJ Adrian Cronauer (played by Robin Williams) asks a soldier on the front line “What’s the weather like out there?” the response was an emphatic “It’s hot! Damn hot! Real hot!”

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

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