Weekly Commentary Archives | Grain Brokers Australia

Global grain markets looking for direction after benign WASDE report…

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The United States Department of Agriculture (USDA) released their November World Agricultural Supply and Demand Estimates (WASDE) to the market last Friday (Saturday morning down under) and there was nothing to get the trade, or futures markets, too excited.

Chicago Board of Trade (CBOT) December wheat futures closed the week at 510¼ cents per bushel (c/bu), down 2¼ c/bu on the day and down 5¾ c/bu for the week. Wheat futures have been trending downward since a 3-month high of 532¼ c/bu was set on October 18. That equates to a fall of almost AU$12 over the last three weeks.

The December corn futures contract closed last Friday’s trade at 377¼ c/bu, up 2 c/bu on the day but down 12 c/bu for the week. The soybean contract for November closed at 919½ c/bu, down 5½ c/bu on the day and down 4¾ c/bu for the week. Like wheat, both corn and soybean futures have been trending lower in recent weeks and have lost the equivalent of just under AU$12 and just over AU$11 respectively since the highs of mid-October.

The WASDE wheat production numbers were basically a juggling act, the result being a small global increase of around 0.3 million metric tonne (MMT). Australian production was decreased by 0.8MMT to 17.2MMt, similar to last year’s final number. However, this is still around 1.5MMT above many domestic trade estimates, and a further reduction is expected in the next report, due for release on December 10.

Argentine wheat production was decreased by 0.5MMT to 20MMT. Like Australia, this is around 1.5MMT above the most recent estimates emanating from the South American republic. Last season’s production was 19.5MMT. Reaping has commenced in many parts of the country, and the Buenos Aires Grain Exchange called the wheat harvest 7 per cent done compared to 11 per cent at the same time last year.

The United States (US) was the other major wheat producer which saw production fall compared to last month. The USDA pegged 2019/20 production at 52.3MMT, a decrease of 1.1MMT, but still, 1MMT higher than last season.

Planting of the next US winter wheat crop is well underway with 94 per cent expected to be planted by early this week. This compares to 89 per cent last week, 85 per cent last year and 92 per cent on average. Crop ratings are expected to be unchanged week-on-week at 57 per cent good to excellent, versus 51 per cent last year.

On the positive side of the equation, Ukraine, Russia and the European Union (EU) all saw increases to their final wheat numbers for the 2019/20 season compared to the October report. Ukraine production was increased by 0.3MMT to 29MMT. This represents a significant year-on-year increase of 4MMT, or 16 per cent.

The USDA increased Russian production by 1.5MMT to 74MMT. Here again, the USDA appears to be conservative with their revised estimate as local Russian forecasts are around 1-2MMT higher. That said, it is still around 2.3MMT higher than 2018/19 production.

The most significant increase to global wheat numbers in Friday’s WASDE report came in the EU. Production was posted at 153MMT, an increase of 1MMT compared to October and an increase of 16MMT compared to last season. However, the USDA number is 3MMT lower than the most recent European Commission wheat forecast of 156MMT.

In France, the European Union’s biggest wheat producer, planting of the winter wheat crop is delayed by wet weather. The French state grains board, FranceAgrimer, estimates that 67 per cent of the soft wheat crop has been planted, up 13 per cent on the previous week, but still well behind the long term average of 82 per cent.

With global wheat demand remaining static, the washup of all of the production changes was an increase in world ending stocks to a record 288.3MMT, 142.6MMT (49 per cent) of which is held outside of China.

On the barley front, the WASDE report was slightly bullish. The USDA cut Australian production by 0.2MMT to 8.4MMT. While this may be achievable, it appears to be on the high side based on the hard finish experienced in almost all the major barley production regions of the country.

Elsewhere, Argentine production was decreased by 0.1MMT to 4.7MMT (5.1MMT last year), the EU was raised by 0.2MMT to 61.8MMT (55.9MMT last year), and Ukraine was increased by 0.3MMT to 9.5MMT (7.6MMT last year).

The USDA increased global barley demand by 0.8MMT, predominantly in Russia, Ukraine and EU and world ending stocks were decreased by 0.8MMT, mostly in Russia and Saudi Arabia. Australian barley exports were reduced by 0.2MMT to 4.3MMT, and China’s barley imports were cut by 0.2MMT to 6.3MMt (5.5MMT last year).

There were several decreases to global corn supply, but most had already been factored into trade calculations, hence the subdued futures market reaction. US production was down by 3MMT after the yield forecast was decreased to 167 bushels per acre (10.5 metric tonne per hectare). Mexican, Ukraine and EU production were cut by 2MMT, 0.5MMT and 0.2MMT respectively, and Russian was increased by 0.5MMT.

US corn demand was down by 1.2MMT, but world demand was increased by 0.8MMT compared to the last WASDE report. World ending stocks are forecast to decrease by 6.6MMT, predominantly in Brazil, China, EU and the US.

The soybean numbers were quite benign, with global production down by 2.4MMT, mainly in India and Canada, and global demand down by 2.4MMT, primarily in India, China and the United States.

The grain market needs news, and the WASDE report provided nothing that wasn’t already known and factored into global thinking. From a wheat and barley perspective, 2019/20 production is basically known, even though the USDA numbers still need a little tweaking in several key jurisdictions.

A resolution, or otherwise, to trade disputes involving China is a key driver in the near term. The big one, of course, is the US standoff, with Trump seemingly dousing the most recent positive news with his usual Twitter diplomacy.

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

Market awaits news from China as the barley harvest swings into gear…

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Farmer selling has picked up over the past week as the 2019 harvest gathers momentum in the southern grain-growing regions of Australia. And the market pressure created by this increase in supply, in conjunction with a rally in the Australian dollar, pushed grain prices lower across the board.

The Central Queensland wheat harvest came in close to industry expectations at around 375,000 metric tonne, and on-farm storages are filled to the brim as growers take advantage of a lack of production in the southern part of the state. This grain will be trickled into the domestic market over the coming months, filling part of the void created by abysmal production in southern Queensland and northern New South Wales.

The southern Queensland harvest has come and almost gone in a very short period of time. There were isolated pockets of harvestable grain that weren’t cut for hay, but on the whole, the ongoing drought has pushed production lower than last year’s dismal total.

The story in northern and central New South Wales is no better. These regions should be a hive of activity with headers rolling and queues at the local silo a feature. Instead, the paddocks are bare, and many silos haven’t even opened due to the record low production. What has been produced will go directly into the domestic market or is being stored on-farm for delivery to local end-users in 2020.

The production outlook in Southern New South Wales, Victoria, South Australia and West Australia is far better, and this is where the supply pressure is being seen as growers look for cash flow by selling off the header. Falling grower bids may well stem the tide of selling, so cash prices become a function of how desperately the trade need to buy. With domestic demand covered, export interest will be the most likely catalyst for an increase in buyer appetite.

Barley has dominated harvest proceedings thus far. Reports from the field suggest that early barley quality, and yields, have been quite variable as the tough finish manifests itself in high screenings and low malting barley selection rates in many districts. That said, it seems that yields, on the whole, are surprising to the upside.

The price of wheat delivered onto the Darling Downs retreated around $5 last week to close at about $410. Western Australia and the Eyre Peninsula are the regions most likely to ship wheat around to Brisbane over the next 12 months, and grower bids at those ports fell by around $7 across the week. Geelong bids fell by the same number.

On the other hand, the price of feed barley delivered Darling Downs region remained steady across the week at around $375. The Geelong and Kwinana feed barley bids fell by $10, and the Port Adelaide and Port Lincoln bids fell by $5 across the week.

Port Lincoln is the cheapest Australian grain at the moment with ASW wheat and feed barley values now down to US$225 Free on Board (FOB) and US$193 FOB respectively. Kwinana port values sit at around a US$8 premium for both grains. Both ports should be competitive into the wheat export pathway at those values, and recent sales of wheat out of Western Australia support that notion.

Barley, however, is a different story. Australia has relied heavily on China in recent years. November 18 is the anniversary of the launch of the anti-dumping probe by the Chinese Ministry of Commerce (MOFCOM). Under the World Trade Organisation (WTO) regulations results of such investigations, or some guidance on potential actions, are expected within 12 months, but a six-month extension can be granted.

The Australian trade will be looking to Beijing to provide such guidance, whether positive or negative, in the next few weeks so that the market has some direction and certainty through harvest and into the New Year. There are rumours of small volumes being traded, but most exporters are not willing to entertain Chinese enquiries due to the execution risk any sales would present under the current circumstances.

So, where does the Australian barley exporter look in the absence of Chinese demand? Saudi Arabia is the logical answer. Black Sea values were sitting at around US$190 FOB last week. Add freight of US$25 makes it US$215 Cost & Freight (C&F) into the Red Sea port of Jeddah. That compares US$226 C&F ex WA using US$200 FOB Kwinana and freight of US$26. Out of Port Lincoln, it works out at US$223 C&F using freight of US$30. So no joy into Jeddah at current values!

How about the Persian Gulf port of Dammam? Freight from the Black Sea into Dammam is around US$11 over Jeddah. Freight out of Australian ports would be the same as Jeddah. Suddenly, at last week’s prices, Australia is competitive against Black Sea origin for the next Saudi tender.

However, Argentina could well rain on our parade. Export barley values out of the deep-sea port of Bahia Blanca were quoted at US$170 last week. Add freight of around US$42, and Argentina trumps both the Black Sea and Australia at the next tender. Argentina likes to get the business on early, so are also likely to be the weakest seller. This is especially the case at the moment as the new Peronist government is threatening to increase export taxes.

The only other obvious export options at the moment are Thailand and Indonesia. The later is expected to be looking to Australian supply once the free trade agreement has been ratified. It has been tabled in the Indonesian parliament and will be debated in the Australian Senate this month. Endorsement by both parties is expected by year’s end.

Domestically, the Queensland stockfeed market will continue to require feed barley from Victoria, South Australia and Western Australia for the next 12 months. At the current delivered Darling Downs spread of $35, feed barley is buying demand away from wheat, and the consumer has been taking advantage of the relative value in recent weeks.

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

Concerns are mounting over this season’s sorghum production

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Concerns are mounting over this season’s sorghum production…

It is now the end of October, two months into the summer crop planting season, and virtually no sorghum has been planted in northern New South Wales and southern Queensland.

These cropping regions traditionally have a summer dominant rainfall pattern. However, that tradition has been seriously challenged in recent years, with the region in the grips of a drought, the likes of which has never been previously experienced.

Basically, the tap turned off in late October 2016, and rainfall since then has been well below average across almost all districts. This means that the soil moisture profile in most of the summer cropping regions of Australia remains at, or near, record low levels.

In addition, the water storages that usually supply irrigation water to the region are extremely low, and zero water allocations in most river systems reflect the dire situation facing the irrigation industry in the Murray-Darling Basin this summer.

Much of this year’s winter crop in northern New South Wales and southern Queensland was not planted due to the lack of soil moisture. Concern is now mounting that the same scenario may play out for this season’s sorghum crop.

Planting of sorghum in these regions normally starts in early spring with the primary requirements being an adequate soil moisture profile, the soil temperature at, or above, 16°C and rising, and the risk of frost has passed.

However, planting sorghum in November is traditionally shunned in northern New South Wales and southern Queensland. This is a strategy to reduce production risk by avoiding flowering in the peak of summer. As a result, there are typically two distinct planting windows. The soil temperature and frost thresholds are well behind us, but most growers require a minimum of 100-150mm of slow, soaking, rain, preferably of a couple of falls, before they would consider planting.

There is an early planting window which opens as soon as conditions are suitable but shuts at the end of October. Then there is the late planting window that goes from early December through to early, or even as late as mid-January, depending on geographic location.

With the traditional early planting window all but closed, it will be fascinating to see how growers react if they receive enough rainfall to plant before the end of November. Will they plant immediately or stick to a proven formula and delay until early December?

In the last two springs, many growers planted sorghum on a less than ideal soil moisture profile. They were banking on average to above average summer rains to get the crop through to harvest. Unfortunately, the rains did not eventuate, and the crops suffered accordingly. Growers cannot afford a third summer crop failure, and there will be a distinct reluctance to plant unless the soil moisture profile is full, or almost full.

Nevertheless, it is definitely not too late to get a significant sorghum crop in the ground. And there is always Central Queensland to help save the day. Harvest of an above-average winter crop is now winding down in that region and the traditional sorghum planting window of January through to mid-February is still two months away.

National production of as much as 1.5 million metric tonnes (MMT) is still possible, but the likelihood is falling with each dry day. When the rains do arrive, growers will undoubtedly react quickly as long as it is not too late. If it is, they will focus on retaining the soil moisture for a big winter crop plant in the autumn.

Domestic sorghum demand generally fluctuates between 850,000 metric tonne (MT) and 1.2MMT per annum, depending on the price of sorghum relative to alternative feed grains such as wheat and barley.

Sorghum is used as a source of starch in the ethanol industry on the Darling Downs. While the plant can use barley, it is not the preferred feedstock, and as such the annual sorghum demand of around 180-200,000MT is relatively inelastic. The same can be said for 400,000MT of core demand from the poultry sector in New South Wales and Queensland, although that has been decreasing in recent years.

A quick look at recent production history suggests that Australia generally produces at least 1 million metric tonnes. In the last 25 years, there has been only one year where production was less; 2016 production was 994,000MT. And one has to go back as far as 1992 to find a year where production was significantly lower at 550,000MT.

At the moment, most in the trade would still have sorghum demand pencilled in for 800,000MT to 1MMT. If sufficient rain fails to arrive in the next two months to achieve production of that magnitude, some serious demand rationing will ensue. And white grains from Victoria, South Australia and Western Australia will be called upon to fill the void.

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

Global wheat values rally as the Australian harvest commences…

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International wheat prices continued to firm last week on the back of crop downgrades in the southern hemisphere, delays to the spring wheat harvest in North America, rumours of Chinese interest in United States wheat and firmer cash offers, particularly out of the Black Sea region.

All this drew attention away from burdensome global wheat supplies and prompted a round of short-covering by both the trade and funds, with the latter square or slightly long by week’s end.

The Chicago Board of Trade soft red winter December wheat contract closed Friday’s session at a fourteen-week high of 532¼ cents per bushel (c/bu). This is a rise of 78¾ c/bu, or 17.4 per cent, since the most recent contract low of 453½ c/bu, set on September 3. The contract rose 24 ¼ c/bu across the week, or almost 5 per cent, to register its seventh consecutive weekly advance.

Argentine wheat crop estimates continue to leak lower on the back of sustained dryness across crucial production areas. Recent rains in many regions have not been strong enough to help wheat fields left gasping for moisture after weeks of dryness.

Weather and crop forecaster Maxar is calling the Argentine wheat crop 18.7 million metric tonne (MMT), and at least one commercial trading house is said to be calling the wheat crop as low as 18.2MMT. This compares to the latest USDA estimate of 20.5MMT.

The Buenos Aires Grain Exchange (BAGE) suggested that while crop potential had stabilised in the east, yield losses could be as high as 40 per cent in southern Cordoba, eastern La Pampa and western Buenos Aires, and this number could potentially increase if critical spring rains do not arrive in time.

BAGE still put the winter wheat area at 6.6 million hectares, but it appears that they are preparing the market for a downward revision of their current 19.8MMT forecast when they update production estimates sometime this week.

The spring wheat harvest in the Dakotas and Minnesota continues to be dogged by rainfall, snow and blizzards. There is talk that any unharvested wheat is either going to be ploughed under for insurance, grazed out, or baled up for hay as the weather is now unlikely to remain favourable for long enough to get a header into the fields.

If that is true, global supply may end up losing 20 or 30 million bushels (550,000 to 820,000 metric tonne) when the USDA update production numbers in their November report.

The Canadian farmers are faring much worse, as rains and snow continue unabated. At least a quarter of the Canadian Western Red Spring (CWRS) wheat crop yet to be reaped. While 95 per cent of the wheat area in Manitoba had reportedly been harvested by last week, only 70 per cent of the Saskatchewan crop and 60 per cent of the Alberta crop was thought to be in the bin.

Rumours surfaced midway through last week of China wanting to purchase as much as 2MMT of wheat from the United States. There was no talk of wheat being on Beijing’s US$50 billion shopping list when news of the trade war breakthrough surfaced last week, and there are still no details, no grade breakdown, and no indication of anyone asking for offers.

However, news that wheat may now be included in the yet to be signed trade deal has generated some excitement in the US, and the futures and cash markets reacted accordingly.

Meanwhile, Egypt’s state-owned grain buyer GASC announced last week that it had purchased 405,000 tonnes of wheat for November 21-30 delivery in its latest tender. The purchase included 285,000 metric tonnes of Russian, 60,000 metric tonne of Ukrainian and the same quantity of French origin.

The average purchase price was around $212.50 FOB and once freight was added it equated to $230.70 C&F. The price reflected the significant rise in European Union and Black Sea markets since the start of the month. The average Black Sea FOB price was US$8.70 higher than the previous GASC purchase on October 9.

The higher price follows a rally in domestic wheat prices in Russia in recent weeks, and there appear to be several factors at play. There are reports of significant trade shorts that have been forced to cover when the market move caught them off guard, and there are also traders getting long in anticipation of further market gains.

The internal rally has also stoked up demand from the domestic sector in Russia. This is particularly the case for milling wheat which is reacting to competition from Kazakhstan due to their crop shortfall. Kazakhstan is the world’s second-biggest flour exporter, and a significantly smaller crop this season, along with poor quality, has sent buyers across the border to try and cover the supply deficit.

Here in Australia wheat prices were stable to slightly firmer last week despite a further deterioration in crop conditions in most regions. The National Australia Bank decreased its domestic wheat production forecast by 1.5MMT to 15.5MMT compared to their September number.

Interestingly, the rally in Russian wheat prices has seen the spread to Western Australian export values narrow to around US$30. This was as high as US$50 only one month ago but is still too high for domestic exporters to buy international demand, even with the freight advantage Australia holds into key Asian destinations.

Reaping may have started in a number of areas, but the harvest price pressure is still ahead of us. It remains to be seen how that will play out this season. There is likely to be a reluctance on behalf of the trade to repeat last year’s harvest buying spree unless they can compete into the export market. But how will the grower react if prices fall?

Uncertainty around the final size of the Australian wheat crop and the exportable surplus only adds to the conundrum.

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

Harvest action heats up in Europe …

Harvest action heats up in Europe …

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Many European regions recorded record high temperatures last week as the continent sweltered through its second heatwave of the summer. However, reaction of the grain markets has been tempered by expectations that this heatwave will be short-lived and is not expected to last long enough to cause severe losses in winter crop production.

Field conditions through most of Europe are generally quite good, and the trade is not expecting a repeat of last year’s terrible harvest. Those crops that were still at grain fill stage may lose between 0.25 and 0.50 metric tonne per hectare (MT/ha), but the heat will probably lead to a boost in protein levels according to local analysts.

Government agency FranceAgriMer said that 63 per cent of French wheat had been harvested by July 22, compared to 33 per cent only one week earlier, and 88 per cent at the same time last year. The dry conditions are ideal for reaping, and the French wheat harvest is expected to be almost completed by month-end with production in the 38 to 39 million metric tonne (MMT) range.

Harvest in Germany, the second-biggest wheat producer in the European Union (EU), is also progressing well. Reports suggest that it is now more than half completed with yields equal to, or even a little better than expectations.

The condition of the French corn crop had fallen to a rating of 67 per cent good to excellent before the record heat struck last week. This compares to 75 per cent a week earlier. The corn crop is at a critical growth stage and yields will fall dramatically if beneficial rains don’t arrive very soon. The latest heatwave will no doubt take a further toll on the health of the crop and this is expected to be reflected when crop rating numbers are updated this week.

There is talk in the trade of corn fields in northern France being cut for silage due to the heat; a trend that will be monitored closely in coming weeks. The trade is now estimating the country’s corn production at around 11MMT, versus 13MMT last year. Some rain over the weekend bought relief in some areas to pollinating corn crops.

Meanwhile, the International Grain Council (IGC) released its latest grain market report last Thursday. It was highlighted by a 6MMT decrease in global wheat production to 763MMT. While still a record, the decline is a reflection of smaller crops in the European Union, Russia and Canada compared to their June report.

The IGC pegged EU wheat production at 148.7MMT. This compares to their June estimate of 151.2MMT and 128.8MMT last season. There were downward revisions for France, Germany, Britain and Poland, primarily due to the June heatwave, which occurred when the crop was more susceptible to damage, as opposed to last week’s high temperature hit.

The Russian wheat crop was trimmed by 5 per cent from 79.5MMT to 75.7MMT. This is still higher than SovEcon’s latest forecast, which was pared by another 2.9MMT last week to 73.7MMT. The Russian agency also slashed its wheat export forecast for the 2019/20 marketing year by 6.2MMT to 31.4MMT. This is well below the 2018/19 export volume of 36MMT.

Moscow agency Rosselkhoznadzor (Federal Service for Veterinary and Phytosanitary Surveillance) said the Russian wheat harvest was 36 per cent completed as of late last week, with average yields coming in at around 3.7MT/ha, versus 3.83MT/ha last year. However, yields have been trending downward as harvest has progressed, a result of extremely dry conditions throughout June.

The IGC also cut the Canadian wheat crop by 5 per cent, from 33.6MMT to 32MMT. The crops in many regions showed stress after a dry spell through June and early July. Rainfall in late July has improved the soil moisture situation but conditions are reported to be quite variable from region to region.

Ukraine is reported to have completed 76 per cent of this year’s wheat and barley harvest. As of last Thursday, 19.7MMT of wheat and 6.7MMT of barley were in the bin. Wheat yields are reported to be improving as the harvest progresses with the average now sitting at around 3.85MT/ha, compared to 3.59MT/ha just a week earlier.

Some traders are reportedly increasing their Ukrainian wheat production estimates to 28MMT, or even higher, given the improving yield trend. This compares to the Agriculture Ministry’s estimate of 26.9MMT. The quality of Ukrainian wheat is excellent with about two-thirds milling quality and one third feed quality. This has caught the trade by surprise, leaving feed wheat shorts scrambling.

In further trade news, China’s General Administration of Customs (GAC) has reportedly granted permits for wheat imports from Russia, specifically from the country’s Kurgan region. This will compete with Australian origin wheat into China, particularly the northern ports. GAC has also approved soybean imports from all parts of Russia.

Closer to home, a group of private importers from the Philippines purchased 275,000 metric tonne of Australian feed wheat from CBH for October to December shipment at an average price of AU$240.60 Cost & Freight (C&F).

That is quite interesting when compared to Black Sea values. European harvest pressure sees Black Sea wheat prices challenging season lows with sluggish global demand and a lack of forward sales holding values at bay.

Last week Black Sea feed wheat was quoted at around US$187 Free on Board (FOB) for September. Add sea freight of US$33, and the 7 per cent import duty, the Black Sea origin price comes to US$235 C&F, more than US$5 under where the business was booked.

Does that represent a quality premium for Australian origin? Unlikely for feed wheat. Are replacement Black Sea values higher than are being reported? Maybe. Or is there a reluctance to book Black Sea origin over Australian at similar price levels? Hopefully so, as that will augur well for Australia’s marketing program into Asia moving forward.

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

Who holds the Trump card in the ongoing trade war?

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World agricultural commodity markets look set for continued volatility as the trade truce between the United States (US), and China appears to be dead in the water. Late last week both Washington and Beijing released statements suggesting that a deal to end the bitter trade dispute was unlikely in the short term.

Negotiations have been at an impasse since May with both sides claiming the other reneged on provisions of a tentative deal. Tensions escalated last Thursday when The Don (Trump) announced, via Twitter, a new tariff of 10 per cent on US$300 billion worth of Chinese imports that aren’t already subject to US duties.
This is on top of the US$250 billion worth of Chinese imports that are already subject to a 25 per cent tariff imposed mid-way through last year. The new tariff is set to come into effect on September 1.

It was no surprise to see China respond to the latest announcement by saying that they would take all counter-measures necessary as a result of the escalation in the trade conflict. However, the trade imbalance is a huge challenge for China. Washington has the potential to tax around US$540 billion worth of Chinese imports, but Beijing only has around US$120 billion worth of US goods it could target.

That said, President Xi Jinping does hold one significant trump card. China controls more than 90 per cent of the world’s production of rare earths, a group of 17 metals with magnetic and conductive properties that power most of the globe’s electronic devices. More importantly, it also accounted for 80 per cent of all US rare earth mineral imports between 2014 and 2017.

Chinese imports of US agricultural commodities have fallen dramatically as a result of Don’s Party (the trade war). Beijing retaliated to the initial round of US duties by slapping a 25 per cent tariff on a long list of US goods, including soybeans, in July 2018.

China is by far and away the world’s biggest importer of soybeans. The burgeoning demand for soybeans in China over the last ten years has been driven by an explosion in demand for meat as consumers shift from a diet dominated by rice to one where pork, poultry and beef play an increasingly important part.

In 2017, Brazil and the US were the two biggest soybean exporters, totalling US$25.7 billion and US$21.4 billion respectively. China accounted for two-thirds of global trade, importing US$39.6 billion worth of beans. In the same year, US exports were around a third of Chinese soybean purchases. At just under US$14 billion, soybeans were the second most valuable US export to China, behind aeroplanes.

However, the US share of that import demand has changed dramatically as a result of Don’s Party. Up to the end of May this year, US soybean exports to China were less than 6 million metric tonne (MMT), with a value of around US$2.7 billion. In volume terms that is almost an 80 per cent decrease compared to the three-year average of 29MMT for the same period.

It is no accident that the Chinese chose to impose tariffs on soybeans. The biggest producing soybean states are across the US Midwest, and this is The Don’s heartland. The farmers voted him into office. Beijing hopes that the farmer will either lobby Washington to solve the impasse or desert Trump at the ballot box in next year’s election.

So, what does The Don do to appease the US farmer? He announces another support package worth a monstrous US$16 billion, that’s what! According to a United States Department of Agriculture (USDA) announcement late last month, the latest Market Facilitation Program (MFP) payment “is aimed at supporting American agricultural producers while the Administration continues to work on free, fair, and reciprocal trade deals” with China.

This is the second round of trade assistance announced by the US in response to what Washington termed as “unjustified retaliatory tariffs” on agricultural commodities. The first program, totalling US$12 billion, was announced in August 2018, with payments made in the third quarter of 2018 and the first quarter of 2019.

Primary producers can qualify for payments ranging from $15 to $150 per acre for row crops under this year’s version of the MFP, with rates varying widely by county and region. The rates are based on the historical mix of crops produced by each county as well as USDA’s calculation of the impact on each commodity of unfair trade practices over the past ten years.

The first tranche of payments is expected to begin this month with a potential second wave in November and a third, and final, distribution in January 2020. The USDA said that the second and third payments could be cancelled if the trade war with China is resolved beforehand.

The irony is that recent research has found that 10 per cent of the recipients, predominantly large corporate farms, are receiving a whopping 54 per cent of the payments. The vast majority of US farmers, the smaller operators, those with the least ability to cope, but are copping the brunt of Don’s Party, have been abandoned as the payments are proportionate to farm size and success.

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

Australian winter crop teetering as it enters spring…

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The annual Pro Farmer Crop Tour was conducted across seven of the most important corn and soybean states in the US last week. The results were released after the markets closed on Friday and, as most market pundits expected, came in lower than the recent USDA production estimates.

This year’s tour had more than 125 scouts representing 12 countries and included farmers, agribusiness experts, media, government and representatives of the financial industry. The scouts sampled around 3000 individual fields along 20 pre-determined routes across Illinois, Indiana, Iowa, Minnesota, Nebraska, Ohio and South Dakota.

Pro Farmer estimates the average US corn yield at 163.3 bushels per acre (bu/ac) or 10.25 metric tonne per hectare (MT/ha). This was 6.2 bu/ac (0.39 MT/ha), or 3.7 per cent lower than the most recent USDA forecast of 169.5 bu/ac (10.64 MH/ha). Total US corn production came in at 13.358 billion bushels, or 339.3 million metric tonne (MMT).
The soybean production estimate came in at 3.497 billion bushels or 95.2MMT. This was based on an average national yield of 46.1 bu/ac (2.89 MT/ha), 4.9 per cent, or 2.4 bu/ac (0.15 MT/ha) lower than the latest USDA mark of 48.5 bu/ac (3.04 MT/ha).

One key observation from the tour was the maturity of the corn crop. Many scouts put it up to three weeks behind the average for this time of the year in the regions worst affected by the delayed sowing. The eastern reaches of the corn belt were the worst affected, but the crop certainly improved in quality and maturity as the tour moved west.
The forecast for cooler weather in coming weeks will slow the maturity of the crop even more. With autumn fast approaching, the days are getting shorter, and the average daily temperatures are on the decline. This raises the concern of early frosts and the potential impact on final yields.

Here in Australia, spring is almost upon us. As the days get longer and average day temperatures increase the evapotranspiration rate of each plant rises significantly, increasing moisture demand of the maturing crop. The possibility of frost also becomes a significant production risk as the crop moves into its reproductive phase.

Rainfall last week has continued the hand-to-mouth pattern evident across most of Victoria, South Australia and Western Australia this season. The falls were generally less than 10mm with most of the more marginal cropping regions receiving less than 5mm. New South Wales didn’t fare as well with some minor falls limited to districts south of the Murrumbidgee River. Central New South Wales, northern New South Wales and all of the Queensland cropping areas received absolutely nothing.

Victoria is the pick of the states at the moment, with forecasts suggesting average to slightly above average production. All but the north-west corner has received at least 25mm of rainfall so far this month. That said, the picture is not uniform across the entire state. There are parts of the Western Districts that are too wet and conversely a significant portion of the Mallee is starting to struggle due to lack of in-crop rainfall.

In South Australia, it is also a tale of two stories. The South East, lower Mid-North, lower Yorke Peninsula and the lower Eyre Peninsula are all tracking along quite nicely, but the more northern production areas have only been catching the edge of each change and have been struggling for almost the entire season.
Primary Industries and Regions South Australia (PIRSA) released their latest crop estimates last week with the wheat crop currently estimated at 4.8MMT and barley at 2.2MMT. This would appear to be extremely optimistic based on the current state of the crop.

In Western Australia, most grain growers are in the game but, overall, the crop is running around three weeks behind average. The crop went in on time, but most of it was dry sown. The break didn’t come until late in the first week of June, so germination was delayed accordingly. Canola appears to have lost the most potential with poor germination in many paddocks and flowering running very late, especially in the Kwinana and Geraldton zones.

Southern New South Wales is starting to feel the pinch. Most of the crop south of a horizontal line through West Wyalong was planted, but rainfall registrations in most regions have been well below average through July and August. The crops in many areas are showing signs of stress and production potential is falling quickly.
Save for a few isolated areas, crop prospects in New South Wales north of that line are a disaster. Much of central and northern New South Wales have had less rainfall year-to-date than at the same time in 2018. Southern Queensland is no better. Less than 30 per cent of the crop was planted, and less than half of that still has some prospect of harvesting more than next years seed requirements, assuming adequate spring rainfall is forthcoming.

The big outlier across the entire country this year is the size of the area that will be cut for hay. In Western Australia, livestock producers have been forced to feed for a much longer period this year as the break came late and ensuing pasture growth was slow. Reserves have been depleted as a result and growers will be looking to restock.

The situation in the eastern states is far more dire. It was dry across all eastern states last year, and hay stocks were not replenished last spring. Back-to-back droughts in central and northern New South Wales and southern Queensland has sustained hay prices at extremely high levels for an unprecedented length of time.

For those doing the calculations, the high prices are certainly providing a significant incentive in many regions to minimise production risk by cutting their crops for hay rather than carrying through to harvest. This is especially the case where the crops are already under moisture stress and potential grain production is decreasing.

The entire Australian winter crop area is currently behind the eight ball in terms of year-to-date rainfall. While the drought area on the east coast is currently less than what it was last year, much lower production prospects in Western Australia and high demand for hay across the entire country means that above-average rainfall and a kind spring will be required to ensure that this season’s domestic winter crop production exceeds that of 2018/19.

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

Chinese economy faltering as Don’s Party rolls on…

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News that a Chinese trade delegation had cancelled this week’s planned visit to farms in the states of Montana and Nebraska has put a dampener on the upcoming US-China trade negotiations. The delegation reportedly headed back to Beijing earlier than scheduled after mid-level talks wound up in Washington late last week.
The delegation was involved in preliminary trade talks with US officials to find a resolution to the ongoing trade war (Don’s Party) ahead of cabinet-level negotiations which are scheduled to take place in Washington in October. Their early departure has raised doubts about a possible breakthrough and sent US soybean futures more than 1 per cent lower in Friday’s trade.

High hopes were set for last week’s trade talks in Washington, which came after both sides softened trade tensions earlier this month with gestures such as tariff exemptions and delays. China purchased 600,000 metric tonne of US soybeans the previous week and said it would exempt American pork and soybeans from additional tariffs, taking effect this month, as a sign of goodwill heading into the talks.

The plan for the farm visit was only announced a few days earlier and the sudden change of plans appears to have come on the back of comments from US President Donald Trump (The Don) saying that he wanted a complete trade deal with the Asian nation, not just an agreement from China to buy more agricultural goods from the United States.
But both sides moved quickly over the weekend to indicate that the negotiations will continue, and that high level talks pencilled in for October would still proceed. The two countries agreed to keep communicating on related issues and discuss the details of the next round of trade talks.

Negotiators on both sides have continued to look for an avenue to resolve their differences as tensions ratcheted up a notch or two over the northern summer. Both the US and China want to see a resolution to the long running dispute, particularly with the United States heading into elections in 2020.

However, plentiful global grain supplies and declining Chinese demand has dulled their appetite for imports. Overall feed grain demand in China is expected to decline amid substantially lower domestic swine inventories due to the continuing African Swine Flu epidemic.

It seems that the biggest hurdle facing negotiators on both sides may be agreeing on the scale and ambition of any deal they try to formalise. China wants to agree on a partial deal that would head off Washington’s planned tariff increases on Chinese imports in October. ‘The Don’ clearly wants a far more comprehensive deal.

US soybean exports have been the hardest hit by Trump’s brinkmanship and the Brazilian farmer has been the biggest beneficiary. One of the best barometers of the degree of tension surrounding US-China trade negotiations this year has been port price premiums paid for Brazilian soybeans over US soybeans. When the tensions escalate, premiums develop at the Brazilian port of Paranagua over US Gulf ports. Similarly, when tensions diminish the premiums slowly fade.

These price premiums have risen and fallen within the context of global price movements that have centred on the progress of the 2019 US crop. Prices rose in both Brazil and the US as the early season wet conditions hindered corn and soybean planting in the US and high water levels in the Mississippi River raised the cost of moving old crop soybeans to US Gulf ports. As conditions have improved over the past couple of months, prices of both Brazilian and US soybeans have trended lower.

The rise and fall of the Brazilian export premium correlates directly with the rise and fall of trade tensions. In May this year, the US announced plans to raise tariffs on $200 billion of Chinese products from 10 to 25 per cent. Brazilian soybeans moved to a 7 per cent premium over US soybeans as a result. The premium gradually fell back to around 1 per cent by late July. However, a new round of tariff hikes that took effect on September 1 pushed Brazilian premiums up again to almost 10 per cent.

The concern for Australia is that any deepening of the trade impasse will potentially weaken an already vulnerable Australian economy. The trade crisis comes amid a weakened domestic housing market and stifled economic growth. The health of the Australian and Chinese economies is intricately linked. Our agricultural exports, mining exports, tourism exports and education exports all depend heavily on China.

As Don’s Party rolls on endlessly, China is beginning to admit its traditionally high rates of growth are in jeopardy. And the latest numbers tell the story. Industrial production growth fell to 4.4 per cent in August, its lowest in 17 years. Growth in retail sales also fell last month to 7.5 per cent. A lofty number by Australian standards but much lower than the 10 per cent growth consistently seen over the last ten years.

Beijing is now saying that it will be very difficult to grow at 6 per cent this year, well below the numbers seen in the years since the global financial crisis. If Chinese growth continues to decline it will undoubtedly be reflected in demand for Australian goods and will have countless flow on effects across the domestic economy.
The best result for all concerned, including Australia, would be a swift resolution to the standoff. No doubt this is front of mind for Prime Minister Scott Morrison as he tours the United States and meets with The Don.

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

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