Weekly Commentary Archives | Grain Brokers Australia

La Niña tangos with Argentine farmers…

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The weather woes afflicting Argentina’s cropping regions this year have been extensive and look set to worsen in December with the La Niña phenomenon running at its strongest level in almost a decade. Many areas of Argentina have been in a moisture deficit since March, and the spring rains have been very sporadic, seriously impacting winter crop production and the summer crop planting program.

There has been a troubling trend across Argentina this year that is very familiar to Australian farmers. The weather forecasts have not been matching reality, the expected rain has not been turning up for the dance, and the dryer than normal pattern is expected to slow the Argentine summer crop planting program.

The Buenos Aires Grain Exchange (BAGE) reported soybean planting progress jumped in the week to November 19, propelled by scattered rains that brought light relief to key drought-hit regions. BAGE estimates that 28.8 per cent of a total projected soybean area of 17.2 million hectares has been sown thus far, up from 19.9 per cent planted a week earlier but still 2.5 percentage points behind last year’s pace.

Conversely, the seeding of this season’s corn crop has stalled, due to both the extremely dry seedbed and a reluctance to plant during November to avoid flowering in the peak of summer. Moisture permitting, seeding will resume in earnest in December with the total planted area forecast to reach 6.3 million hectares this season, down from 6.5 million hectares in 2019/20.

However, many parts of the country remain woefully dry, and it is believed that some of the early sown row-crop fields in the driest regions will have to be replanted when soil moisture levels improve sufficiently.

BAGE called the corn crop 31.4 per cent planted as of November 19. This was virtually unchanged from 31.2 per cent a week earlier but well behind last year’s pace of 46 per cent. The corn area planted to date is rated 10 per cent poor, 55 per cent fair, and 35 per cent good to excellent, but a moisture top-up is urgently required.

The first phase of corn planting in Argentina typically sees around 45 to 50 per cent of the crop planted by early November. With less than a third of the crop now in the ground, what will farmers do come December? Will they continue with their original corn area intentions and plant more of the lower-yielding late crop? Or will they swing some corn area across to soybeans?

It seems several local analysts are expecting the latter, which places a downward bias on corn production estimates and an upward bias on soybean production estimates, assuming the planting rains arrive in time to complete the seeding campaign. However, corn does have a later planting window than soybeans, so if November and December remain dry, and widescale planting doesn’t resume until January, it could easily swing the other way.

In terms of production estimates, the United States Department of Agriculture pegged the Argentinian soybean and corn crops at 51 and 50 million metric tonne (mmt) respectively. The BAGE estimates are a little more conservative, currently running at 47mmt for soybeans and 46.5mmt for corn.

Meanwhile, the winter crop harvest is progressing slowly, and early yields are abysmal as a result of the extremely dry growing season, particularly in the northern provinces.

As of Thursday last week, 19.8 per cent of the forecast wheat area had been harvested, up from 15.5 per cent a week earlier. The yields improved slightly week-on-week from an average of 1 metric tonne per hectare (mt/ha) to 1.2mt/ha.

However, with a planted area of 6.5million hectares, there needs to be a dramatic recovery in yields if final production is going to get remotely close to the BAGE production estimate of 16.8mmt, let alone the USDA’s 18mmt forecast. In fact, the balance of the harvest will need to average almost 3mt/ha just to make the BAGE number.

The wheat crop is currently rated at 17 per cent good to excellent, 40 per cent fair and 43 per cent poor to very poor. The deteriorating state of the crop throughout the growing season is clearly evident in the ‘Wheat Crop Condition’ graphic (above).

The Argentine barley crop has largely escaped the effects of the drought as it is mainly planted in Buenos Aires province and the eastern reaches of La Pampa province. Soil moisture levels have been quite favourable during the season which may well lead to higher than average yields if the kind conditions continue through to harvest. Smaller production areas further north in Cordoba and Santa Fe provinces are, like the wheat, in generally poor condition.

The Buenos Aires Grain Exchange is calling barley production 3.7mmt, slightly higher than the latest USDA number of 3.5mmt. This is down from 3.8mmt last year, but that output was off a significantly higher planted area.

A smaller wheat crop means export offerings out of Argentina will be vastly reduced in the 2020/21 season. And at current prices, it is hard to see the Republic finding much demand outside of the Mercosur region. China is reported to have been purchasing barley of different qualities, including FAQ (fair average quality) which is used for malting. But other than China, barley export sales outside Mercosur block members will also be minimal.

Argentina has been a persistent seller into Asian markets in recent years, in the search for new demand for its burgeoning exportable surpluses. But the smaller crop and higher prices virtually eliminate them as a competitor in the 2020/21 marketing season. That leaves Australia as the sole aggressive seller into Asia at the moment.

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

Australian exporters sweep the Saudi barley tender…

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The feed barley tender announcement by the Saudi Arabian Grain Organisation (SAGO) late last week came hot on the heels of news that the kingdom is poised to abandon its state-issued grain tender program in favour of private sector importers.

The decision by the world’s biggest importer of barley is a significant step in the economic transformation program announced by the government in 2016. Saudi Vision 2030 is a strategic framework implemented to reduce Saudi Arabia’s dependence on oil and to improve the nation’s food security.

First announced by Crown Prince Mohammed bin Salman in 2016, the goal is to diversify the kingdom’s economy and develop public service sectors such as infrastructure, education, health, recreation, and tourism. Under the program, private enterprise will be encouraged to take a leading role in many of the initiatives.

Behind the scenes, independent of recent SAGO barley tenders, the privates have been active in engaging global barley exporters. There was a round of business done back in September and commitments from Australia alone are rumoured to be already as high as 500,000 metric tonne in the current marketing year.

The privatisation of barley imports was primarily facilitated by a change in the kingdom’s animal feed policy back in January of this year. Historically the government directly subsidised all grain and feed imports (except for hay), but now payments are made directly to livestock and poultry producers based on production.

Small livestock farmers are the major consumer of imported feed barley, and they are now given cash payments based on the number of animals they are rearing. They must have a maximum of 300 animals in the four eligible livestock categories: goats, sheep, camels and cattle.

All farmers who qualify for the scheme receive monthly grants of US$2.13 per head for goats and sheep, US$10.67 per head for camels, and US$16 per head for cattle. The Saudi government has allocated a total budget of US$320 million a year to the program.

The payment regime is a little more intricate for the poultry industry, where the government has allocated up to US$187 million annually. The subsidies vary according to the type of production and are intended to incentivise producers to improve biosecurity protocols and adopt technology that increases efficiency and productivity.

In the World Agricultural Supply and Demand Estimates (WASDE) report released last week, the USDA pegged Saudi Arabian feed barley imports at 7.3mmt for the 2020/21 marketing year. This figure was down 0.2mmt from the October forecast but up slightly from 7.2mmt in the twelve-months to the end of June 2020. The major sellers into the kingdom in recent years have been the European Union and leading Black Sea producers, Russia and Ukraine.

The WASDE report called global barley production 156.4mmt for the 2020/21 marketing year. This is down around 0.4mmt from its October estimate, with small falls in Turkish and the European Union production the prime contributors to the downward revision. Total world trade was increased 0.5mmt with China and Iran the big movers, up 1.2mmt to 6.5mmt and down 0.5mmt to 2.5mmt respectively.

The USDA held its Australian production estimate steady at 10.5mmt which seems extremely conservative compared to domestic trade forecasts, some of which are in excess of 13mmt. That said, it always seems to take the USDA a couple of months to catch up on reality outside of the US.

Australian barley export estimates for 2020/21 were also steady month-on-month at 4.4mmt, up from 3.2mmt in 2019/20. Again, that number is well below domestic trade estimates, many of which are above 5mmt, and growing.

Just how big that number becomes will depend to a large extent on Australia’s competitiveness into the Middle East over the next six months. At current values, Australia is hugely competitive into the Saudi Arabian Red Sea ports of Jeddah and Yanbu, and is the cheapest major origin into the Arabian Gulf destinations such as Kuwait, Qatar, United Arab Emirates and the Saudi Arabian port of Dammam.

The SAGO tender announced late last week was for a total of 720,000 metric tonne (mt) of animal feed barley in twelve shipments for arrival in January and February next year. Eight of those cargoes, or 480,000mt, are to be discharged at Red Sea ports and the balance are to be offloaded at the Arabian Gulf port of Dammam.

And it wasn’t surprising to see a clean sweep to Australian exporters when the tender results were released on Monday afternoon (Aussie time). Glencore and GrainCorp shared the Red Sea port sales with four cargoes apiece and the Arabian Gulf business went to Glencore and CBH, each selling two cargoes. While the offers are optional origin, most, if not all, are expected to be executed out of Australia.

In the end SAGO purchased 730,000mt at an average price of US$234.83 per metric tonne (/mt) including cost and freight. This is US$8.49/mt more than the mid-September tender for 540,000mt for November/December delivery and is US$36.20/mt above this season’s low. With freight at US$20/mt that equates to around US$215/mt free on board Western Australian ports, which is bang on replacement value today.

With a big barley crop currently hitting the silos, Australia needed to see some strong demand outside of Asia. Picking up such a large chunk of Saudi Arabian business is perfectly timed to counter the price pressure of a rampant harvest.

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

Australian wheat priced to find ample export demand…

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As the saying goes ‘timing is everything’, and the rumours last week that China was about to add wheat to its ever-increasing list of banned Australia imports could not have come at a worse time for Australian grain growers. Just as the enormous Australian winter crop harvest moves into top gear and grain growers look for some harvest cash flow, buyers ran for cover to assess the impact of the potential ban, and prices fell accordingly.

Queensland wheat values were the hardest hit with port bids for the benchmark grade of Australian Premium White (APW1), tumbling more than AU$40 per metric tonne (/mt) by week’s end. The impact on the lower protein grades such as Australian Standard White (ASW1) and the minimum stockfeed wheat grade generally acceptable for livestock rations (SFW1) was not as dramatic. However, they still fell AU$20/mt and AU$25/mt respectively.

Price declines in New South Wales were less with APW1 down by around AU$25/mt in the northern half of the state (Newcastle zone) and AU$15/mt in the south (Port Kembla zone). The fall in ASW1 values was greater in the south at AU$20/mt, around double the decrease in the north.

Winter crop production in New South Wales is set for a massive turnaround compared to the last couple of drought-devasted years. Wheat will be a bin buster with forecasts in excess of a record 13 million metric tonne now common, 3MMT more than what the state produced in 2016/17 season.

This is already putting pressure on the states storage and handling system. There are reports in the north-west of the state of sites filling up, and harvest is less than 75 per cent completed. Growers are delivering grain quicker than it can be railed out to port, and the grower is a willing seller despite the fall in values.

Wheat bids in Victoria fell by around AU$20 across the board, and in South Australia it was a little higher at AU$23. Western Australian values fell by only AU$15 across all of the major grades last week, making it the most expensive wheat in the country; quite a rare occurrence considering the state’s eternal export focus.

The fall in prices relative to global values has been so dramatic that, for the first time since 2016, the cost of Australian wheat delivered into key Southeast Asian destinations is now lower than that of Black Sea origin. Late last week, Australian wheat (APW) was reportedly being quoted at US$275/mt including cost and freight (C&F) for January shipment, compared to similar quality wheat out of the Black Sea region US$10/mt higher at US$285/mt.

China is Australia’s biggest trading partner accounting for more than one-third of the nation’s export income in 2019. The imposition of a ban or some sort of trade restriction would represent a further escalation of trade tensions between the two countries. If confirmed, wheat would join a list that already contains barley, sugar, coal, copper ore and concentrates, beef, timber, red wine and lobster.

There was a hint back in September that such action may be imminent when Chinese customs officials stated that they would be increasing testing on Australian shipments, with a focus on insect pests, after some issues with barley imports. The news of the likely ban was apparently delivered with a strong warning that Australian shipments would also be rejected if Chinese importers tried to bypass the restrictions by re-routing wheat cargos via a third country.

However, the impact of a Beijing ban on Australian wheat imports to China needs to be kept in perspective. China’s importance as a destination for Australian wheat is not nearly as great as that of barley. Prior to the imposition of the barley tariff in May, China accounted for an average of more than 60 per cent of exports over the last five years.

Over the same period, shipments of wheat to China only exceeded 10 per cent of total exports on one occasion, and that was last season where national production was one of the lowest on record. Export data for the 2019/20 season reveals that China imported around 1.4 million metric tonne (mmt) of Australian wheat or about 20 per cent of total exports. But this was up from 0.2mmt, or less than 3 per cent of total exports the previous season.

Probably the best year with which to make a meaningful comparison would be the record production year of 2016/17. Shipments to China in that season were just under 2mmt, or around 9 per cent of total wheat exports. That number is in line with many forecasts for exports to China in the 2020/21 season prior to the talk of a ban.

With one of Australia’s biggest ever wheat harvests well underway, the nation’s exportable surplus is now forecast to be north of 23mmt and exports could be as high as 20mmt. That means that around 10 per cent of this year’s wheat export program is potentially looking for a new home.

But with Australian values so competitive into Asia, and even further afield into regions such as the Middle East and Africa, the task has been made a little easier. A big part of it will be renewing relationships with traditional customers who have been shopping elsewhere over the last few years when Australia had a run of poor seasons.

In fact, it is highly likely that many of those traditional Asian consumers will be actively seeking offers of Australian wheat on account of superior quality relative to other origins.

The biggest question is, what happens to domestic prices? Being competitive into the export market suggests downside should be minimal. However, we are not close to the peak of harvest, and the price pressure has only just begun. The trade and consumer will be buyers, but I doubt they will have the appetite to buy the entire crop at harvest.

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

Decision time in the races that stop two nations…

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Two global races will dominate the news wires here in Australia this week. The first is the Melbourne Cup which will have been run and won by the time most people read this report. Considering the calibre of the international visitors, this year’s edition would have to be amongst the strongest in the history of the race.

However, the quality of the local contingent is also solid, and there are a couple of horses that have done most of their racing in Australia who will be carrying my hard-earnt this year.

The second event, of course, is the United States Presidential election which culminates this week after what feels like an eternity. Unlike other developed countries, the US does not have any laws limiting the length of their election campaigns, and this one will have lasted 1,194 days by the time the ballots finally close on Tuesday.

Global equities and futures markets will be eagerly awaiting the result. A victory for the blue corner could stimulate inflationary pressures in the US economy, which would be bullish for agricultural futures markets. Interesting that the funds are carrying serious long positions in both corn and soybean futures going into election day. If the red corner is returned to the White House, it will signal a continuation of existing economic and political policies.

Both Donald Trump and Joe Biden made wide-ranging promises over the last weeks of the campaign to protect the corn-based ethanol industry to secure last-minute support across the crucial Farm Belt states. The industry is extremely concerned about its future as the next President will preside over a broad-ranging reassessment of the congressional mandate to blend biofuels with petrol.

The Renewable Fuel Standard was created in 2005 to reduce US oil consumption and greenhouse gas emissions, and the potential reset in policy could define ethanol’s role beside oil in a low-carbon economy. Some industry pundits believe that the US has already reached peak ethanol demand as the fuel efficiency of vehicles continues to improve, the adoption of electric vehicles increases rapidly, and many young people choose not to drive.

Joe Biden has promised to accelerate the electric car sales trend if he wins office on Tuesday, a pledge that has both US farmers and ethanol refiners concerned. But he has also promised a more multilateral approach to international trade and pursue a trade policy that works for American farmers.

However, it appears that the US farmer continues to be firmly in the republican corner despite a trade war with China that has cost the US agricultural industry tens of billions of dollars. It is quite a bizarre scenario since Trump’s long-running stoush with China has seriously challenged farm profitability.

Of course, huge subsidies are being paid to farmers to offset the reduction in income resulting from the trade war, but in most cases, farmers are still out of pocket. Some critics have accused the President of using the US$28 billion subsidy program, funded by the US taxpayer, to buy farmer votes.

And when it comes to the environment, the two candidates are poles apart. Trump has criticized environmental regulations as needless red tape, and his first term administration has taken steps to diminish or abolish them.

Biden has promised a democrat presidency would make changes to a number of environmental regulations that would benefit farmers. He has proposed boosting the use of clean-energy sources, which could potentially encourage the viability of more grain-based biofuels. He has also suggested that farmers would receive income subsidies based on the adoption of environmental practices that improve carbon sequestration under a democrat government.

Meanwhile, US farmers are busy with their row crop harvest which is running well ahead of recent years and is quickly approaching its finale. As of November 2, the corn harvest was reported to be 82 per cent completed. This compares to just 49 per cent on the same date in 2019 and the five-year average of 69 per cent.

The US corn market was sharply lower last week on the back of profit-taking and the risk-off sentiment ahead of the election. But it did bring out some buyers with Mexico booking 1.43 million metric tonne of US corn, their biggest purchase in almost 12 months. China has been absent for two weeks, but reports continue to circulate that Beijing is considering additional tariff rate quotas to satisfy burgeoning domestic requirements in the face of lower production.

The soybean harvest was reported to be 87 per cent done as of yesterday, compared to 71 per cent at the same time last year and a five-year average of 83 per cent. There were some weather delays in the last seven days, but the next ten days look to be clear which should allow the harvest to conclude in many regions.

The Chinese were relatively quiet on the buying front last week, but they were in the market seeking offers from both the US and Brazil. The talk is that the private buyers in China are waiting for the US election to play out before taking on any additional cover.

The US winter wheat regions finally received their much-needed drink. This led to a slight improvement in crop ratings to 43 per cent good to excellent. This compares to just 41 per cent when the first numbers were released last week and 57 per cent at the same time in 2019. The winter wheat seeding program is nearing completion with 89 per cent of the projected area planted, in line with 88 per cent last year and the five-year average of 86 per cent.

Back to the topic at hand where one would think it should be easier to pick the winner of a two-horse election marathon than the Melbourne Cup with 24 runners. The polls say Biden, but they were tipping Clinton 4 years ago and look who won. It seems many in the US are closet Trump supporters, so who knows? I will stick to the horses: much more fun, I will get a good run for my money, and win, lose or draw I will be happy with my choice!

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

Demand driven wheat rally supported by production uncertainty…

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World wheat markets have been on fire over the last month, and the rally continued last week amid robust global demand and continued weather issues in key producing regions across the globe.

End of trade on Friday signalled the fourth consecutive higher weekly close on all three US wheat bourses: Chicago, Kansas and Minneapolis. And for both Chicago and Kansas, it was the highest close in more than five years.

Importers have been blind-sided by the strength and length of the rally. They came into the northern hemisphere harvest with minimal cover and played a waiting game thinking that the harvest pressure would push prices lower. The price surge has forced their hand, bringing them to the table in droves for fear the run will continue.

Last week alone there were tenders from Algeria, Bangladesh, Egypt, Japan, Jordan, Philippines, South Korea, Thailand, Taiwan, Tunisia and Turkey. Thursday’s tender announcement by Egypt’s General Authority for Supply Commodities (GASC) came as no surprise to the market as it was almost a month since their previous purchase.

In that tender, GASC secured seven Russian cargoes for late November shipment at an average price of US$256.44 per metric tonne (/mt) including cost and freight (C&F). Following that purchase, Egyptian authorities announced that the country’s strategic reserves covered six months of domestic consumption.

Their latest tender was for an unspecified quantity over two shipping periods; December 1 through 10 and/or December 11 through 20. It was widely expected that prices would be at least US$20/mt higher than last month’s price, and despite plenty of offers, GASC was clearly not enthralled by the numbers.

When the tender result was announced on Friday, they had booked just three 55,000 metric tonne cargoes at an average price of US$278.54/mt; some US$22.10/mt higher than the average September purchase price.

In the first shipping period, GASC bought one cargo of Russian wheat at US$262.97/mt, plus freight of US$14.90/mt freight, equating to US$277.87/mt. In the second shipping period, GASC settled for two cargoes of Russian wheat at US$263.97/mt, plus freight of US$14.90/mt freight, totalling US$278.87/mt.

Egypt also announced last week that it was removing fees for dead insects found in imported wheat. GASC will no longer charge sellers of imported wheat any fees for cleaning and fumigation if dead insects are detected in their cargoes during the sieving process at discharge.

Meanwhile, the Russian farmer continues to plant their new season winter crops despite the extremely dry conditions in many regions. As at October 19, they are reported to have planted 17.5 million hectares to winter grains compared to 16.4 million hectares at the same time in 2019. The winter wheat area is said to be 93 per cent planted.

This is purportedly the driest planting season of the last 40 years. Local analysts are quoting the analogue year of 1994 which saw planting fall by 12 per cent, but off a much smaller potential area than we have in 2020. Some meteorologists are estimating that up to 15 per cent of the forecast winter wheat area will not be able to be sown.

The continued dryness is fuelling concerns about crop emergence and development ahead of winter dormancy. Good falls of rain have arrived in some regions, but much more is needed. In other areas, the soils are parched, and germination of the dry sown crops will require rain as soon as possible as soil temperatures are falling quickly.

Conditions are so bad that farmers in some regions are reportedly using rollers to compact the soil around the planted seeds to stop them being blown away and to assist germination once the rains finally arrive. Historically this procedure had been common practice, but when soil moisture is plentiful, it is often avoided to save costs.

In addition, global traders and consumers are eagerly awaiting news on what the Russian Agriculture Ministry plans for exports in the first half of 2021. They have already flagged the probability of an export quota to ensure domestic demand is satisfied. However, internal prices have already risen at a greater pace than global values. With a cloud over new crop production, this raises the possibility of more stringent restrictions in the New Year.

Down in South America, the Buenos Aires Grain Exchange reduced Argentina’s 2020/21 season wheat production to 16.8 million metric tonne (mmt), versus their previous estimate of 17.5mmt. Harvest forecasts have been repeatedly slashed by a drought that has scorched significant parts of the Pampas grains belt since the autumn. Then in September, severe frosts took a further toll on potential wheat yields.

Recent rains have been quite widespread and will undoubtedly benefit later sown crops where grain fill is yet to commence. This should arrest the downward trend in yields and national production. Harvest has commenced in the northernmost winter cropping areas, and BAGE called the harvest three per cent done last week.

It has also been dry across the US Southern Plains, but the hard red winter wheat farmers are in for some reprieve as the long-awaited rains arrived over the weekend and are set to continue through this week. The United States Department of Agriculture reported last week that 48 per cent of the country’s winter wheat area was in drought, but that is expected to change for the better in the next update.

However, the moisture deficit is substantial in many districts, and much more rain is required to extinguish the potential production issue. Kansas produces 25 per cent of the US winter wheat crop, and it is on target to notch its driest planting period in the 126 years of record keeping.

The US and Russia collectively account for 35 per cent of world export trade. But the global wheat market tends to react less intensely to production issues in the US than it does in Russia. This is because a greater slice of the US crop is fated for storage as opposed to Russia who flood world trade with its exportable surplus each year.

And the market continues to be supported by unrelenting global demand. Many of the world’s major importers are preparing for the post COVID world by adding to strategic reserves so they can better control domestic supply and food prices, keeping their people happy and decreasing the possibility of civil unrest.

As we move into the northern hemisphere winter, it is becoming increasingly difficult to see the wheat market undergoing a substantial and lasting correction. There is very little room for yield loss next year, and until production certainty can be confirmed, the wheat market’s objective is to dim growth in marginal import demand.

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

East coast harvest delays appear inevitable…

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The Australian winter crop harvest cycle commences in September each year when headers roll into the vast wheat and chickpea fields of Central Queensland. Then, as the headers move south into southern Queensland, farmers on the opposite side of the country, in the northern reaches of the Western Australian wheat belt, also click into action.

This triggers a bilateral southerly progression of harvesting teams and equipment that covers more than twenty million hectares before concluding in the southern parts of Victoria and South Australia in late December or early January.

Unlike last year, where drought conditions meant relatively few harvest delays, concern this year, particularly in the eastern states, revolves around the likelihood of a wet harvest and the unwelcome possibility of quality downgrades. This would be a devastating blow for growers who are looking to 2020 to be their saviour after a run of poor seasons.

At the end of September, the Bureau of Meteorology officially declared a La Niña event was underway in Australia, signalling the potential for a wetter than average harvest period for certain parts of Australia.

La Niña is a phase of the El Niño Southern Oscillation (ENSO), which describes ocean and atmospheric circulations over the Pacific Ocean. During a La Niña phase, waters to the north of Australia are warm which increases convection, allowing more moisture to be lifted into the air than normal.

La Niña typically increases the chance of above-average rainfall across much of Australia during the spring months. In the summer period, above-average rainfall is usually restricted to eastern Australia. The chances of flooding are significantly enhanced during a La Niña cycle, and this could spell disaster for winter crops awaiting harvest. The later the onset of La Niña, such as this year, the more concentrated the higher rainfall is to the eastern states.

This year has been one to forget for many reasons, and most Central Queensland winter crop farmers will be adding a poor harvest to their list. A lack of pre-crop and in-crop rainfall reduced the seeded area and resulted in below-average yields across most of the region.

Ideal weather conditions have accelerated early harvest activity in southern Queensland and northern New South Wales. Headers are working overtime to reap as much of the 2020 crop as possible ahead of a significant wet change that is expected to roll into the eastern states later this week.

The Global Forecast System (GFS) is a weather forecast model produced by the National Centers for Environmental Prediction (NCEP) in the United States.

According to the GFS model, eastern Australia is in for an absolute drenching over the next fifteen days, and if this forecast comes to fruition, I can give you an early Melbourne Cup tip; look for a proven mudlark.

The Southern Queensland harvest has been in full swing for a couple of weeks now. While yields to-date have been disappointing for most, the quality has been extremely good with as much as 50 per cent of wheat samples arriving at delivery depots in the western and southern Darling Downs high in protein and going into the APH1 bin.

Early quality reports from northern New South Wales are similar which is quite surprising considering the flush season experienced this year. Plenty of APH1 quality is also being reported as well as barley that is struggling to make malting quality due to high protein.

This quality trend is unlikely to be sustained as the east coast harvest moves south with ASW and APW grades expected to dominate wheat receivals. However, the forecast rains could throw a big spanner in the works as the big crops will be highly susceptible to quality downgrading. One thing we do know is that no matter the quality, New South Wales is on course for record wheat production, easily outstripping the benchmark set in 2016/17.

Harvest is underway in the Geraldton zone and eastern parts of the Kwinana zone in Western Australia. It has been another dry year in the west but reports from the field suggest that the crop has held up better than expected and will certainly be much bigger than last year. The Grains Industry Association of Western Australia (GIWA) released their October crop report last week, and the production forecast appeared very pessimistic. Time will tell I guess!

Production uncertainty in the west and quality concerns in the eastern states have slowed grower selling to a trickle ahead of harvest, particularly for cereals. After a run of poor seasons, the challenge for the New South Wales farmer is solving immediate cashflow requirements with many resorting to forward canola sales to solve the conundrum.

While rain in northern New South Wales and Queensland would be a godsend for summer croppers, the potential impact on the quality profile of the winter crop is quite concerning. Weather forecasters have not had a good run when it comes to rainfall predictions so far this year, much to the chagrin of farmers countrywide. Let’s hope we can somehow dodge a bullet and keep both the winter and summer crop growers happy over this year’s harvest period.

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

Figure 1: GFS total accumulated rainfall in the 15 day period to 03/11/20.

South American summer crop program in jeopardy…

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Dryness in the Black Sea region and delays to planting of the next winter crop, particular in Russia, has been dominating grain market discussions and social media in recent weeks. However, the lack of spring precipitation in South America is playing havoc with their row crop planting program and has the potential to have a greater impact on global grain markets in the next six months.

And it is not just a case of being dry, with temperatures across the central areas of Brazil reported to have pushed as high as 43°C last week, further depleting soil moisture reserves. There are hints of rain through the same regions this week, but the forecast models have dialled back the quantity and expected coverage.

The November forecast is not inspiring with below-average rainfall expected across most of Argentina, Uruguay, Paraguay, and southern Brazil which will undoubtedly stress the early sown crops in those regions. Most of northern and central Brazil is forecast to receive average to slightly above average precipitation across the month of November, improving the soil moisture profile and the establishment of both corn and soybean crops.

The below-average precipitation trend is forecast to continue into December for Argentina and Uruguay, but the picture is better for Brazil with close to average rainfall anticipated across most of the major growing areas.

Brazilian farmers are proceeding with their corn and soybean planting programs at this stage, despite the extremely dry seedbed, in the hope the season turns around, and substantial beneficial rains are forthcoming over the next couple of weeks. But the seeding pace will drop if the dry continues into the second half of October.

Brazilian agricultural marketing consultancy AgRural reported last week that around 31 per cent of the summer corn crop was in the ground, which is bang on the 5-year average. But most of it has insufficient moisture to germinate. It is early days for the soybean planting program, yet it is already behind schedule at 2 per cent completed, compared to the 5-year average of 5 per cent. This is not expected to improve in the coming weeks.

Seeding in the state of Parana State is reported to be the slowest in the last five years with 8 per cent completed as of October 5 versus 22 per cent at the same time last year.

Brazil’s National Food Supply Company (Conab) has pegged the 2020/21 soybean crop at 133.7MMT compared to 124.8MMT last season. This is off an area of 38.5 million hectares (Mha), up 4.3 per cent from 36.9Mha in 2019. Conab is calling new crop corn production 105.2MMT versus 102.5MMT for the old crop.

The increased soybean area is a direct result of record high domestic prices. This has encouraged the clearing of more land and planting of soybeans in preference to alternative cropping options. The depreciation of the Brazilian Real against the United States dollar, higher futures prices and the insatiable Chinese demand mean that the Brazilian farmer is getting double the soybean price of a year ago.

This is an enormous incentive to plant soybeans and farmers don’t care if they are planted late. So even if the dry weather and the planting delays continue, Brazilian farmers will sow as many hectares to soybeans as possible and as late as possible.

The record prices have also been encouraging the Brazilian farmer to pull on their selling shoes. They are reported to have already sold almost 66MMT, or more than 50 per cent, of their forecast 2020/21 production even though most of it is yet to be planted. This is a record for the proportion of the crop sold at this point in the production cycle and is almost double the historical average of 26.7 per cent for early October.

The drought situation in Argentina is even worse, but just like in Brazil, the farmers are optimistic, and planting is proceeding at the moment in the hope that the usual spring and rains arrive. The Buenos Aires Grain Exchange (BAGE) has dramatically decreased its 2020/21 soybean crop forecast to 46.5MMT against the USDA estimate of 54MMT. BAGE has also revised its corn crop estimate down 8.7 per cent year-on-year to 47MMT.

The concern at this stage is not so much that the South American summer crops won’t get planted; it is more around the impact of the delayed crop on global supply, in particular soybeans. With the delay in bean planting in Brazil comes a delay to harvest, so it is almost assured that there will be a global shortage of soybeans in February next year when the US export program is winding down.

Brazil’s biggest farming state is Mato Grosso, and by the end of January this year it had already harvested 9MMT of soybeans or 25% of the state’s total crop. Given the current scenario, it is very tough to see any more than one-third of that being in the bin by the end of January next year. That will substantially decrease stocks available for export from Brazil in February.

The domestic soybean consumer in the US should be praying pretty hard that the weather pattern changes very soon in Brazil and Argentina and the spring rains arrive. Chinese soybean demand is currently more than 2MMT per week. Every day the planting program is delayed means another five or six cargoes of Chinese imports that will have to come from the US in February, adding to the expected tightness in the US soybean balance sheet.

The soybean futures market has already rallied, and many analysts feel that prices could go even higher if the lack of rain and planting delays persist. US futures have now risen more than 7 per cent since the most recent low on September 29, much of it on the back of the South American issues. And the rise over the last two months is now almost 23 per cent or around AUD100 per metric tonne.

The Chinese have come back from their ‘Golden Week’ holiday in the mood for shopping. This has coincided with a sharp drop in ocean freight. Soybean sales to China now total 17.5MMT this season compared to 3.9MMT at the same time in 2019. And sales to unknown (read China) are now 10.7MMT versus 4MMT a year ago.

Chinese buyers are cognizant of the weather issues that Russia, Brazil and Argentina are currently experiencing and what it could do to prices over the next six months. Expect the Beijing buying binge to continue for some time yet.

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

USDA drops a bombshell and the markets explode…

Posted by | Weekly Commentary | No Comments

The year 2020 has undoubtedly been one of surprises and the United States Department of Agriculture delivered one of its own last week in the form of the quarterly US Grain Stocks report. Most in the trade were expecting quite benign numbers, but the USDA had other ideas posting tighter than expected corn, soybean and wheat supplies.

Old-crop corn stocks at the end of the 2019-20 marketing year were 50.7MMT, down 10.2 per cent compared to the same time in 2019. This was significantly lower than the average pre-report trade estimate of 57MMT. On-farm corn stocks were down 8 per cent from a year ago, while off-farm stocks were down 12 per cent year-on-year.

The most likely implication is higher feed and residual usage in the fourth quarter of the marketing year: a bullish surprise in light of the lower corn for ethanol usage due to the COVID-19 travel restrictions. However, despite the strong Chinese demand for US corn, the price outlook seems bearish unless there are some yield surprises when the US harvest hits the key production states.

The September 1 soybean stocks also came in well below trade expectations at 14.2MMT. This is down a staggering 42 per cent, or 10.5MMT compared to last year. This fall in US stocks definitely tightens up the global balance sheet and places increased importance on the current state of play in South America, especially if the Beijing buying binge continues.

Soil moisture levels in some regions of both Argentina and Brazil have been drier than is typically expected at this time of year due to La Niña. The below-average rainfall levels in Brazil have growers of both first-crop corn and soybeans a little concerned as sowing will be delayed, and yields could be affected.

US wheat stocks at the end of the first quarter of the 2020-21 marketing year totalled 58.8MMT, the lowest since 2015. This is a year-on-year fall of 8 per cent. Stocks held on-farm are estimated to be down 4 per cent from last September, and off-farm stocks are down 10 per cent from a year ago.

The lower than expected number implies that the June to August 2020 disappearance is up 4 per cent from the same period in 2019. The USDA also reduced its US wheat production number for the current harvest by a bit over 300,000 metric tonne to 49.6MMT on the back of slightly lower yield numbers from the field.

Barley stocks in all positions in the US at the beginning of last month totalled 3.9MMT, down 5 per cent from September 1, 2019, and old crop grain sorghum stored across the country as at September 1 was down 54 per cent on a year ago at 750,000 metric tonne.

All US futures bourses copped a speeding ticket as a result of the stock numbers with corn, soybeans and wheat surging by 4 per cent, 3 per cent and 5 per cent respectively after the release of the report last Wednesday. The funds went all in, buying an estimated 55,000 corn contracts, 30,000 soybean contracts and 25,000 wheat contracts. Collectively, that buying spree amounts to a staggering 14.5 million metric tonne (MMT) of grain in one day.

In the two trading sessions since the rally, both corn and soybean futures consolidated Wednesday’s price gains, but wheat gave up almost US$2 of the US$10.50 per metric tonne surge.

The market reaction to the wheat numbers was a little surprising. Stocks may be tighter, but the US is presently uncompetitive in the export arena, and the global balance sheet is quite comfortable at the moment. Some issues are playing out in Argentina, but that has been countered by higher Russian production.

Last week the Russian Ag Ministry lifted its wheat harvest estimate from 75MMT to 82MMT based on better than expected harvest receivals. The USDA is still lagging at 78MMT, but that is expected to be increased when the latest World Agricultural Supply and Demand Estimates report is released on Friday.

Russian export forecasts are on the rise as a result. Local agriculture consultancy, Sovecon, has raised its current season wheat export estimate by 1.7MMT to 38.9MMT, not far below the record of 41.4MMT set in 2017/18. It is forecasting exports at 24MMT in July-December half and almost 15MMT in the second half of the marketing year.

The extremely dry spring has taken its toll on wheat yields in Argentina with farmers in the north of the country reporting that some paddocks are so poor it will not be worth driving the harvester through the gate. The Buenos Aires Grain Exchange (BAFE) has decreased its 2020/21 wheat harvest estimate to 17.5MMT, down from 21MMT in August. It is now 2MMT less than the USDA number which is expected to be revised lower later this week.

When all is said and done the wheat price outlook remains bearish unless the dryness currently being experienced in the Black Sea region escalates and impacts next year’s winter crop output. It is not panic stations just yet as there is still plenty of time to plant the crop, but it is certainly the most relevant area of concern for global supply.

At the end of the day the potential issues in the Black Sea region, La Niña in South America impacting winter and summer crop production and last week’s USDA grain stocks bombshell are all great news for the Australian farmer.

The market rally is perfectly timed as this year’s domestic harvest ramps up in coming weeks. The biggest concern, now that the Bureau of Meteorology has officially declared a La Niña is underway, could well be the harvest weather and getting the crop in the bin with minimal rain delays and no quality issues.

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

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