Weekly Commentary Archives | Grain Brokers Australia

Sorghum harvest commences, but production threatened

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Sorghum harvest commences, but production threatened …

As the last of the Australian winter crop harvest winds down in Victoria, South Australia and Western Australia, the early sorghum harvest has rolled into action across southern Queensland and isolated pockets of northern New South Wales.

There has been much conjecture around the size of this season’s sorghum crop after seed supplies reportedly ran out back in October. The early planted area in southern Queensland was quite significant, but plenty of seed obviously sat in the shed. The pre-Christmas rains initiated a flurry of planting activity across the holiday period with planters even seen operating on Christmas day.

Fortunes have been mixed throughout the growing season. Most of the early sown crops in northern New South Wales have struggled through without much in crop rainfall, and some have perished as a result. While there are some good areas, many early yield reports have not been flattering. At this stage, with much of the Liverpool Plains and other areas further north yet to be sown (and unlikely to be sown), the New South Wales crop will struggle to exceed 500,000 metric tonnes (MT). This is well below average.

Southern Queensland crops have generally fared better. Whilst the spring rainfall has been lower than average in most districts the crop has managed quite well. Apart from the irrigated crops, those sown into long fallow ground certainly look the best. Nevertheless, there were isolated instances where paddocks failed and were sprayed out. Some of these were resown when later rains arrived.

Overall the inner Darling Downs crops (east of Dalby and Cecil Plains) are in good condition. The same can be said for the areas north of Dalby and west as far as Condamine and Miles. In general, those crops that are at, or close, to harvest will be above average in yield. Evapotranspiration is at its peak at this time of the year so those paddocks that are still in the grain fill stage will require more rain to finish and maintain above average yield potential.

The size of the late sown crop may surprise to the upside if the growing season is a little sympathetic. This has the potential to compensate, in a small way, for the lower production in northern New South Wales as the drought continues in many areas of the state. The lack of seed availability has forced some growers to reduce seeding rates in order to plant the intended area. At this stage, the southern Queensland crop could still be as high as 1.2 million metric tonnes, but regular rain is required to get that through to harvest and in the bin.

The planting window is now well and truly open in Central Queensland, but the required rains have not arrived in many districts. Around one-third of the predetermined area has been planted and much of that is into a marginal moisture profile. The ideal sowing window for the region runs through to at least mid-February, so there is still time. However, substantial soaking rains are required across the entire region to boost the sown area and get the balance of the crop in the ground.

In a big year, Central Queensland can produce more than 500,000MT of sorghum, but most estimates would currently be south of 350,000MT. Unfortunately, the hot, dry weather is forecast to continue through to the end of January so the final production number could easily be much less. Due to its distance from key domestic markets, a significant proportion of Australia’s sorghum exports are traditionally loaded out of the Central Queensland ports of Gladstone and Mackay.

The market reacted to the availability of new crop sorghum with the delivered Darling Downs market trading down to $350 at the end of last week, a fall of around $10 over the week. The delivered Brisbane and delivered Newcastle markets were also weaker last week, falling about $8 to finish at $364 and $375 respectively.

The domestic market may have been down, but the appreciation in the Aussie dollar meant that export values actually increased week on week. China has reportedly reduced their bids for Australian sorghum, and they now sit at a substantial discount to domestic values.

This could be a reflection of reports that China has been increasing their interest in United States (US) sorghum. There are even rumours circulating that some business may have been done. With the United States Department of Agriculture (USDA) on a Trump enforced siesta, anything could have happened, and the market would be none the wiser.

US sorghum is trading at around US$185 free on board (FOB) out of the Gulf of Mexico against Brisbane FOB at around US$295. At that spread, it will be challenging for Australia to find substantial export demand. However, with queries on production in northern New South Wales and Central Queensland, the exportable surplus may not be significant.

In overseas news, Egypt (GASC) issued a wheat tender last week, and they ended up booking 415,000MT. Despite all the talk of dwindling supplies, logistics issues, rising domestic prices and phytosanitary restrictions, Russia was again the seller. A total of 295,000MT traded in the February 20-28 slot and a further 120,000 traded in the March 1-10 slot.

Values were around US$2 higher than the December tender. This dashed hopes of an early pick-up in European and US exports in the second half of the season, and the market was sold down accordingly after the tender results were released.

Last week’s US-China trade talks concluded with no official deal, but China promised to buy “a substantial amount” of agricultural, energy and manufactured goods and services from the US. There does not appear to have been any follow through with no evidence or reports of sales to close the week. The government shutdown is certainly not helping the transparency situation. Higher level talks are now scheduled for later in the month to hopefully hammer out a deal.

It seems that Don’s Party is quickly becoming a game of Deal or No Deal.

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

A new year starts with the same old stories …  

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A new year starts with the same old stories …

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Global Crops Harvest Update

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Global Crops Harvest Update

The Australian winter crop harvest is all but complete and much of the northern hemisphere winter crop is now sound asleep under a protective blanket of snow. As is the case each new year, the focus of global grain production turns firmly to the weather and progress of the huge summer crop in South America.

In Brazil the month of December has been drier than usual, and the below average precipitation is forecast to continue through to at least the 10th January. Scouts are suggesting that as much as 25 per cent of the soybean crop area is experiencing some degree of moisture stress.

Historically, this would not have been such a big problem as the pod fill stage was typically in January. But this season is different. Early planting conditions were excellent, and many farmers took advantage by planting early. They have also increased the proportion of short season varieties in their rotation this season.

Consequently, bean set, and pod fill have been much earlier than normal making the recent dryness an issue for the earlier maturing regions. The crop is so early in some parts of central Mato Grosso that harvest commenced before Christmas.

Up to now most of the decrease in production has been confined to the southern states of Parana, Rio Grande do Sul and Mato Grosso do Sul. But there is now concern that dryness in Mato Grosso could see a cut to soybean yields in that state as well. Mato Grosso is the premier state for soybean production in Brazil and is responsible for around a quarter of the country’s annual production.

An early soybean harvest in Brazil means new crop beans will be available for export earlier than normal. The Chinese may have made some token purchases from the United States (US) in recent weeks, but they did have to pay ‘overs’. Will they continue that strategy, or will their primary interest turn to Brazil? The higher US market has seen countries such as Bangladesh, and even Mexico, book early new crop shipments out of Brazil lower than US offers.

The dry weather is also having an impact on Brazilian corn production. Ample land and a favourable climate with a long growing season make Brazil ideal for growing corn. Technological advances in soil management and improved hybrid corn varieties have stimulated an explosion in production that has seen it more than double since the turn of the century.

In much of the country, that enables two harvests per year. The second-crop corn is also known as the safrinha crop. This is a Portuguese word meaning “little harvest”. Historically, this was an appropriate name but the safrinha crop is now larger than the first, or full-season, corn crop in Brazil.

The corn area is not as far ahead of normal development as the soybean crop but there are concerns that production losses, particularly in Parana and Rio Grande do Sul, will make the carry into the safrinha harvest very tight. Price weakness has also seen farmer selling dry up into year’s end.

In contrast to Brazil, the December story for many parts of Argentina was all about too much rain. This was certainly a problem for the last of the winter crop harvest which has been delayed and suffered quality downgrades as a result. With less than 15 per cent of the wheat harvest to be completed production estimates remain around 19 million metric tonne (MMT) according to the Buenos Aires Grain Exchange (BAGE). That compares to the Rosario Grain Exchange estimate of 18.7MMT. Average wheat yields are reported to be just under 3 metric tonne per hectare.

Whilst some summer crop replanting has been required, the wet weather has been beneficial for most of the Argentine soybean and corn area. The BAGE reported last week that the Argentine soybean crop was 83 per cent planted, compare to 82 per cent a year ago. Around 85 per cent was reported to have favourable soil moisture conditions.

The BAGE estimated that the Argentine corn crop was 73 per cent planted as of last week and that it was progressing in line with the long term average. The wet December has seen an increase in the recently harvested wheat area being double cropped into corn. A continuation of this trend and the favourable conditions could see an upward revision of corn production estimates, but it is still too early to call.

Australian sorghum production has consolidated at around the 2.2MMT mark following the rains across parts of southern Queensland and, to a lesser degree, northern New South Wales, just prior to Christmas. It is going to be a long drawn out sorghum season as the recent rains will see planting continue well into the New Year and we are already seeing harvest commence in the early sown regions.

Sorghum values have continued to decline relative to wheat in recent weeks with the spread getting out to as much as AU$115 leading up to the festive season. That is certainly plenty of incentive for domestic consumers to increase sorghum inclusion rates (at the expense of wheat) in the stockfeed rations.

This in turn has the potential to push domestic demand beyond 1.7MMT. With no certainty around the aforementioned production estimate, it could get very interesting if China steps up to buy Australian sorghum for the specialised baijiu alcohol market.

Stay tuned for more grain market insights in 2019. Happy New Year.

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

Indian Wheat Crop Faltering

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Indian wheat crop faltering…

24 December 2018

Speculation is increasing that this season’s Indian wheat production could be much lower than last year, as less than average rainfall and higher than average temperatures threaten yields in the key winter crop regions.

After rice, wheat is the most important food-grain in India. It is the staple food of millions of Indians, particularly in the northern and north-western states of the country. India is the second largest producer of wheat in the world, after China, and in the last two years has accounted for more than 13 per cent of the world’s total production of wheat.

The area of arable land in India is just under 160 million hectares. This is more than 60 per cent of the country’s total land area and is the second largest in the world behind the United States (US). According to government sources, Indian farmers had planted 15.4 million hectares of wheat up to December 14. This is down slightly from last year’s total of 15.7 million hectares and represents almost 10 per cent of the arable land area.

The northern states of Madhya Pradesh and Uttar Pradesh are the country’s top two wheat producers. They account for more than 45 per cent of India’s total output. In the four month period from June to September this year, these two states received only 10 per cent of their long-term average rainfall. This is normally the peak monsoon period and rain in these months is critical for the succeeding winter crop production season.

Based on the monsoon, the Indian cropping cycle is classified into two distinct seasons – Kharif and Rabi. The terms come from the Arabic language where Kharif literally means autumn and Rabi means spring and refer to the harvest period for each of the seasons.

The Kharif cropping season runs from June to October each year and this is when summer crops such as rice, maize, cotton and sorghum are grown. These crops are planted with the onset of the south-west monsoon and finish when the rainy season is over.

On the other hand, the Rabi cropping season runs from October to April, when India grow their winter crops such as wheat, barley and chickpeas. The crops are sown when the monsoon ends and harvested before the beginning of the summer season.

India harvested a record 99.70 million metric tonnes (MMT) of wheat in the 2017/18 crop year. This is an increase of 1.2 per cent on the previous record set in 2016/17. However, it is substantially higher than the preceding two drought-affected years when production of only 87MMT resulted in substantial imports, particularly from Australia.

Wheat prices have reportedly risen by more than 15 per cent since the beginning of this financial year. A substantial depreciation in the value of the Indian rupee against the United States dollar has certainly contributed to this increase.

There was also some government influence in the lead up to the general election. Higher domestic prices were designed to appease disgruntled farmers in northern India where the price of key farm inputs, such as fuel and fertiliser, increase at a faster rate than the returns from farm production. But if prices go too high the government risk alienating the city folk who are forced to pay higher prices for their food.

However, fall in Indian wheat output could push domestic wheat prices even higher and force the Indian government to reduce import taxes so that local production can be supplemented with imports. Higher imports from India will, in turn, provide support for global wheat prices.

At the beginning of November reserve wheat stocks held by the government reportedly stood at just over 33MMT, up by almost 40 per cent in the last twelve months. The recent price increase may prompt the government to release some of these stocks onto the market to manage the rising price situation.

Meanwhile, after weeks of speculation, there is finally confirmed evidence of a sustained resumption of agricultural commodity trade between China and the US. The United States Department of Agriculture (USDA) reported mid-month that China had purchased 1.5mmt of soybeans.

Well, they returned to the trough again last week with a further 1.2mmt of soybean purchases. Whilst the shopping may not have finished for 2018, the total purchases to date still fall well short of trade expectations and US farmer hopes. The market reaction told the story with Chicago soybean futures down following the news.

China is the world’s largest consumer of soybeans accounting for 60 per cent of global trade each year. In 2017 they purchased 31.7mmt of US soybeans, almost 60 per cent of total US soybean exports. The story is quite different this year. Trade tensions escalated following the imposition of tariffs by the US government on a multitude of imported Chinese goods.

The big question now is ‘what will these purchases do for the delicate trade negotiations’? Stay tuned for more Don’s Party action in 2019!

Finally, as this will be the final market report for the year, the team at Grain Brokers Australia would like to wish all readers the very best for the festive season and a New Year filled with joy and prosperity.

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

Weekly Market Report

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Santa overwhelmed with orders for rain…

The southern hemisphere’s second biggest wheat producer is Argentina. Heavy rain across a large portion of the country’s northern wheat production region in the past week bought harvest to a halt and started to raise quality concerns for the area yet to be reaped. The forecast for more rain over the next week has added to the market’s anxiety.

The extreme weather comes on the back of frosts in the later maturing central and southern wheat growing regions that will also have quality and quantity ramifications as the harvest moves south. The province of Buenos Aires was the hardest hit by the latest frost which arrived right in the middle of the critical flowering period.

Further west, hail storms hit the wheat crops in the southern parts Cordoba and the northern reaches La Pampa as the crop was moving to the end of the grain fill stage. Again, this is expected to manifest itself in lower yields and poorer quality in the affected areas.

As a result, the Rosario Grain Exchange has reduced its production estimate to 18.7 million metric tonnes (mmt). This is a 3.6 per cent reduction on their early November estimate of 19.4mmt. The exchange reported that the pace of the wheat harvest was slower than normal at around 52 per cent completed compared to 58 per cent at the same time last year.

According to the Buenos Aires Grain Exchange, the average wheat yield is running at 2.71 metric tonnes per hectare and there was just over 9.5mmt in the bin as at Thursday last week. Even though recent weather events have decreased final production expectations, it is still expected to be around 7 per cent higher than last season.

Like Australia, harvest usually brings a fall in prices as supply increases sharply. However, the market has moved in the opposite direction on the back of lower production and strong export demand, primarily at the expense of Australia. Values for 12 per cent protein wheat have reportedly risen around 5 per cent in the last week, trading on Thursday at US$223 Free on Board (FOB) for January loading up river. That market was subsequently offered at US$228 FOB.

Up river refers to the Paraná River ports west (or up river) of Buenos Aires. The Paraná River is the second longest river in South America at 4,880 kilometres in length and runs through Brazil, Paraguay, and Argentina. It is an extremely important trade pathway for both Argentina and the landlocked country of Paraguay. The volume of water that flows into the Atlantic Ocean via the Río de la Plata roughly equals that of the Mississippi River.

In the meantime, Egypt (GASC) unexpectedly dropped into the market last week and picked up another 180,000 metric tonnes (three cargos) of wheat for early February 2019 shipment. Russia sold two cargoes and Romania the other, but the big surprise was the price which was around US$6 higher than their purchases only a week earlier.

The higher price paid by GASC this week appears to be a reflection of declining Russian supply and less aggressive offers as the local farmers are reportedly holding onto their remaining stocks in the expectation of better prices. Russian 12.5 per cent protein wheat reportedly closed the week offered at around US237 FOB for panamax capable ports.

The talk of Russian export restrictions reared its ugly head again this week. It seems that every time the government arranges to meet exporters (another meeting scheduled for December 21) the rumour mill goes into overdrive. Maybe the threat of restrictions, solid domestic demand and the increased grower resolve will be enough to do the job without government intervention. Only time will tell!

The United States Department of Agriculture (USDA) still has Russia in for 36.5mmt of wheat exports. But they are the only ones that believe it. The current export pace supports that number. However, lower production (70mmt compared to 85mmt last year) and increasing internal prices, going into their winter, certainly suggest it is not possible.

Talk in Australian markets over the past week was dominated by the forecast of widespread rainfall throughout the summer cropping regions of northern New South Wales and Queensland. The rain arrived on time and some localised recordings, particularly on the inner Downs, were better than expected. Nonetheless, in general, the falls to date have disappointed compared to the lofty forecasts. I guess that has been a consistent theme throughout 2018.

Sorghum values moved lower across the week on the back of the optimistic weather forecasts with bids dropping below AU$350 delivered Darling Downs before rising slightly to close the week. However, wheat values have remained firm and with sorghum quoted at a discount of at least AU$80, the sellers were simply not engaging the market. With Western Australian wheat (the major stockfeed alternative) reportedly finding robust export demand, who could blame them?

The huge spread between sorghum and wheat values delivered into the key Darling Downs and Brisbane consumption markets appears to be reflecting a new crop sorghum production number of well over 2mmt. Based on reported seed sales, that is probably conservative. Based on reality, there is one key requirement before this becomes conceivable. More rain!

The precipitation over the last four days has been fantastic and welcomed. But more widespread falls are required across northern New South Wales and southern Queensland to stem the rate of sorghum abandonment, give the surviving crop a good drink, and ensure that the unplanted areas are sown as soon as possible.

And Central Queensland requires more rainfall across almost the entire region so that growers can plant their sorghum in the ideal New Year seeding window to maximize yield potential.

I think I know what most summer crop growers down under have ordered for Christmas.

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

All dressed up with nowhere to go…

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All dressed up with nowhere to go…

A deal has supposedly been done, Chicago Board of Trade (CBOT) soybean futures moved 2.5 per cent higher last week in anticipation of some sales, but the market is still waiting for clarity, and action, around the trade truce between the United States (US) and China.

Early last week the White House stated that there would be an immediate resumption to agricultural trade following the handshake agreement at the G20 summit in Argentina earlier in the month. Not much has been said since, but The Don took to Twitter on Friday saying that the “China talks are going well”. What does that mean?

There were rumours emanating from China late in the week that Beijing had approved the purchase of 5 million metric tonnes (MMT) of US soybeans. In a supposed gesture of good faith, it is believed that state-owned companies Sinograin and COFCO had been instructed to buy 3MMT and 2MMT respectively.

Whilst such purchases would certainly be welcomed by the US farmer, they would hardly put a dent in the huge US stockpile. Even though CBOT soybean futures have risen in all but one trading session in the last week, the prospects of a record Brazilian crop will more than likely slow any further gains until significant US sales are confirmed.

On the wheat front, Egypt reported that they have purchased 350 thousand metric tonnes (KMT) in the latest General Authority For Supply Commodities (GASC) tender. Russia continues to dominate with a total of 290KMT for shipment in the last ten days of January 2019. The remainder (one panamax cargo) went to their Black Sea adversary, Ukraine.

The average purchase price was just under US$253 cost and freight (C&F), which is very similar to the November tender price. However, it is not price that seems to be the biggest issue for the Egyptian government at the moment. They have not issued letters of credit for sixteen wheat cargoes purchased in recent tenders. The issue apparently effects around 945KMT, some of which arrived at Egyptian ports in late November.

Such issues are not new for Egypt but the interesting difference this time is Egypt’s net foreign reserves were US$44.513 billion at the end of November. This is much higher than last time and is more than enough to cover the cargoes in question. However, the major concern for the trade is a statement from GASC saying that Cairo’s ministry of finance had told them that nothing will happen until January. There are plenty more cargoes scheduled to arrive between now and then.

It seems that the finance issue is not confined to Egypt. Zimbabwe’s biggest flour mill was forced to close last week due to a lack of working capital and fellow African countries, such as Tunisia, have been experiencing extreme payment problems in recent times. Nonetheless, the GASC issue is certainly the market’s major credit concern for the moment.

Global barley news is still dominated by the anti-dumping action instigated by China against Australia last month. Under the World Trade Organisation (WTO) rules the earliest that China can impose tariffs, bans or other penalties on Australian barley is the 20th January next year. However, it is believed that technicalities behind the action mean that it may be as late as the end of February (or even early March) before any possible trade restriction can actually take effect.

This has seen a mad scramble to ship existing business early so that it arrives before any constraint commences. No doubt this was the reason behind the flurry of activity on the Western Australian shipping stem in late November. As much as 1.2mmt of forward malting and feed barley sales to China are believed to be on books of Australian exporters.

Despite the government action, the Chinese consumer needs this barley to carry on their regular business. Consequently, they are pushing exporters to ship as soon as possible. Traders are shuffling their export program. Wheat cargoes are being delayed so that barley can take the shipping slots. In some instances, this means two handy size cargoes are being booked instead of one panamax. No doubt there are additional costs as a result.

Word is many of the Chinese consumers are doing all in their power to assist the process. Buyers are switching cargos and letters of credit, opening letters of credit early and even bearing some of the additional costs in order to facilitate the immediate execution of their purchases.

In the meantime, the size and quality of the Australian barley crop is improving as harvest progresses, particularly in Western Australia. Only a few weeks ago many were scoffing at the suggestion of 4mmt in the west. Some in the trade are now quietly saying it could be more than 4.5mmt. This would make it bigger than 2016/17.

Heavier, plumper grain has also seen malting barley selection rates in Western Australia continue to increase as the barley harvest moves into the southern Kwinana and Albany zones. With almost 3.7mmt of barley received, it is now running at 38 per cent. This compares to 32 per cent a couple of weeks ago. The Albany zone is by far the best performing zone with a selection rate of almost 49 per cent. I guess the biggest question here is how much of that is in the Malt2 bin?

With China out of the market, and Japan covered until at least February, malting barley premiums in Western Australia have been squeezed into as low as AU$10 over the last week. This has certainly surprised many and is the lowest spread the market has seen this season.

Unfortunately, it is basic supply and demand economics at play. Production is higher than expected in the key export states, but our key customer is out of the game. It is simply too risky for exporters to make further sales and the Chinese consumer is not looking to buy for fear of having to pay a tariff if the anti-dumping dispute is not resolved.

The result is a bigger barley crop with no home. Better quality but no party invitations. All dressed up with nowhere to go.

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

Don’s Party Adjourned Azov the Weekend…

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Don’s party adjourned Azov the weekend …

Tensions continue to simmer in the Black Sea region after Russia seized three Ukrainian naval vessels attempting to enter the Sea of Azov on the 25th November. At this stage disruptions to the movement of grain have been minimal, but any escalation of the standoff could have much wider ramifications.

The incident is a continuation of the issues that escalated after Russia annexed the Crimean Peninsula in 2014. Prior to this, Crimea existed as a semi-autonomous part of Ukraine, with political ties to Kyiv (Kiev) but strong cultural bonds to Moscow.

The sea of Azov, the shallowest sea in the world, is a small body of water whose only access to the open seas is the Kerch Strait which connects it to the Black Sea. This narrow passage is only 4 kilometres wide and is now spanned by a recently completed, and highly controversial, bridge linking Crimea to the Russian mainland.

The sea is supplied by numerous rivers, the biggest of which are the Don and Kuban, which drain vast areas of southeastern Russia. As a result, there is an almost constant outflow of water into the Black Sea and salinity is low.

Under a treaty signed in 2003, the Sea of Azov is shared by Russia and Ukraine. Following the annexation of Crimea, the Kremlin effectively gained control over both sides of the Kerch bottleneck, despite the aggressive action not being recognised by the global community.

Ukraine’s two major ports on the Sea of Azov are Mariupol and Berdyansk, and according to a government spokesman, they only make up about 5 per cent of the country’s grain exports. Around 2mmt of Ukraine grain exports were via the Kerch Strait last year. That said, it is likely that global trade will simply reduce their exposure to the current tensions by refusing supplies from the Azov Sea ports.

However, the issue here is not the minor disruptions to grain movements via the Kerch Strait. It is the possibility of an escalation in the tensions jeopardising grain exports from the greater Black Sea region, in particular, Ukraine.

As of 27th November, Ukraine’s total 2018 grain harvest had reached a record 68.2 million metric tonnes (MMT). The corn harvest is reportedly 94 per cent complete with 33MMT in the bin. As a result, exports are expected to reach an all-time high of 47MMT in the July ’18 to June ’19 marketing year.

Kyiv has temporarily imposed martial law in parts of Ukraine as a result of the crisis. However, according to the country’s acting agriculture minister, the martial law was not currently affecting grain shipments from their Azov Sea ports and they could be diverted to the country’s Black Sea ports if necessary. Nevertheless, this would increase the pressure on an already strained rail and road logistics network.

There is some international concern that under the terms of martial law, Ukraine could commandeer trains from commercial users. This is reportedly prompting some international banks to reduce their exposure to Ukraine by threatening to cut commercial financing.

Reports that Russia is building troops on its eastern border with Ukraine and deploying more ground to air missiles on the Crimean Peninsula will certainly not ease the strain on the already tense relationship. There is also the possibility that the European Union will add to the friction to the situation by increasing sanctions against the former Bolshevik state.

Whilst Putin’s actions would seem to be Russia’s way of demonstrating dominance over Crimea and the surrounding waters, neither country can really afford an all-out conflict. But then again, when has affordability, financial or political, ever got in the way of a good fight?

Meanwhile, Don’s Party (US-China trade war) is on hold after Xi Jinping and Donald Trump reportedly declared a trade truce following their bilateral meeting at the G20 summit in Argentina over the weekend. It was the first time the two had met since the world’s two largest economies had imposed tariffs on each other’s imports.

Apparently ‘The Don’ has agreed to delay the threatened imposition of 25 per cent tariffs on Chinese imports for a period of 90 days (up from the current 10 per cent), to allow time for negotiations on longstanding trade disputes. Not surprisingly Trump took to Twitter and used one of his favourite words, ‘amazing’, to describe the meeting between the two leaders.

According to a White House statement, China has agreed to resume the purchase of US agricultural products. This is a big boost to the US Midwest soybean farmer, many of whom were Trump supporters at the last election. China is traditionally the biggest destination for US soybeans, but since the trade tensions escalated under the Trump administration, exports have been reduced to a trickle.

To start the week, soybean, corn and wheat futures all opened higher on the Chicago Mercantile Exchange reflecting the positive sentiment emanating from the G20 discussions. Nevertheless, actions from both parties will be the best market barometer over the next few months. China had been extremely quiet in the bean market leading into the summit. If the Chinese come shopping the US will certainly be willing sellers as stocks are plentiful following a huge harvest.

The possibility of a record Brazilian harvest being available to the global export market around March next year will only increase their resolve. South American crop scouts are saying that it is the best start to the Brazilian summer cropping season for many years and are expecting soybean production could be as high as 122mmt.

The longer-term effect on the Aussie market will be interesting, particularly for sorghum. In recent years Australia has been a big supplier into the Chinese alcohol (Baijiu) market. There is definitely no production certainty at the moment, but a big area has been sown and if that culminates in a big harvest then Australia will need to find export demand.

Should China and the US solve their differences over the next three months then US sorghum suddenly becomes a cheaper alternative when Australia is ready to export. This will be quite bearish for Aussie values as sorghum is struggling to find significant feedlot demand at the current discount to domestic cereals prices.

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

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