Weekly Commentary Archives | Grain Brokers Australia

USDA welcomes the New Year with very little fanfare…

Posted by | USDA WASDE Report, Weekly Commentary | No Comments

Released late last week, the January World Agricultural Supply and Demand Estimates (WASDE) report tends to be quite significant, given that it’s usually the final numbers in terms of yields, harvested area and production for the crop year in the United States (US). 

However, the case is not closed on 2019 US production just yet as the United States Department of Agriculture (USDA) acknowledged it would resurvey producers in Michigan, Minnesota, North Dakota, South Dakota and Wisconsin for corn production and Michigan, North Dakota and Wisconsin when it comes to soybean production.

Heading into last Friday’s release, much of the market chatter suggested that the report would be bullish, based on the expectation of lower summer crop yields. But the opposite happened with the USDA raising the national yield for both corn and soybeans.

US corn production was forecast at 347.7 million metric tonne (MMT) with an average national yield of 10.55 metric tonne per hectare (mt/ha), slightly higher than last month’s yield estimate of 10.48mt/ha.

Globally, corn production in South America was left unchanged by the USDA with Brazil and Argentina forecast to produce 101MMT and 50MMT respectively. These numbers seem to belie the dry conditions being experienced in many parts of Brazil and Argentina this summer.

The only production increase amongst the major exporters was Russia which the USDA increased by 0.5MMT to 14.5MMT. The washup of all the changes was an increase in global output by a little more than 2 MMT to 850MMT excluding China, and 1,111MMT including China.

However, the bullish part of the corn equation comes in the demand number, increased by more than 6MMT globally compared to the December report. The US accounted for just under 6MMT with a 1MMT increase in China countered by a 0.5MMT decrease in Ukraine and several other minor downward revisions.

The USDA pegged final 2019 US soybean production 90.4MMT, on an average yield of 3.19mt/ha compared to 90.2MMT and an average yield of 3.15mt/ha in the December report. This was a surprise to most analysts who expected to see the impact of the extremely challenging season continue to ripple through the country’s soybean supplies. Nonetheless, this is still 20 per cent lower than the previous season’s production of 112.5MMT.

Like corn, the South American soybean production numbers remain steady with Brazil estimated to produce 123MMT this summer and Argentina expected to harvest 53MMT. Brazil’s National Supply Company (Conab) released estimates last week that seem to ignore drought worries and support the USDA number. They are forecasting soybean production at 122.2MMT off 36.8 million hectares.

Eventually, soybean losses will happen if it remains dry, but most agronomists believe that the current lack of moisture only affects the first corn crop at this point in the season. The state raising the biggest concern is Rio Grande do Sul, the top summer corn producer in the country. Conab maintained its estimate for first crop corn production at 26.6MMT, down 3.8 per cent compared with 2019, based on a 1.1 per cent increase in the seeded area.

When it comes to wheat, global production for the 2019/20 marketing year was reduced by a meagre 1MMT to 764.4MMT. Half of that decrease was in Australia, where the USDA decreased production by 0.5MMT to 15.6MMT. While this is getting closer to reality, it is still at least 1MMT higher than the majority of domestic estimates.

Argentine production remained at 19MMT against the latest Buenos Aires Grain Exchange (BAGE) estimate of 18.8MMT. BAGE increased their estimate by 0.3MMT last week on the back of better than expected yields in the late-harvested regions. The balance of the global production decrease was in Europe with the Russian crop decreased by 1MMT to 73.5MMT and the European Union (EU) crop increased by 0.5MT to 154MMT.

On the wheat export front, global trade for the 2019/20 marketing year was increased by 1.3MMT to 181.1MMT. The US, Argentine and Canadian numbers were all unchanged compared to the December report. The major tweaking was in Europe where the Ukrainian and EU export numbers were increased by 0.5MMT and 2MMT respectively, and the Russian forecast was decreased by 1MMT on the back of lower supplies.

The USDA adjustment to the Australian wheat export number was hardly worth the token effort with a mere 0.2MMT shaved off expectations. Like the production forecast, the figure of 8.2MMT is at least 1MMT higher than most domestic expectations, and it simply should not be possible given domestic demand and the poor harvests receivals in Western Australia and South Australia.

Looking at the US new crop, the USDA reckons their farmers have planted 12.47 million hectares of winter wheat. This compares to 12.61 million hectares last year and is the smallest winter wheat area since 1909.

On the barley side of the equation, global production was decreased by 0.7MMT to 156MMT up more than 12 per cent, or 17.4MMT compared to the 2018/19 season. Australia was down 0.2MMT to 8.2MMT, EU up 0.5MMT to 62.75MMT and several minor producers collectively down by 1MMT.

The net change to global demand was minor at 0.1MMT, but the USDA did make some quite hefty regional adjustments to arrive at total demand of almost 153MMT. The big one was a 0.9MMT decrease in Chinese demand, potentially decreasing Australian exports over the coming months.

Countering that were demand increases of 0.4MT in the European Union and 0.6MMt in Turkey. Most importantly, Saudi Arabian demand was untouched at 8.5MMT, a year-on-year increase of 20 per cent or 1.5MMT. All this leaves 2019/20 global ending stocks at just under 21MMT, down 1MMT on last season’s number.

It could be said that last week’s WASDE report was mildly bullish for wheat, barley and corn, but on the whole, it was quite underwhelming for a report that invariably has huge trade and market ramifications.

Read the full USDA report here.

Indian Ocean Dipole returns to neutral territory…

Posted by | Weekly Commentary | No Comments

Extreme weather conditions and unprecedented bushfires across many parts of the Australian continent have been dominating the news cycle over the past few weeks. The extent of the catastrophe and the tragic loss of human life has touched all Australians, and many across the globe.

While all this has been happening the weather phenomena that underpinned Australia’s warmest and driest year since records began has finally broken down, returning to a neutral state in late December after sitting in positive territory since July last year.

The Indian Ocean Dipole (IOD) is one of the key drivers of Australia’s climate. The IOD measures the difference between seas surface temperatures in the tropical parts of the western and eastern Indian Ocean.

It has three phases; positive, neutral and negative. The different phases impact rainfall and temperature patterns over the Australian continent by influencing the trajectory of weather systems to the south of the country.

Under a negative IOD phase the sea surface temperatures in the eastern Indian Ocean (off the northwest coast of Australia) are warmer than average, while in the western Indian Ocean the sea surface temperatures are cooler than average.

This usually results in above-average winter and spring rainfall over many parts of southern Australia as the warmer waters off the northwest coast deliver more available moisture to weather systems crossing the country. This is the most favourable phase for agricultural production in Australia, particularly in the southern two thirds of the continent.

A positive phase means that the sea surface temperatures in the eastern Indian Ocean are cooler than average with the opposite occurring in the western Indian Ocean. The result is an increase in the intensity of easterly winds across the equatorial Indian Ocean region pushing the warmer waters towards Africa. 

This generally means there is less moisture than normal in the atmosphere to the northwest of Australia, frequently resulting in less rainfall and higher than normal temperatures over Australia during winter and spring. The impact of a strongly positive IOD on agricultural production can be dramatic, as we have seen over the past six months. A positive IOD is also often associated with a more severe bushfire season in the southeast of the continent.

The latest positive IOD phase peaked in mid-October with a weekly index value of +2.2 °C, one of the highest readings since IOD records began. Since then the temperature gradient across the Indian Ocean has continued to ease. The latest value (for the week ending 5 January) is +0.17 °C, well below the +0.4 °C threshold for a positive IOD phase.

IOD events, whether positive or negative, generally end in late spring or early December, meaning the decline of the positive event in 2019 was much later than normal. This is tied to the delayed migration of the monsoon trough into the southern hemisphere and the accompanying changes to wind patterns over the tropical reaches of the Indian Ocean.

It is the monsoon’s interaction with the IOD that normally brings about the end of an IOD phase. The delay in the southern passage of the monsoon in late 2019 has meant the widespread drier and warmer than average conditions have continued well into the southern hemisphere summer.

The majority of global climate models are now predicting that IOD values will remain in the 0.0 °C to +0.4 °C range in the first half of 2020.

Meanwhile, most models of the El Niño–Southern Oscillation (ENSO), the primary climate driver in the Pacific Ocean, have it continuing in a neutral band until at least April of this year. The latest sea surface temperatures have cooled compared to the preceding two weeks, but they do remain warmer than average in the far western equatorial Pacific.

Under a neutral ENSO (neither El Niño nor La Niña) the trade winds blow as normal from east to west across the surface of the tropical Pacific Ocean. This brings warm moist air and warmer sea surface waters towards the western Pacific and keeps the central Pacific Ocean region relatively cool. 

A neutral ENSO generally means that its influence on Australian and global weather patterns is much reduced compared to El Niño or La Niña phases. With both the IOD and ENSO now in neutral territory we start 2020 with fewer impediments to more normal weather patterns. While this doesn’t portend the weather in Australia will change immediately, if the models are correct, it does take these two prevailing climate drivers out of calculations ahead of the next winter crop planting window

US-China trade deal ‘totally done’…

Posted by | Grain Brokers Australia News, Weekly Commentary | No Comments

Farmers in the United States have received an early Christmas present after Beijing and Washington finally arrived at a preliminary agreement to lift some tariffs of Chinese imports in exchange for purchases of a range of US goods and services, including agricultural commodities.

China was first to announce the deal, which follows almost two years of protracted negotiations, punctuated by Trump’s tariff hikes and Beijing’s immediate retaliation.

The US trade representative Robert Lighthizer was quite upbeat about the phase one deal saying it was ‘totally done’ and would be signed in January. However, the Chinese were far more guarded in their comments, stating that they would act reciprocally and that they had not decided when they would ink the deal.

The US is ostensibly retaining 25 per cent tariffs on US$250 billion of Chinese imports while halving the tariff rate it imposed in September on US$120 billion of Chinese goods from 15 per cent to 7.5 per cent. The US has agreed not to proceed with 15 per cent tariffs scheduled to take effect on December 15 on almost US$160 billion of Chinese imports, and Beijing has cancelled its retaliatory tariffs which were due to commence at the same time.

China has committed to increase purchases of US agriculture products by US$32 billion over two years, but this appears to fall well short of Trump’s boast in October that China would increase purchases of US farm goods to as high as $50 billion annually in two years.

The increase will be measured against the 2017 level of US agricultural and related product exports to China, the last full year before the trade war commenced. In that year, China’s purchases totalled $24 billion, bringing the annual commitment to just US$40 billion, or US$10 billion short of Trump’s objective.

Lighthizer said Beijing would aim for an additional US$5 billion in farm purchases annually, but there were no guarantees. He said broad targets for Chinese acquisitions would be released publicly. There would also be more specific targets for purchases on a range of products, but those would not be made public to avoid distorting markets.

US exports of soybeans have been hit hard by the trade dispute, and China said they would immediately increase their purchases of US beans. However, they did place a significant caveat on that action saying imports would be based on domestic demand, and the US had to be competitive compared to alternative origins.

Lighthizer confirmed that notion by declaring Beijing would be free to buy “when it’s the perfect time to buy”. Given that from February onwards, South American soybeans are generally cheaper than US imports, even without tariffs, it begs the questions as to eventual subsidies by the Chinese government on purchases of US soybeans.

The China trade representative stated that they would increase their buying of US wheat and corn, not hard since they bought nothing over the last year, but the quantities would be subject to quotas. In any case, the deal is supposedly bullish on corn, with potential for an additional 3-4MMT of imports from the US, and as one market pundit said, ‘corn is the locomotive that pulls the wheat train”. 

But many in the trade question whether it is actually feasible to achieve the additional purchases of US$16 billion per annum in 2020 and 2021. Under China’s Tariff Rate Quota (TRQ) system for certain agricultural products, the total quotas of 9.2 million metric tonne (MMT) for wheat and 7.6MMT for corn equate to just US$3.5 billion.

On the futures market, it was a case of buy the rumour, sell the fact. The news of an impending deal surfaced on Thursday last week and corn, wheat and soybean futures were all up. Come Friday, the markets started the day in positive territory but gave away those gains when the deal was announced. A very subdued response from the funds which are sitting on short positions in both corn and soybeans.

Given the conflicting rhetoric throughout the negotiation process, it would be understandable if the funds and traders want to see more details and some supporting action from China before they get too excited.

Early celebrations could also be embarrassing knowing that China still holds hefty tariffs on US soybeans and pork, only waived at their discretion. And there is the prospect of a record Brazilian soybean harvest in early 2020, much of it driven and financed by China’s tariff on US soybeans.

The trade deal with China comes at a critical time for Trump, just a couple of days before a new round of tariff increases were set to take effect. The impeachment process has also been stealing the headlines in recent weeks, and Trump is desperate for some good news to deflect attention away from the impending trial.

Next year is an election year in the US and Super Tuesday, the first big test of voter sentiment, is only eleven weeks away. More delegates to the presidential nominating conventions can be won on Super Tuesday than on any other single day on the primary calendar, and it is a critical test for presidential candidates from both sides of US politics.

In an attempt to keep the good news rolling, Trump said negotiations on a “phase two agreement” with China would begin immediately, instead of waiting until after the 2020 election.

Hopefully, news of the trade deal is not another empty political promise to farmers, but the beginning of a commitment to right the vast amount of damage done to the global agricultural economy over the last two years.

Mixed fortunes for Canadian farmers…

Canadian farmers can’t take a trick this year…

Posted by | Grain Brokers Australia News, Misc, Weekly Commentary | No Comments

Canadian farmers produced the smallest canola crop in four years on the back of lower plantings and unusually wet autumn weather that left crops sitting in the paddock unharvested, the latest blow in a miserable year which started with the Chinese ban on canola imports.

The heavy snow and rain during harvest across the Canadian Prairies have left around 810,000 hectares of canola buried under snow until spring.

Crops that remain in the fields over the winter are subject to wildlife damage and moisture spoilage, but some of it can usually be salvaged and marketed at a discount in the spring. However, the need to harvest the previous crop once fields dry can seriously delay the commencement of the spring planting program in affected districts.

Statistics Canada released their Production of Principal Field Crops report last Friday the more than 700,000mt was dropped off the countries 2019/20 canola production. Estimated production came in at 18.65 million metric tonne (MMT), down 8.3 per cent on last season, and 2.9 per cent below the five-year average.

The total harvested area fell 8.8 per cent to 8.34 million hectares but yields did rise by 0.5 per cent compared to the 2018/19 season to 2.24 metric tonne per hectare.

Canada is the world’s biggest producer and exporter of canola, and the crop has long been regarded as the most profitable for the Canadian farmer. China, Japan and Mexico have traditionally been the key export destinations, with the seed primarily used for the production of cooking grade vegetable oil and canola meal for stockfeed rations.

In the absence of their largest export customer, demand has been falling, inventories have been rising, and prices have been lower as a result. Nonetheless, Canadian farmers are adjusting to the reality of life without China by working on cutting costs, improving efficiency and modifying crop rotations to decrease their reliance on canola.

As of November 24, Canadian canola exports had decreased by 9.5 per cent compared to a year earlier. But the decline is much less than many had feared and is a reflection of the success in finding alternative consumers for the surplus export stocks. Several European countries are importing more Canadian canola for biofuel production, and shipments to the Middle East have also picked up in recent months.

In terms of wheat, Statistics Canada estimated current season production at 32.3MMT, a minor reduction of 140,000 compared to their previous all wheat production forecast. This put production around 0.5 per cent higher than last season and 6.5 per cent above the five-year average.

While all wheat classes were revised lower compared to the September estimates, it was a year-on-year rebound in spring wheat production that drove wheat production higher overall.

Spring wheat production is forecast to rise by 7.2 per cent to 25.67MMT, the largest spring wheat crop in six years. The harvested area is estimated to be 6.5 per cent higher than last year, and the average yield of 3.48 metric tonne per hectare is slightly higher than the 2018 harvest.

Canada western red spring makes up 86.4 per cent of all spring wheat produced, up from 83.7 per cent in 2018/19, well above both the five and ten-year averages. Durum production was estimated to fall by 13.4 per cent to 4.98MMT, with a year-on-year increase in yield unable to offset a 22.6 per cent decline in the harvested area.

Barley estimates were revised higher compared to those released earlier in the northern hemisphere autumn. Statistics Canada put total production at 10.38MMT, an increase of 23.9 per cent over the 2018 number and 28.2 per cent above the five-year average. The increase was due to harvested area, up by 13.9 per cent, and yields, which rose by nearly 9 per cent to 3.81metric tonnes per hectare.

Agriculture and Agri-Food Canada are suggesting that year-on-year barley stocks will double, quite a bearish scenario, particularly for the Canadian farmer. Up to the end of November total barley exports for the current marketing year sat just north of 600,000 metric tonne, 4.4 per cent behind the 2018/19 pace. With the world well supplied for malting barley requirements, feed channels would appear to be the best hope of boosting exports.

Even the humble oat, now considered a ‘superfood’ in eateries across the globe, benefitted from the swing away from canola with the crop 21 per cent up on last year, at 4.16MMT, and 23.7 per cent above the five-year average.

Statistics Canada revised both the soybean and corn numbers lower compared to their September estimates. Soybean production came in at 6.05MMT, down 18.5 per cent from 2018 and 11.7 per cent below the five-year average. The corn crop is forecast at 13.40MMT, down 3.5 per cent from 2018, just below the five-year average. 

Unlike Australia, where a dry season has decimated national grain production, in Canada the wet has made 2019 a year to forget. Not only has it severely hampered the winter crop harvest, summer crop farmers are calling it the ugly trifecta. Late planting, far too much rain and snow through harvest and high-moisture grain meaning substantial drying costs will be incurred to bring it down to a market acceptable level. On top of the unharvested winter crop area, the adverse autumn weather has left many farmers facing unharvested corn paddocks into December and possibly beyond. Of all the issues the Canadian farmer has faced this year corn left standing in the paddock deep into the winter is perhaps the one they dread most.

Harvest action heats up in Europe …

Weather outlook great for harvest but not for summer crop prospects…

Posted by | Grain Brokers Australia News, Weekly Commentary | No Comments

A couple of big weeks in the header has pushed the Australian winter crop harvest well past the half-way mark as we enter the month of December. However, total production, particularly wheat, continues to decline as yields disappoint. A national wheat crop of under 14.5 million metric tonne (MMT) is looking highly probable.

In Western Australia, total receivals will be lucky to top 10MMT, a fall of almost 40 per cent on the 16.2MMT received last season. Canola receivals will certainly edge past the 1MMT mark but will struggle to go much higher as the harvest has finished in most regions.

The barley harvest is also winding down across the state, even in the southern reaches of the state. Yields have not lived up to expectations, and total production of less than 3.2MMT is expected. The malting barley selection rate has also been quite poor. While it has improved as the harvest has progressed south, at around 23 per cent (including Malt2), it sits well below the long term average.

The Western Australian wheat harvest has been an even bigger disappointment with yields coming in well below expectations, and total production could easily be less than 5.5MMT. While it shouldn’t be surprising considering the hard finish, protein levels have been well above that of recent years with only 10 per cent of deliveries going into the ASW bin, down from 46 per cent last season.

This has led to a rally at the low-quality end of the market as exporters scramble to buy wheat to blend away on feed shipments into Asia. The grade spreads narrowed across the week. Kwinana H2 was up around $5 week-on-week to finish Friday at around $339 Free in Store (FIS). APW1 rallied $8 to close the week at $338 FIS, APW2 was up $11 to $335 FIS but the biggest rise for the week belonged to ASW, up $13 to $334 FIS, only $5 under H2.

The story on the eastern side of the Nullarbor is not much different. While production of wheat, barley and canola in South Australia will each edge higher than last year’s drought-ravaged numbers, the difference will only be minimal.
At this stage, it looks like wheat production will exceed 3MMT, but only just, unless the yields in the south are better than expected. Barley yields have surprised to the upside pushing production north of the 1.7MMT produced last season, and canola deliveries are projected to be around 320,000 by the time harvest has concluded.

High protein has also been a feature of the South Australian wheat harvest, but the spread between H2 and ASW has remained relatively constant at around $8-10 over the last couple of weeks.

Victoria has fared the best this season with a substantial turnaround in production compared to last year’s drought impaired yields. The hot, dry and extremely windy weather mid-way through November did take its toll, particularly in paddocks that were ready for harvest, but yields continue to hold up reasonably well.

Production of around 3.5MMT and 2.5MMT for wheat and barley respectively is on the cards. As harvest pressure has mounted in recent weeks, prices have dropped enough to entice domestic consumers and the trade to buy up, especially with Western Australia and South Australia now finding export demand for both wheat and barley.

Meanwhile, the Bureau of Meteorology (BOM) released its summer outlook last Friday and the news was not good for large tracts of the Australian continent. The outlook summary suggests that the December to February period will be drier than average for much of the nation, particularly across eastern states, and there is a high likelihood of warmer than average days and nights for a majority of the continent.

The dry signal is expected to contract to the east of the country as the summer progresses with much of the Western Australian coastline, particularly the Gascoyne, Pilbara and parts of the Kimberly regions, having a high chance of being wetter than average in January and February.

While the outlook for drier than average conditions may ease for some areas heading into 2020, several months of above-average rainfall would be required to see a recovery in soil moisture levels due to the sustained dry.

A positive Indian Ocean Dipole (IOD) continues to be the primary climate influence in Australia, although it has progressively weakened slightly from record levels throughout November. Under positive IOD conditions, the southern two-thirds of the continent typically experience below-average rainfall and warmer than average temperatures. This is broadly in line with the BOM’s summer outlook.

The IOD’s influence over Australian weather is historically lower in the summer and early autumn months. However, the strong IOD combined with the delayed migration of the monsoon into the southern hemisphere this year suggests that it will continue to be a major driver well into the summer period.

The Southern Annular Mode (SAM) is the other significant climate influence at the moment, and it remains in negative territory. SAM refers to the (non-seasonal) north-south movement of the strong winds that blow almost continuously in the mid to high latitudes of the southern hemisphere. This belt of westerly winds is also associated with storms and cold fronts that move from west to east, bringing rainfall to southern Australia.

A negative SAM typically means drier conditions for eastern Australia and wetter conditions for Tasmania as the winds have not migrated north over southern Australia leaving the rains falling south of the Australian landmass.

The last three months have not been kind to those looking for rain, and the 2019 spring was officially the driest in the BOM’s 120 years of rainfall records. Of course, now that we are into the winter crop harvest dry conditions are welcomed, and a summer drought is the norm in the southern third of the continent.

However, the soils across the Australian summer cropping regions are parched, and virtually no sorghum or cotton has been planted to date. According to satellite imagery, of the 1 million hectares of arable land in southern Queensland, less than 10,000 hectares have been sown to any crop (including fruit and vegetables). And the planting window is closing fast with the prospects of a wide-scale plant are quite remote.

The smaller the sorghum crop, the bigger the transhipment task from South Australia and Western Australia over the next twelve months and the lower the exportable surplus available to meet inelastic Asian demand.

China’s pork plight intensifies

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African Swine Fever (ASF) continues to decimate the domestic pig herd in China with hundreds of millions of animals now lost, either dying as a result of the devastating disease or killed in an attempt to contain the spread of the highly contagious virus.

According to the Chinese government, 40 per cent of the countries pig population has been lost since the outbreak was first discovered in August 2018. However, unofficial reports suggest that Beijing is being extremely conservative, and the world’s biggest swine herd is now more than 50 per cent lower than before the outbreak was announced. That equates to around 250 million pigs or almost 20 per cent of the global herd.

The double-stranded DNA virus causes a haemorrhagic fever with extremely high mortality rates in domestic pigs. In many instances, death can occur as quickly as one week after infection.

Infected pigs develop a high fever but show no other noticeable symptoms for the first few days. They then gradually lose their appetite and become depressed. In white-skinned pigs, the extremities such as ears, nose and abdomen turn blueish-purple. Eventually, they become unsteady on their legs, enter a comatose state and die.

The virus is amazingly resilient to a variety of curing methods and environmental conditions. There is currently no vaccine, it can endure extreme temperatures and can survive in frozen meat for several years.

The Chinese love their pork. It is a staple in their diet and accounts for more than 60 per cent of the country’s meat consumption. In 2017, the last full year before the outbreak of ASF, they consumed an average of 33 kilograms per capita. To put that in perspective, the average Australian consumed 28 kilograms, and in the US per capita consumption was 23 kilograms in the same year.

The significant decrease in the pig herd has led to an unprecedented shortage of pork in the world’s biggest pork market and has seen the ex-farm price increase by more than 125 per cent since July this year. Retail prices are said to have increased by almost 150 per cent in 2019. The soaring prices have been a significant contributing factor to rising inflation in China which hit an annualised rate of 3.8% in October.

In a bid to meet demand and arrest the surge in prices, the Chinese government has begun auctioning frozen pork from its state reserves. However, analysts indicate that deploying the pork reserves will not be enough to stabilise prices let alone reduce them, and they are expected to continue rising in the run-up to Chinese New Year in January.

One of the first ASF control measures implemented across the country last year was to close down small pig farms. In quite a controversial backflip, and despite the continued spread of the epidemic, Beijing is asking local government to reverse this policy in an attempt to arrest the production decline and shore up future supply.

The combination of strong demand, falling production, and spiralling prices have also put a rocket under Chinese imports. In September 2018, China imported 94,000 tonnes of pork. Twelve months later that number had increased by more than 71 per cent to 161,000 tonnes. And in October they were up to 177,500 tonnes. That pushed year-to-date imports past 1.5 million tonnes, an increase of 49.4 per cent on the previous corresponding period.

In addition to traditional suppliers such as Spain and Germany, China has been scrambling to approve new import origins such as Brazil, Argentina, Britain and Ireland. In early November they lifted a ban on imports of Canadian pork and beef that had been in place since June. This action suggests that Beijing does not want to be overly reliant on pork imports from the United States, especially as the “phase one” trade negotiations enter a critical phase.

The increase in global trade has led to a rise in pork prices in the major exporting regions. Pork prices in the European Union, China’s major supplier, have risen by more than 35 per cent since the beginning of 2019. And this trend is unlikely to reverse unless there is a significant, and quick rebound in Chinese production.

One positive sign is that China’s inventory of breeding sows rose by 0.6 per cent in October, the first monthly increase since April last year. On the 13,000 farms with pig production of greater than 5000 units per annum, the sow stocks increased by 4.7 per cent in October.

The total pig herd still declined by 0.6 per cent in October but was much lower than the 3 per cent drop in September. The October number was the smallest month-on-month contraction in more than twelve months and possibly signals the start of the recovery in the Chinese pig population. Only time will tell!

The Chinese government have stated that there will be a 10 million tonne shortfall in pork supply this year. And that will undoubtedly increase next year. The challenge here is that in 2018 total global pork exports were only 8 million tonnes. The global exportable surplus of pork is simply too small to fill the supply shortfall.

In a direct flow-on effect of the need for protein, Chinese imports of beef have also been increasing this year. October arrivals totalled almost 151,000 tonnes, an increase of 63 per cent in twelve months. In the first ten months of 2019 beef imports were 1.28 million tonnes, an increase of 55 per cent on the same period last year.

Australia does not have any pork plants approved for export to China and authorities have been waiting over two years to have 16 additional meat processing plants (including pork facilities) accredited by Chinese authorities.

However, we do have 35 beef plants with the required certification, and China’s importance as a destination for processed Australian beef has increased significantly in recent years. With the protein shortfall in China set to continue for some time yet, Australia’s contribution to this market should continue to flourish.

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

Barley anti-dumping investigation remains a sleeping giant

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The news late last week that the Ministry of Commerce (MOFCOM) of the People’s Republic of China had decided to extend the anti-dumping investigation into Australian barley imports, while disappointing, came as no surprise to most market pundits.

Citing the complexity of the case, MOFCOM announced that the probe would continue for an additional six months and will be completed by May 19, 2020.

The extension comes despite full cooperation by the Australian government, its agencies, industry bodies and exporters with the ministry’s investigation over the last twelve months. By all reports the detailed information sought by Beijing in the course of the investigation has been provided in accordance with their guidelines and timelines.

The ministry launched the probe in November last year, accusing Australia of dumping barley into the Chinese market at prices it considered below fair value.

World Trade Organization (WTO) rules state that anti-dumping probes should be completed within one year, though the investigating country does have the option of an additional six months under special circumstances. It seems that ‘complexity’ qualifies as there appears to have been no attempt by the WTO to intervene.

And our’s is not the only agricultural trade stoush involving China at the moment. Early this year Beijing halted purchases of Canadian canola alleging inspectors found pests in several shipments. This has led to a slump in Canadian canola exports and has left growers battling lower prices and holding silos full of unsold seed.

And the US-China trade war continues. The on-again, off-again negotiations have been excellent fodder for the world press. However, its impact on world trade and the global economy is growing rapidly.

According to the United States negotiators, the two countries held further constructive discussions (whatever that means) over the weekend. Completely different rhetoric is being reported in China, with officials there saying the two sides are not even on the same page. Plenty of work to do, it seems, before a deal is inked.

In recent times, Australia has been China’s largest supplier of barley with the grain going into both the brewing and stockfeed markets. In the 2017/18 marketing year (October 2017 to September 2018) China imported almost 6.5 million metric tonne (MMT) of Australian barley. This was valued at more than AU$2.2 billion and accounted for around 75 per cent of China’s barley imports in that year.

Though still significant, that dropped substantially in the 2018/19 season, to a tad under 2.4MMT. To put that in perspective, Japan, Thailand and Vietnam were the next biggest importers of Australian barley at 653,000, 205,000 and 112,000 metric tonne (MT) respectively.

What does this mean for exports of Australian barley over the 2019/20 marketing year? If past actions are a fair indicator of future intentions, it certainly doesn’t mean that there will be no barley trades to China.

While a significant proportion of last season’s export business to China would have already been on the books when the anti-dumping investigation was announced, there was 730,000mt shipped in the second half of the season. Most of this business was probably concluded after the investigation commenced.

However, any new crop sales are more likely to be malting barley as opposed to feed barley. Feed grain demand is falling as the African Swine Flu epidemic continues to decimate the pig population in China.

On the other hand, Chinese brewers prefer Australian malting barley over French on the basis of quality, and malting barley prices in Canada make that origin uncompetitive at the moment. In fact, market rumours are suggesting that as much as 500,000MT of new crop Australian business may have already been concluded.

The expectation is that barley exports to China will be down again this year. Those exporters that are willing to accept China as a trade counterparty are likely to trickle barley onto the Chinese mainland but will minimise risk by doing so one, or maybe two, cargos at a time.

Outside of China, Saudi Arabia, in particular the port of Dammam in the Arabian Gulf, increases in significance as a destination for Australia’s exportable surplus in the first half of 2020. Australian exporters would certainly be hoping to do more than the one, 66,000MT, cargo shipped to the Gulf state in the 2018/19 season.

The Saudi Arabian Grain Organisation (SAGO) announced a tender late last week for 1.02MMT of animal feed barley for February and March arrival. The results were released on Monday with offers received from Australia, the European Union, the United States, Argentina and the Black Sea region.

In the end, SAGO booked 17 individual consignments of 60,000MT, with 13 (780,000MT) destined for Red Sea ports and 4 (240,000MT) to be delivered to Arabian Gulf ports. The average price of US$216.62 was an increase of US$6.67 (approximately AU$10) on the previous tender for an identical quantity on September 30.

Looking at the breakdown of offers, and the companies involved, it would be safe to assume that a significant portion of the Arabian Gulf business will be executed out of Australian ports and, surprisingly, some of the Red Sea shipments may also be Australian origin. Great news for domestic barley growers in a week when China disappointed.

With Australia’s freight advantage over the Black Sea and Europe, domestic exporters will also be looking to other traditional Asian consumers such as Japan, Thailand and Indonesia to step up to the plate and increase their imports of Australian barley over the next ten months.

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

Global grain markets looking for direction after benign WASDE report…

Posted by | Grain Brokers Australia News, USDA WASDE Report, Weekly Commentary | No Comments

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.

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