Weekly Commentary Archives | Grain Brokers Australia

Uncertainty clouds the global corn picture…

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Global grain markets spent last week pre-empting the thoughts of the number crunchers at the United States Department of Agriculture, and when the latest World Agricultural Supply and Demand Estimates (WASDE) report was released on Friday, the contents were largely as the trade had anticipated.

The wheat news was bearish with Sonny Perdue’s team increasing global production by 4.5 million metric tonne (MMT) to 770.5MMT. The big movers were Australia, up 2.5MMT to 28.5MMT, Canada up 2MMT to 36MMT, The European Union up 0.7MMT to 136.2MMT, India up 0.4MMT to 107.6MMT and Argentina down 1MMT to 19.5MMT.

The big surprise, however, was forgetting to change Russian wheat production. At 78MMT, it is well below most industry estimates with Russian agriculture consultancy SovEcon raising their forecast by another 0.7MMT last week to 83.3MT on the back of better than expected spring wheat yields in Siberia.

The larger crops in Australia and Canada led to increases in export projections of 1.5MMT and 0.5MMT to 19MMT and 25MMT, respectively. Argentina’s export expectations were lowered by 0.5MMT to 13.5MMT. The majority of the net increase was absorbed by China; import projections increased by 1MMT. A minor increase in global wheat demand has pushed projected ending stocks 2.6MMT higher, primarily in major export origins.

World barley production was also increased with the USDA pegging global output at 157MMT, up 4.2MMT compared to the previous month’s report. Russia caught most of the change following a big jump in yield, adding 3MMT to production, which is now forecast at 20.3MMT. The other changes were a 0.3MMT increase down under to 10.5MMT and a rise of 0.8MMT in the EU harvest to 63.3MMT.

The global sorghum picture was very similar to that of July, with production unchanged at 60.3MMT. The US crop was decreased by 0.3MMT to 9.1MMT, but this was entirely offset by an identical increase in Australian output to 1.7MMT. World export forecasts are unchanged at 8.1MMT, 6.7MMT of which is out of the US with 0.5MMT expected to be shipped from each of Argentina and Australia. China is the biggest importer at 6.1MMT.

There were no real surprises in the soybean numbers with the world crop down 0.7MMT to 369.7MMT. US production was decreased by 3MMT to 117.4MMT on the back of lower yields and the Brazil crop, which is yet to be planted, was increased by 2MMT to a record 133MMT. The decrease in US soybean yields from 3.58 metric tonne per hectare (MT/ha) to 3.49MT/ha was in line with industry expectations.

But with a number of global production issues and demand uncertainty, particularly from China, most eyes went straight to the USDA’s prognostications on corn when the report hit the screens last week. Global output was posted at a record 1,162MMT, down 8.6MMT from the USDA’s July estimate.

As the US harvest rapidly approaches, the WASDE corn yield came in at 11.2MT/ha, against the July estimate of 11.4MT/ha. This may seem a small decrease, but when coupled with a 0.5 million hectare reduction in the harvested area due to the storm that lashed Iowa last month, it lops 9.6MMT off US production to 378.5MMT.

Elsewhere, the Brazilian corn crop is forecast at a record 110MMT, up 3MMT compared to August, the Russian crop was cut by 0.3MMT to 15MMT, and EU output was 1.5MMT lower at 66.3MMT. The harvest of major Black Sea exporter Ukraine was trimmed by 1MMT to 38.5MT on the back of persistent dry weather, but that looks high compared to local analyst ProAgro who called the crop 4.5MMT lower again at just 34MMT.

On the demand side of the equation, the global picture came in unchanged. However, drilling down into the supply and demand matrix, there were some fundamental changes. US consumption was cut by 5.1MMT as lower ethanol demand projections due to COVID-19 are realised. On the other hand, Brazilian demand was increased by 2MMT.

However, the trade was left baffled by the China corn numbers. Many think that Sonny’s merry men are asleep at the wheel when it comes to the Middle Kingdom. They did increase Chinese corn consumption by 2MMT to 279MMT but left production and imports unchanged at 260MMT and 7MMT respectively.

This is despite concerns mounting over new crop Chinese corn production this month after three typhoons hit the country’s primary corn-growing region in quick succession over a twenty-day period, levelling crops, flooding low-lying warehouses and pushing domestic corn prices to their highest level in five years.

The full extent of the storm damage is not yet known, but analysts are expecting corn output in the key producing provinces of Heilongjiang and Jilin to be severely affected. Shenzhen based futures broker and private analyst Chaos Ternary put the losses in the aforementioned provinces at 5.88MMT and 1.68MMT respectively.

And the massive corn auction program over the last four months has almost exhausted China’s corn reserves forcing consumers to substitute corn with up to 20MMT of feed wheat and rice ahead of their harvest.

When it comes to China’s corn imports in the 2020/21 marketing year, it seems that the right hand doesn’t know what the left hand is doing along the hallowed corridors of the USDA at the moment. Leaving import projections at 7MMT when Beijing already has 8.8MMT of confirmed new crop US corn purchases on their books was very strange. And sales of new crop Ukraine corn to China already exceed 3MMT.

Global marketers are expecting corn shipments to China to be at least double the USDA projection, the majority are probably closer to triple, and some are even suggesting more than four times the WASDE number at 30MMT.

The global corn balance sheet is littered with questions and uncertainty at the moment, and this will be a crucial driver of international grain markets as we move into the northern hemisphere fall and the row crop harvest season.

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

Canadian farmers on course for a bumper winter crop.…

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Canadian farmers are on track to bag their second-biggest wheat crop on record according to Statistics Canada who released their first 2020/21 production estimates last week. Output of wheat, barley, oats and corn are all predicted to increase this year compared to last, with canola and soybean output falling.

Canada’s national statistics agency compiled the production data using yield models based on satellite imagery instead of the standard grower survey. Significant advances in the accuracy of satellite modelling made this possible, but it was also adopted to reduce the stress on farmers during the coronavirus pandemic.

The agency called total wheat production 35.74 million metric tonne (MMT), an increase of 10.5 per cent on last season and second only to the 37.59MMT crop harvested in 2013. This increase is a result of a higher harvested area, up 2.3 per cent to 9.87 million hectares, and higher forecast yields, up 8 per cent to 3.65 metric tonne per hectare (MT/ha) compared to 2019.

Barley production was pegged at 10.55MMT, a year-on-year increase of 1.6 per cent but well below the country’s record barley harvest of 15.56MMT way back in 1996. The growth was driven by a 1.3 per cent increase in yield to 3.86MT/ha off a harvested area of 2.75 million hectares, 0.3 per cent higher than in 2019.

An increase of 6.3 per cent in the harvested area was the primary driver behind the projected growth in oats production of 6.1 per cent to 4.5MMT. The season’s yield projection is 0.2 per cent lower at 3.4MT/ha.

Canada is the world’s largest canola producer, and the oilseed is the second-largest crop grown in Canada each year. National production is expected to decline by 0.4 per cent to 19.4MMT this harvest compared to the 2019/20 crop, which was revised upwards from 18.65MMT to 19.48MMT.

This year’s canola yield is forecast to increase by 1.2 per cent to 2.33MT/ha, but this is more than offset by a harvested area that is expected to decrease by 1.6 per cent to 8.34 million hectares.

The two biggest pulse crops in Canada are field peas and lentils and the Statistics Canada yield models have production 17.9 per cent and 25.1 per cent higher at 5.0MMT and 2.81MMT respectively.

In the row crop space, the Statistics Canada report is projecting an increase in corn output, but the soybean crop is tipped to edge lower. The corn crop was pegged at 13.93MMT, 3.9 per cent higher than in 2019 and soybean production was pencilled in at 5.96MMT, 1.4 per cent lower than the previous season.

Canadian grain exports may have started slowly but they finished the 2019/20 marketing year with a bang. This resulted in a reduction in wheat, canola, field peas and lentil stocks as at July 31 compared to the same time last year. Barley and oat stocks bucked the trend finishing higher year-on-year.

Disruptions in the rail network slowed the movement of grain to Canadian ports early in the marketing year, delaying the export program. However, reduced demand for petroleum and consumer goods as a result of the COVID-19 pandemic in the second half of the season freed rail capacity to move more grain to port resulting in record grain shipments in late spring and over the summer period.

The commercial grain handling system in western Canada is very different to Australia. It simply does not have the capacity to store the entire crop at harvest. More than 70 per cent of the annual harvest is stored on farm, predominantly in steel upright silos. The very low ambient temperatures eliminate storage pests over winter.

The capacity of the on-farm storage system in Canada is more than 75MMT, or 90 to 120 per cent of annual production depending on the crop size. By contrast, on-farm storage capacity in Australia is around 15MMT.

Canadian supply chains generally operate a ‘pull’ delivery system where grain is moved from farm to a receival site and then to a port, ‘just-in-time’ for the arrival and loading of export vessels. Australia’s export supply chain mainly functions as a ‘push’ system where grain is moved from farm to upcountry or port storage facilities immediately after harvest and stored in readiness for the future arrival of export vessels.

Seventy-five per cent of grain exported from Canada travels long distances by rail from the prairie provinces to the two main west coast ports. Journeys of 1,300 to 1,800 kilometres are commonplace. Canada’s oil and mineral fields are close to agricultural areas, so there is competition for rail network capacity. By contrast, grain destined for export from Australia travels relatively short distances to port with journeys greater than 400 kilometres uncommon.

The Canadian harvest has commenced, but it is in its infancy. While swathing of canola is underway in many regions, not much harvesting has occurred as yet. And the jury is out on how badly yields were trimmed by the unseasonal heat and a lack of finishing moisture in some districts through August.

Weather forecasters say Canadian farmers are in for a more benign autumn than last year, which should help calm the harvest nerves. The potential formation of a weak La Niña weather system should prevent a reoccurrence of last year’s wet harvest nightmare for the majority of the winter crop area.

With higher production comes a bigger exportable surplus. The USDA has Canadian wheat exports pencilled in at 24.5MMT based on their crop estimate of 34MMT. That is much lower than the Statistics Canada number, and many on the ground in the Prairies are calling wheat production even higher at more than 37MMT.

Add to that the Russian wheat crop which has suddenly gone from maybe 78MMT to more than 82MMt and getting bigger. The northern hemisphere is making wheat faster than the southern hemisphere is losing it at the moment and this only adds to exportable surpluses and competition for new crop Australian exporters.

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

The record convoy of grain cargos bound for China set to continue…

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The constant flow of grain cargos into Chinese ports continues unabated after Beijing embarked on an agricultural commodity buying spree, the magnitude of which has rarely, if ever, been previously seen.

The rate of grain buying from abroad in the first eight months of 2020 has some analysts speculating that, for the first time, China may use up its entire annual tariff-rate quota for both corn and wheat imports.

The demand is being driven by a remarkable recovery in the Chinese economy following the COVID-19 pandemic, a rebuilding of the pig herd following the outbreak of African Swine Fever (ASF) in 2018 and rebuilding of stocks that were drawn down over the course of the trade dispute with the United States.

According to recently released customs data, China imported 10.09 million metric tonne (MMT) of soybeans in July, up from 8.63MMT in July 2019, but below the June 2020 record of 11.16MMT. July corn imports were reported to be 910,000 metric tonne (MT), 133 per cent above the same period in 2019 and up from 880,00MT in June.

Wheat imports in July were reported to be 930,000MT, up a mammoth 323 per cent year-on-year, sorghum imports were up 148 per cent to 520,000MT and barley imports climbed 37 per cent to 410,000MT.

Year-to-date import figures reflect the staggering pace of this year’s purchase program. Soybean imports surged 18 per cent in the first seven months of the year to 55.14MMT and corn arrivals were 4.57MMT, 31 per cent higher than the same period last year.

By the end of July, wheat imports were running 116 per cent ahead of 2019 at 4.28MMT, sorghum discharges were a staggering 941 per cent higher at 2.29MMT and barley was 16 per cent ahead of last year’s imports at 2.86MMT. And the unprecedented pace of grain purchases continued in August.

China has been selling corn from its state reserves since May 28 in a bid to douse a very heated domestic market. Total reserve sales currently stand at 56MMT with the weekly program expected to continue until October when new-crop supplies come online. Last week’s auction cleared 89 per cent of the corn tendered for sale, the first time in 14 weeks that 100 per cent of offered stocks failed to clear.

Cumulative international purchases of corn for the 2020/21 season are now estimated at more than 11MMT. This is comprised of 8MMT from the US, including 1.2MMT over a two-day window last week, and 3MMT from Ukraine.  However, despite the substantial reserve sales and the import purchases, corn is still trading close to contract highs on the Dalian Commodity Exchange, suggesting deeper issues with the corn balance sheet in China in 2020.

The Middle Kingdom has been draining corn reserves since Donald Trump took office three and a half years ago. It is almost impossible to determine stocks in China, but some recent analysis suggested that ending stocks could fall to as low as 95MMT by the end of the 2020/21 season. That is less than 40 per cent of the stockpile in early 2017.

The recent auctions have been from the country’s temporary reserve, and it is said to be nearly empty. So too the strategic reserve, and the national reserve stocks are also down sharply. Recent flooding is reported to have destroyed stockpiles in some low lying warehouses in the Yangtze basin, downstream of the Three Gorges Dam.

And with demand from the livestock sector increasing China now has the highest priced corn in the world at around US$100 above import parity.

In their August update, the USDA pegged Chinese corn imports for the 2020/21 marketing year at 7MMT. But purchases have already surpassed that estimate, so a significant increase is expected in the September report. Most analysts are expecting imports to be at least 15MMT, some are as high as 20MMT, and even 25MT is considered a possibility if the strong demand continues and global prices remain low relative to domestic values.

The Chinese were also forced to draw down soybean stocks when the tariff war began with the US. This was diluted somewhat by lower soybean meal demand as a result of ASF. But the pig herd is recovering strongly, and that means increased demand for stockfeed inputs.

The relentless soybean purchasing program out of Brazil this year has been phenomenal. In just four months they have essentially milked that country dry of their exportable surplus, despite record production. With the strong Chinese demand and a plunging Real, Brazilian farmers have already sold 40 per cent of their forecast 2020/21 soybean production before the crop is even in the ground; up from 20 per cent at the same time last year.

Some interesting directives from the government in August have added to the market confusion. Early in the month, the state agency in charge of its strategic grain stockpiles moved to ban all photo-taking devices from its granaries, raising anxiety over the quality of national reserves. And then mid-month President Xi Jinping sparked concern of a food crisis when he announced the “Clean Plate Campaign” aimed at reducing the country’s food waste.

The restocking program has now turned firmly to the US, with frequency and size of purchases of soybeans, corn and sorghum going to a new level in the last month, as it should at this time of the year. In terms of barley, China has reportedly been buying from Argentina after the imposition of exorbitant tariffs on Australian barley imports.

Chinese purchases of US wheat have been less aggressive with elevation capacity limited due to the massive row crop export program. China’s appetite for US wheat is also limited as they prefer quality from other origins if competitively priced. This led to a spate of purchases from France in recent months.

However, a much smaller exportable surplus and rising export values in France are expected to turn Beijing’s focus to other origins. With a big crop in the making and a substantially increased exportable surplus, Australia should figure prominently in second half 2020 wheat transactions and first half 2021 wheat shipments to China.

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

European Union cereal exports lower after a poor harvest…

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The winter crop harvest is winding down across much of Europe, and it appears that wheat production has been the worst hit by the extremely dry growing season weather and severe spring frosts across central and southern parts of the continent.

In their August update, the United States Department of Agriculture pegged the wheat crop in the European Union, including Britain (EU-28), at 139.5 million metric tonne (MMT). This is a year-on-year fall of 10 per cent or 15.5MMT.

On the whole, EU-28 barley crop appears to have fared much better in the testing seasonal conditions with the USDA calling production 62.5MMT, only slightly less than last season’s 63MMT crop. The rapeseed crops have also held up exceptionally well with production estimated at 16.8MMT, on par with last season’s EU-28 output.

France is the biggest grain producer and exporter in the European Union. Earlier this month the country’s farm ministry cut its soft wheat production estimate to 29.7MMT, down from 31.3MMT a month earlier. This represents a 25 per cent decrease in output compared to the 2019 harvest. It is also 16 per cent below the five-year average and is the smallest harvested area since 1994.

The farm ministry also slashed the French barley crop estimate by 1MMT, or more than 8 per cent, to 11.3MMT compared to their July number. This is 18 per cent lower than last season’s output. The rapeseed production estimate of 3.3MMT was reduced by less than 0.1MMT in the farm ministry’s August update. This is down 5 per cent year-on-year but is a mammoth 36 per cent below the five-year average.

With the smaller wheat crop, French exports are forecast to fall dramatically to around 13MMT. This is more than 43 per cent lower than 2019/20 marketing year exports of 23MMT. Despite the smaller exportable surplus, recent sales of new crop wheat and barley to China have been robust as Beijing continues its fervent grain import drive.

According to the German Farmers Association, the country’s grain harvest will be 42.4MT, down from 44.3MMT a year earlier and around 5 per cent below the five-year average. They forecast wheat production will end up at around 21.1MMT this harvest, a fall of 1.7MMT, or 7.5 per cent, compared to the 2019/20 season.

The winter barley crop in Germany, mostly used in stockfeed rations, is expected to come in 9 per cent lower than last year at 8.9MMT, but the spring barley crop, predominantly used in malt manufacture for the beer market, will likely increase 7.4% to 2MMT. In comparison to last harvest, this puts total barley output down around 4 per cent.

In contrast, the German Farmers Association has called 2020/21 rapeseed production 3.3MMT, 18 per cent higher than last season’s crop of 2.8MMT. Germany is usually the biggest rapeseed producer in the EU-28 and the primary consumer for edible oil and biodiesel production.

The third-largest wheat producer in the EU-28 is Poland and farmers there are much happier than their French and German counterparts. Thanks to more favourable spring weather, the Polish wheat crop is expected to finish up at around 11.7MMT, more than 6 per cent higher than the previous harvest, and the fifth largest on record. The barley harvest in Poland is expected to be slightly higher than in 2019 at 3.6MMT.

The worst drought in more than a century across parts of Romania has decimated winter crop harvest in 2020.   Typically, the second-largest wheat exporter in the European Union via its Black Sea port of Constanta, this year’s exportable surplus will be down significantly on recent years.

These days, the majority of the wheat that is exported via Constanta is not domestically produced. Thirty years after the end of dictatorship in Romania, the 64km long Danube-Black Sea Canal, that links the Danube River with the port of Constanta, has turned into an economic gateway propelling Romania to the top of EU’s wheat exporters.

Also known as the “Canal of Death”, due to the number of deaths and disappearances during its construction, the waterway now brings grain exports from Slovakia, Hungary and Serbia to the world market via the Black Sea.

Romania’s agriculture ministry called wheat production as low as 5.4MMT in July but has since revised their estimate higher to around 6MMt. This is a year-on-year reduction of 23 per cent and would still be the smallest crop since 2012, exacerbating the shrinking export supplies across the EU-28 in the 2020/21 marketing year.

The Romanian government briefly banned export shipments in April as the coronavirus pandemic sparked concerns about domestic supply. The restrictions were lifted after a week, but the ministry did caution that they may be revived if the drought severely curbed new crop production.

Wheat consumption in Romania is estimated at 3.1MMT, made up of 2.2MMT milling quality, 0.5MMT retained for seed and 0.4MMT for the livestock sector. Based on the revised harvest estimate, the agriculture minister is still calling exports from domestic production 3MMT in the 2020/21, but down almost 50 per cent on the previous year.

Similarly, southern neighbour Bulgaria has seen this year’s wheat production fall significantly on the back of dry weather at critical crop development stages. The wheat crop is forecast to be 1.8MMT, or 29 per cent lower than last year at 4.5MMT. With domestic consumption pegged at around 1.8MMT, exports are expected to fall about 40 per cent to 2.9MMT.

In this month’s update, the USDA reduced their estimate for EU-28 wheat exports to 25.5MMT, a year-on-year fall of 33 per cent. Barley exports didn’t escape the knife with the USDA cutting them by 27 per cent to 5.7MMT. The EU, France in particular, has traditionally been a prominent supplier into North African and the Middle Eastern and the big crops in Russia and Ukraine put them in the box seat to pick up the export slack into those regions this season.

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

Pakistan turns wheat importer to solve domestic market challenges…

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Global wheat production and consumption estimates for the 2020/21 season were updated by the United States Department of Agriculture last week, and the changes were broadly in line with market expectations.

The USDA reduced total production as smaller crops in the European Union, Kazakhstan, Argentina and Turkey more than offset larger crops in Russia and Ukraine. Global consumption was lowered mainly on feed and residual use for the European Union. Exports were raised for Russia, Ukraine, and the US, and reduced for the EU.

The biggest mover on the import side of the global equation was Pakistan after production from their recently completed harvest fell short of expectations. The USDA increased imports from .01MMT to 1MMT, but further increases are expected if recent reports out of Pakistan prove correct.

The Pakistan government estimates final wheat production ended up at 25.5 million metric tons (MMT), slightly above the five year average of 25.38MMT. While that represented a 1.2MMT increase on the 24.3MMT harvested in 2019, it was well short of the government’s target of 27MMT.

Wheat is one of the four main crops in Pakistan alongside rice, cotton, and sugarcane. It is grown during the ‘Rabi’, or winter season, by around 80 per cent of the country’s farmers.

The planting season commenced on time in October last year, and the area planted was expected to be 9.2 million hectares (Mha), around 40 per cent of the country’s arable area. However, soaring costs of production and a low government support price discouraged some farmers from planting, and the area finished up at around 8.5Mha.

Early crop development was excellent on the back of favourable weather conditions. But heavy rains and localised hail over areas of the leading wheat-producing province of Punjab in March and April delayed harvesting operations and caused localised damage to standing crops.

Wheat is an essential crop in Pakistan as flour is a food staple. The government has supposedly been storing surplus wheat since 2010. Yet, with the harvest season concluding less than three months ago, it is already hard to find wheat offered on the open market at the government’s fixed price and flour is also being sold at inflated prices.

The USDA pegged domestic consumption at around 25.6MMT, but according to the country’s Ministry of National Food Security and Research, the country’s annual wheat requirement is 27.5MMT. With low carryover stocks from last season and the lower than expected production, the balance sheet is now in deficit.

Around 60 per cent of Pakistan’s total wheat production is retained on-farm for village and household food consumption and for seed. The government normally buys around 25-30 per cent at harvest, driven by both food security and market intervention reasons. The private sector purchases the balance.

Back in May, a report surfaced that Pakistan would need to import 100,000 to 200,000 tonne of wheat every month until April next year to control price hikes in the domestic market as local production was not sufficient to stabilise grain supplies. Additionally, 1MMT of strategic reserves or buffer stocks would be required to control price rises.

Some domestic millers are saying that the 2020 harvest was smaller than official estimates and the nation is on course for a 3.5MMT deficit. Yet, private merchants were actually exporting wheat from Pakistan to neighbouring countries immediately after harvest.

A poor government procurement program and corruption, within both the government and the domestic milling industry, is a huge issue. One government official recently told the parliament that 6MMT of wheat had vanished from the market since harvest. If accurate, the shortage could result in severe food shortages during the upcoming winter.

Prime Minister Imran Khan’s government says it plans to meet the shortfall through imports and early release of buffer stocks. At the end of June, Khan’s cabinet approved the import of 2.5MMT of wheat. However, the shipments did not immediately materialise as the private sector shied away; the selling price fixed by the government was lower than the cost of the imported wheat.

To bridge the difference, the Ministry of Food Security has abolished the duty on wheat imports for the private sector stating that the 60 per cent regulatory duty and 11 per cent customs duty will not be levied. Additionally, the 17 per cent general sales tax and a 6 per cent withholding tax will not be collected, and the imported wheat has also been exempted from the Anti-Hoarding Act imposed by the provincial governments.

By the end of July, orders had already been placed by private merchants to import 300,000 tonne of wheat, which will reportedly be shipped out of the Black Sea region over the August and September period. Purchases in the first two weeks of August total 120,000 tonne, the latest being 60,000 tonne booked late last week at US$227 cost & freight for September shipment, again out of Black Sea ports.

In addition, submissions close on August 18 for the Pakistan government tender announced earlier in the month. The international tender to buy and import 1.5MMT of wheat was issued by the Trading Corporation of Pakistan which operates under Pakistan’s Ministry of Commerce. The wheat can be sourced from worldwide origins, and offers are sought, including cost and freight to the port of Karachi. Offers must be for a minimum of 200,000 tonne.

Once the imported wheat hits the market, the artificial shortage will theoretically be filled, and the price of wheat and flour should revert to the government set prices. However, the hands of corruption are quite extensive in Pakistan, and there are no guarantees that all of the imported wheat will be immediately available to the market.

The Pakistan tender was intentionally timed to coincide with the Black Sea harvest, and it is unlikely that Australian wheat will be competitive. Assuming the tender is fully subscribed, that is almost 2MMT of unforeseen demand for Black Sea wheat in the second half of 2020. And that may not be the end of Pakistan’s import requirements.

The smaller EU crop and unexpected Pakistan demand is excellent news for the Australian farmer. This means there will be less Black Sea wheat to compete with domestic exports into traditional Asian markets in the first half of 2021.

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

Early August rainfall boosts winter crop production outlook…

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Australian winter crop production prospects have received a massive boost as the heavens finally opened across a significant portion of the continents farming districts over the last ten days. Several systems have rolled across the continent, delivering a much-needed moisture boost to crops that were starting to feel thirsty after receiving below-average rainfall in June and July.

The Bureau of Meteorology (BOM) has been forecasting a wetter than average August for most of the southern half of the country and the rain over the last week has been a very welcome affirmation of that sentiment. According to the BOM, the tropical Pacific Ocean is projected to approach La Niña levels in early spring. At the same time, warmer than average waters are likely in much of the central and eastern Indian Ocean.

The Pacific influence is strongest in the wetter September to November outlook for eastern Australia, and cooling of the sea surface temperatures across the equatorial Pacific in recent weeks is an excellent meteorological signal that the wet will continue into the spring, as the BOM has forecast.

In Queensland, some meaningful falls were received across most of the inner Darling Downs late last week. However, registrations were less than had been hoped and were lower and more scattered further west. Falls in Central Queensland also disappointed and with harvest only a month away it is almost too late to make a big difference.

New South Wales has been the biggest winner thus far with almost all of the states cropping regions receiving at least 15mm, with double that in some areas and more on the horizon. Much of the state was already an oasis, and the turnaround in production will be phenomenal compared to the last couple of seasons.

The state is now on track for above-average yields, across a well above average planted area with the most dramatic changes being in the central west, north east and north western parts of the state. According to DataFarming’s Agri-Intelligence platform, the actively growing crop area in those regions at the beginning of August was around 4.3 million hectares compared to less than 800,000 hectares at the same time last year.

Rainfall registrations in Victoria were generally above 15mm across most of the states cropping regions. The Mallee crops were parched and showing signs of moisture stress before the change moved through and delivered upwards of 25mm to most of the region’s farmers. Victoria was the flag bearer in terms of eastern state production in 2019 and this season’s viable cropping area is currently tracking a very similar path to last year.

The August rainfall registrations in South Australia have been disappointing thus far. The northern reaches of the state’s arable area are dry, and the crops are stressed. Growers are desperate for a decent drop. More falls are forecast over the next week, and that will be critical to the prospects of average state production this season. The actively growing cropping area is currently tracking a similar path to 2019, so the potential is there if the rains arrive.

Western Australia has also been dry, but the falls month-to-date have been better than South Australia. The southern parts of the Albany and Esperance zones saw significant falls early last week, and most of the gaps were filled in over the weekend when a second frontal system entered the state. However, there are still a few dry pockets in the eastern cropping areas that are feeling the pinch and getting desperate for a moisture top-up.

That said, production prospects for the state are well ahead of the same time last year. Analysis of satellite data via the Agri-Intelligence platform suggests that the actively growing crop area in Western Australia at the beginning of the month was just over 5 million hectares compared to around 2.7 million hectares in early August last year.

However, that area is significantly lower than in New South Wales, and the root zone moisture status in the west is also far inferior suggesting that the country’s breadbasket will move east in 2020 for the first time since 2016.

This production swing will relieve Western Australia and South Australia of their role of major domestic grain suppliers to the eastern states, freeing up millions of tonnes of wheat and barley for export to traditional customers throughout Asia and the Middle East.

Southern Queensland is a vast domestic demand hub, and the supply picture will revert to more normal logistics pathways after harvest. The drawing arc will extend into New South Wales rather than coastal shipments from the traditional export states as a result of the recovery in east coast production.

Over the last two years around 5.75MMT of grain, that would typically have been exported, has been shipped around the Australian coastline to satisfy domestic demand in New South Wales and Queensland. Almost 70 per cent, or 4MMT of that, made its way into the Sunshine State for food and livestock consumption.

The domestic grain market plummeted last week as the forecast of rain became a reality, the weaker Green Back pushed the Aussie higher, and United States futures markets continued their recent retreat. The futures fall was on the back of favourable crop/weather reports out of major exporters Russia, Canada and Australia.

Both old and new crop prices took a hit as the Australian grower and trade turned seller. New crop Kwinana APW wheat and F1 barley fell AU$20 and AU$11 respectively over the week. The falls in South Australia were less with new crop Adelaide APW down AU$17 and F1 AU$7 lower by close of business on Friday.

In Victoria, new crop APW slid AU$13 and F1 lost AU$16 across the week. Queensland production prospects may be poor, but the weight of a massive New South Wales cereal crop pressured new crop delivered Darling Downs values lower. Feed barley was AU$11 softer, and SFW wheat was down AU$15 by week’s end.

Global wheat production actually received a surprise boost last week with the news Canadian farmers are on track to harvest a record 39 million metric tonnes (MMT) of wheat this campaign, surpassing the 2013 record of 37.6MMT.

This added to the price pain as carry-out stocks in the major exporters now appear to be growing while the full impact of the COVID-19 pandemic on worldwide demand continues to cloud the true state of the global balance sheet. The market will be very focussed on what production and demand changes the USDA make in this week’s WASDE report.

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

Brazilian wheat production up as Argentinian exports shaved…

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When talking wheat in South America, most conversations turn to Argentina. Its mantle as the biggest producer on the continent will not be challenged anytime soon, but 2020/21 wheat production in Brazil is poised to topple early forecasts and set a record on the back of favourable weather and above-average crop development.

Brazilian production is concentrated in the south of the country, especially in the states of Parana and Rio Grande do Sul. Collectively, those two states account for approximately 85 per cent of total output.

Sowing of the crop was completed in early July, and according to Brazil’s agricultural statistics agency, CONAB, the planted area in all major growing states has expanded this season to total 2.3 million hectares. In Parana, the country’s top wheat producing state, the final planted area is expected to increase by 6.5 per cent and in Rio Grande do Sul the increase is forecast at 10 per cent compared to 2019/20.

In contrast to this season’s drought-affected safrinha corn crop, the wheat areas are in excellent shape going into August. As of last week, the Parana crop was classified as 90 per cent good-to-excellent compared to 63 per cent at the same time in 2019. CONAB has pegged the Parana yield at three metric tonne per hectare (MT/ha), up 41 per cent over 2019 but local state agencies have it as high as 3.6MT/ha, a year-on-year increase of 71 per cent.

The state of Rio Grande do Sul is the country’s second-biggest wheat producer, and CONAB is forecasting a production increase over the 2019/20 season of 13 per cent. In the third-largest producing state of Sao Paulo, CONAB is predicting an 11 per cent increase in harvest output.

The increased area, condition of the crop and the favourable spring weather forecast has local analysts contemplating a national crop well above the current CONAB estimate of 6.3 million metric tonne (MMT).

Local agribusiness consultant, T&F Consultoria Agroecômica, is suggesting wheat production in excess of 7.3MMT is possible if favourable seasonal conditions continue, eclipsing the 2016/17 production record of 6.7MMT. This compares to a 2019 wheat harvest of less than 5.2MMT due to a substantial crop failure in Parana.

Several factors have encouraged farmers to expand the wheat area in southern Brazil. Firstly, local prices have remained high in recent months, bolstered by strong domestic demand, depleted stocks, and limited supplies from neighbour and traditional supplier, Argentina.

Back in May, total wheat stocks in Brazil had dwindled to a record low of 170,000 metric tonne as the global COVID-19 pandemic increased the domestic appetite for bread and other flour-based products.

Secondly, the Brazilian economy has deteriorated significantly in 2020 due to the COVID-19 pandemic. The Brazilian real (BRL) has lost about 30 per cent of its value since the start of the year which has made imports more expensive and has pushed domestic wheat prices to record levels in BRL terms.

If the lofty production forecasts are met, it will substantially decrease Brazil’s wheat import requirements in the current marketing year. The 2019/20 season imports were approximately 7.3MMT. According to T&F Consultoria Agroecômica, they could fall to as low as 5.5MMT if a record crop is harvested,

The leading purveyor of wheat to Brazil is Mercosur trade bloc partner Argentina, who traditionally supplies as much as 80 per cent of import requirements due to the favourable customs arrangements amongst bloc members.

However, lack of rain and frosts in the northern and central winter cropping regions of Argentina continues to heighten the moisture deficit and severely hamper crop development in many districts. As a result, the Buenos Aires Grain Exchange (BAGE) has decreased its planted area forecast by 300,000 hectares to 6.5 million hectares, but this is still almost 5 per cent higher than last season.

As of July 30, 95.9 per cent of the forecast area had been planted, up 1.8 percentage points compared to the previous week’s report but lagging last year’s pace by 3.3 per cent. Ironically, waterlogging across the unplanted areas in the south eastern reaches of Buenos Aires province slowed the seeding progress in the second half of July.

In last week’s report, BAGE pegged the condition of the wheat crop at 24 per cent good-to-excellent compared to 22 per cent the previous week and 45 per cent in the same week last year. The moisture condition was reported as 40 per cent optimum-to-favourable compared to 41 per cent last week and 75 per cent a year earlier.

BAGE left its wheat production forecast unchanged at 21MMT but cut the estimated yield to 3.14MT/ha. This doesn’t quite equate, but taking the forecast area and yield, results in production of 20.4MMT. This compares to the latest US Agricultural Attaché forecast of 20MMT and the Rosario Grain Exchange estimate of 18-19MMT.

As a result of the lower crop projection, the Agricultural Attaché has shaved 1.1MMT of Argentina’s wheat export forecast for the 2020/21 marketing year. It pegged exports at 13.4MMT compared to the USDA’s early July estimate of 14.5MMT, which was based on final production of 21MMT.

However, producers and exporters remain concerned that the Fernández government may increase the wheat export tax from 12 per cent to 15 per cent to help meet mounting fiscal requirements, thereby reducing competitiveness.

The 1.1MMT reduction in the exportable surplus roughly equates to the decreased import requirements from Brazil should their bumper harvest be realised in the coming months. Therefore, under this combined scenario, the impact on the global wheat balance sheet would basically be zero.

Nevertheless, with wheat production decreasing in the European Union and mounting issues with spring wheat production in the Black Sea region, the trade is looking to the southern hemisphere to halt the downward trend in 2020/21 world wheat output.

The enormous potential of the Australian wheat crop is on the line ahead of widespread rains forecast for the coming week. This rain is critical in many areas to avoid a downward revision to Australian production forecasts. Any further hiccups to southern hemisphere production will squeeze the balance sheet and be bullish for global wheat values.

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

Black Sea wheat production stabilises…

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Harvest of this season’s Black Sea winter crop is progressing well with yields steadily improving as headers move north. However, hot and extremely dry weather across Siberia, and the neighbouring cropping regions of Kazakhstan, in the last six weeks is fuelling concern that spring wheat yields will be lower than forecast.

The Russian ministry of agriculture reported last week that the wheat harvest had reached 35.3 million metric tonne (MMT). This is in line with the quantity reaped at the same time last year, but the area covered is greater as yields to-date have been lower year-on-year.

The first areas to harvest in Russia are the southern reaches of the Southern Federal District, between the Caspian Sea and the Caucasus Mountains. This area was affected the most by late frosts and an extremely dry spring and the crops suffered accordingly. Early wheat yields came in at around only 3.0 metric tonne per hectare (MT/ha), about 30 per cent below last year’s levels.

Yields in the highly fertile Kuban district, which is in the north-west of the Southern Region, bordering the Sea of Azov, have fared much better. Harvest in that area has concluded, and the wheat yields averaged just over 4.9MT/ha. Yet, this was still 10 per cent lower than 2019 and was the lowest average yield for the district since 2012.

Consequently, with more than 40 per cent of the Russian wheat harvest completed, the average wheat yield now stands at around 3.5MT/ha. The upward trend is expected to continue as harvest moves into the Central District and Volga Valley, both of which are forecast to have bumper harvests.

The red flag for Russian wheat production has now turned to Siberia, the country’s largest spring wheat growing region. The crop was planted into moisture and got off to a reasonable start, but late June and July have been hot and dry. Soil moisture levels are now very poor, and spring wheat production forecasts will continue to fall in the absence of substantial rainfall over the next few weeks.

Traditionally, the early Russian wheat yields set the harvest high, and the trend is downward thereafter. This season is panning out to be the opposite. Despite the poor start, and the spring wheat issues, it is highly possible that this season’s average wheat yield could get close to that of last year’s harvest. And with a bigger planted area, final production should comfortably exceed the 73.6MMT produced in the 2019 campaign.

Yield forecasts for the Russian crop appear to have stabilised with recent downgrades reflecting the negative seasonal factors. The International Grains Council released its latest world wheat numbers last week, cutting Russian wheat production by 1MMT to 78MMT. This compares to the most recent USDA estimate of 76.5MMT, IKAR’s figure of 78MMT, up 1.5MMT this week, and SovEcon’s updated number of 79.7MMT, down from 80.9MMT.

Like Siberia, wheat production in Kazakhstan is on the slide with current soil moisture reserves inadequate to finish the crop. The US Ag Attaché in Kazakhstan is now calling wheat production 11.8MMT, down 700,000MT from its previous estimate. This is 1.7MMT lower than the most recent USDA forecast. Export forecasts for the 2020/21 marketing year have also been revised down by 900,000MT to 6.2MMT.

Ukraine’s 2020 grain harvest is now 38% complete, with total grain production expected to be 9.5% below last year’s record-breaking haul due to unfavourable weather conditions in the Odesa and Crimea regions.

Ukraine has harvested 12.8MMT of wheat so far this summer with total production expected to be around 24.7MMT according to the US Foreign Agricultural Service. This is a fall of 15 per cent compared to the 2019/20 harvest and is 1.8MMT lower than the July USDA estimate. July 1 wheat stocks were reported at a 10-year low of 1.8MMT.

Interestingly, Egypt purchased 115,000MT Ukrainian wheat for late August delivery at their most recent tender, after purchasing the same quantity from Russian exporters the previous week for mid-August delivery. Last week’s result reflects the lack of grower selling in Russia. The farmers there simply do not want to give up the world’s cheapest wheat amidst increasing crop uncertainty, and the trade doesn’t want to extend shorts against a stubborn seller.

Russia has been busy courting Brazil with 70,000MT of wheat loaded out in July and more on the books. This compares to sales of 90,000MT for the entire 2019/20 marketing year. Russian wheat exports for July are forecast to be as low as 2.2MMT compared to almost 4MMT in the same period last year.

Nearby Black Sea wheat prices started last week lower but rallied in the back end to be quoted unchanged at around US$208-211 free on board (FOB) for 12.5 per cent protein, US$4 lower for 11.5 per cent protein and feed wheat was US$4 lower again. However, cost and freight (C&F) sales during the week seem to reflect much lower values, unless sea freight rates are easing. Current market carries would put January FOB values around US$12 higher.

Prices out of the Black Sea have rallied approximately 7 per cent this month despite the pressure of new crop harvest supply. Exporters with short positions in the FOB market have been trying buy in cover, pushing prices higher.

New crop Australian export values firmed slightly across the week. Western Australian values were up a couple of dollars with Kwinana APW quoted at around US$239 FOB. South Australia rallied US$5 with Port Adelaide quoted at US$238 FOB and Melbourne/Geelong was unchanged at a slightly lower quote of US$236 FOB. Lower protein ASW wheat is around US$10-15 lower, depending on the load port.

At those price relativities Australian wheat is currently in the money into traditional Southeast Asia markets. Two conflicting questions remain. When will the weight of new crop volume and export competition loosen the Russian farmer’s grip on wheat stocks, pressuring Black Sea values lower? Or, will smaller surpluses amongst the major global wheat exporters hold prices firm as we move into the southern hemisphere spring?

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

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