Weekly Commentary Archives | Grain Brokers Australia

Canadian farmers combating weather extremes…

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Canadian Farmers are battling to get their crops in the ground across many parts of the Prairies as heavy rains continue to thump eastern cropping districts, and a continuation of last year’s drought conditions delay the planting program in the western regions.

In April, record-breaking precipitation in southern Manitoba and eastern Saskatchewan improved moisture conditions across the region, taking much of the area out of the drought classification. But the rains have continued to such an extent that the ground is now far too wet for many farmers to even contemplate mobilising their seeding equipment.

Midway through last week, Agriculture and Agri-Food Canada (AAFC) reported that practically no spring planting had been completed in much of Manitoba, with more than 90 per cent of the province’s cropping area suffering from excessive moisture. As of May 17, they reported that just four per cent of the province’s spring crops had been planted, seriously lagging the five-year average of 50 per cent.

Farmers in parts of Manitoba are reportedly swapping some of their intended corn and soybean area into wheat, barley and canola as their growing seasons are shorter. Growing degree days become critical for the Canadian summer crops if spring planting is substantially delayed. The crop will simply run out of time to mature before the day length decreases dramatically and the autumn rains arrive.

At the beginning of last week, Saskatchewan Agriculture estimated that 33 per cent of the province’s crops had been planted, the slowest crop seeding pace since 2017. This compared to 74 per cent at the same time last year and a five-year average of 53 per cent.

While the pace in the three western regions of the province remains ahead of their respective five-year average, the soil moisture profile in large parts of the planted area is far too dry for good seed germination. It is the antithesis in the three eastern regions, where seeding is falling further behind the five-year average pace due to the cool and extremely wet conditions.

Further west, Alberta has missed out on most of the rain, leading to an extension of drought conditions in many regions. According to AAFC, less than 40 per cent of average precipitation fell in southern Alberta last month, exacerbating the arid conditions experienced over the past six months.

An estimated 29 per cent of the Canadian Prairies is rated as abnormally dry or in moderate to extreme drought, including 63 per cent of the region’s agricultural areas. Around 25 per cent of Alberta’s farming districts, representing 17.8 million hectares, are experiencing significant drought conditions.

The extreme weather conditions will make it extremely difficult for Canadian farmers to meet the planting intention forecasts released by Statistics Canada late last month. The total wheat area was forecast to rise by 5.8 per cent year-on-year to 10.05Mha. The spring wheat area is up 6.4 per cent to 7.12Mha, the durum wheat area is up 9.5 per cent to 2.45Mha and the winter wheat area, planted in autumn last year, is projected to be down 13 per cent to 490,000 hectares.

The area planted to barley is forecast at 3.3Mha, down slightly from 3.36Mha last year. The oats area is expected to increase from 1.39Mha last year to 1.5Mha in the current campaign. Statistics Canada pegged the lentil area at 1.8Mha, up from 1.74Mha in 2021, and the field pea area at 1.65Mha compared to 1.55Mha last year. On the summer crop front, Statistics Canada pencilled in corn for 1.42Mha, fractionally above last season, and the forecast soybean plantings came in at 2.3Mha, almost 7 per cent higher than 2021.

Canadian farmers are expected to plant 8.8Mha of their farmland to canola this year, down from 9.1Mha in 2021 but much higher than 2020 plantings of 8.41Mha. Canada is the world’s biggest canola seed producer and exporter, and the lower area comes despite robust global demand and extremely high prices. Statistics Canada said that uncertainty stemming from the coronavirus pandemic and international geopolitical conflicts, primarily the China ban on Canadian canola, likely influenced seeding decisions.

However, the Canadian government announced midway through last week that China had lifted the ban on Canadian canola and reinstated market access for the two major grain firms whose exports had been blocked from Chinese ports since March 2019. Chinese customs officials confirmed that they would allow Richardson International and Viterra to resume canola sales to China.

While the ban didn’t affect canola seed exports by other Canadian companies, Richardson and Viterra were far and away the biggest exporters at the time it was imposed. The Canadian Canola Council noted the value of canola seed exports to China dropped from US$2.8 billion in 2018 to US$800 million in 2019, then rose to US$1.4 billion in 2020 and US$1.8 billion in 2021, the latter impacted by a significantly lower exportable surplus due to drought.

Production issues abound in the northern hemisphere, with an extremely stubborn La Niña defying the pundits and intensifying over the last few months. The domestic and global balance sheets for Canada’s key exports of wheat and canola are tight following a string of crop failures in 2021/22, the war in Ukraine and a global spike in protectionism to fight food inflation. A return to trend production in Canada is critical for domestic and export supplies to help alleviate worldwide shortages and tame the current high price regime.

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

Wheat production under threat across the globe…

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It is tough to find a 2022/23 wheat crop anywhere that is currently getting bigger, with drought or flooding rains a common theme globally. So, it was no surprise to see the United States Department of Agriculture take reduced supplies, lower domestic use, higher exports and reduced ending stocks in their 2022/23 wheat quadrella when the first cut of next season’s supply and demand estimates were released last week.

The latest World Agricultural Supply and Demand Estimates pegged global wheat production at 774.83 million metric tonne, down from the current 2021/22 forecast of 779.29MMT. Domestic consumption worldwide is projected to be 787.52MMT, down from 790.79MMT in the current season. The exports forecast was 5MMT higher than 2021/22 at 204.89MMT, and ending stocks came in 12.7MMT lower than 2021/22 at 267.02MMT.

One of the biggest surprises in the last week’s report was Indian production at 108.5MMT, down just over one million metric tonne from last year’s record harvest. This comes despite heatwave conditions reportedly decreasing yields in the main production states in the country’s north. Many analysts suggest the crop could easily be below 100MMT already, with 93MMT the lowest number I have seen published to date.

Not 24 hours after the May WASDE was released, the global wheat export number was abruptly pushed 8.5MMT lower, with the Indian government announcing a ban on wheat exports with immediate effect. A notice in the government gazette by the directorate of foreign trade, dated Friday, May 13, said a rise in global wheat prices was threatening the food security of India and that of neighbouring countries.

On Saturday, senior government officials announced that India would still honour exports backed by letters of credit already issued and to countries that request supplies “to meet their food security needs”. The officials said that while the decision could be revised, unregulated exports had led to a sharp rise in the local price of wheat. They stated that India’s grain stocks are well above the buffer levels and the decision to regulate wheat exports was taken largely to check prices and curb hoarding. Economics 101 says that is exactly what their actions will provoke.

Apart from problems with weather-damaged harvest, India’s vast stocks of wheat – a buffer against domestic famine – were drained by the distribution of free grain to around 800 million people during the coronavirus pandemic. In a normal year, the government’s food welfare package usually requires around 25MMT to feed the 80 million residents on the program.

Although not one of the world’s top wheat exporters, India has exported close to 10MMT since July 1 last year. The ban will undoubtedly be a bullish signal to the market and could drive global prices to new peaks, given supply is already tight. This will hit the poor consumers in Asia and Africa particularly hard but could also severely impact India itself if this year’s production is so poor, and stocks so low that it has to turn importer.

Governments across the globe are compounding the crisis with protectionism. Since Russia invaded Ukraine in late February, at least 20 countries have imposed restrictions on food exports, covering around 17 per cent of calories traded globally. Such trade restrictions risk setting off a domino effect, driving up prices for everyone.

Meanwhile, the production issues are not restricted to India. Dryness across the US hard red winter wheat area and floods in the hard red spring areas suggest that the USDA yield, and therefore the US production forecast, could be optimistic. The winter wheat abandonment is the highest since 2002, with Texas and Oklahoma the worst affected.

Up north in Minnesota and the eastern reaches of North Dakota, too much rain is preventing farmers from planting their spring wheat crop. As of May 9, only 2 per cent of the spring wheat area had been planted in Minnesota, compared to 93 per cent in the same week last year and a five-year average of 50 per cent. The story in North Dakota is only slightly better, with 8 per cent planted against 63 per cent last year and a five-year average of 37 per cent. We will get to a point where the season will simply be too short to grow a crop, and the prevent plant area will soar.

The US spring wheat issues extend north into Manitoba, Canada, where massive snowfalls in April boosted soil moisture to such a degree that fields are now too wet for planting. A recent grower survey suggested that the spring wheat area would jump by 10 per cent to 7.37 million hectares, but this is now being jeopardised by wet fields and the forecast of excessive rainfall through to the end of May.

Ironically, on the western side of the grain belt, around one-quarter of Alberta’s cropland is still in the grips of drought, too dry to plant this year’s spring crops. These issues alone will make the USDA’s reversion to trend production for Canada in last week’s WASDE report a challenging ask this year.

In Europe, low rainfall in parts of France and Germany has brought the threat of drought, triggering a possible drop in European Union wheat output and exports and raising fears of a further squeeze on global supplies. The USDA’s Russian wheat output of 80MMT is achievable, but exports of 39MMT equate to 3.25MMT per month, around 60 per cent higher than the export pace since the invasion of Ukraine and the burden of Western sanctions. The Ukraine production and export estimates of 21.5MMT and 10MMT, respectively, are an optimistic guess at best for now.

All that said, China’s wheat harvest commences next month, and it is possibly the biggest uncertainty facing the global wheat market in the coming months. It has been extremely dry for the past six weeks in much of the North China Plain, the key wheat-growing region of the country, accounting for 60-70 per cent of national production. There are reports of crops being cut for silage as the grain production prospects were poor. It is always hard to know what is happening in China, but if they say the crop is fine and immediately turn buyer, the game may be on.

That leaves the southern hemisphere powerhouses of Argentina and Australia. The USDA pencilled the former in for 20MMT of wheat against domestic forecasts of 19MMT and a record of 22.15MMT in 2021/22. The USDA stuck their neck out big time for the latter, printing the highest ever first cut wheat estimate for Australia of 30MMT. This is down from the USDA’s conservative 2021/22 number of 36.3MMT, itself a record but at least 3MMT shy of reality.

It is hard to disagree with the USDA at this stage of the campaign, with a better than average soil moisture profile across almost the entire wheat belt. The biggest challenge could well be too much rain, with parts of northern New South Wales and southern Queensland currently far too wet to get remotely close with a planter. Should that situation continue beyond mid-June, a substantial area will swing out of winter crop to an early summer crop plant.

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

Heatwave in India threatens export ambitions…

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After five consecutive years of record crops, India’s unusually early and record-breaking heatwave has reduced wheat yields, raising questions about how the country will balance its domestic requirements with ambitions to increase exports and take advantage of supply shortfalls stemming from Russia’s invasion of Ukraine.

Temperatures of epic scale and intensity gripped many parts of India last week, pushing thermometers above 45 degrees Celsius in many regions. Last Tuesday, Rajgarh, a central Indian city of over 1.5 million people, was the country’s hottest, with the maximum temperature peaking at 46.5 degrees Celsius. Temperatures that day breached the 45 degrees Celsius mark in nine other major cities.

Dozens of people have died across the country from dehydration and heatstroke. The country’s power grid is struggling to cope with the surge in demand, resulting in blackouts for as long as eight hours in some regions. Supplies of coal, the primary feedstock for the country’s power generation network, are running low. However, it is the economic cost that could reverberate well beyond the subcontinent, with wheat production set to fall dramatically and export restrictions being rumoured as a result.

The wheat production issues actually started with a sudden rise in temperatures in mid-March, just as the crop in the major producing states in the north was flowering or entering the critical grain fill stage. India recorded its warmest March in 122 years of records, with the average maximum daily temperature across the country rising to 33.1 degrees Celsius, almost 1.86 degrees above normal. So rapid and intense was the onset of the heatwave that crops shrivelled, with low yields and severely pinched grain expected to be the outcome when the fields are harvested.

India is the world’s second-biggest producer and consumer of wheat. Its biggest annual wheat crop is the rabi, or winter crop, planted from October through to December and harvested in their spring. In India’s southern and central cropping regions, the rabi harvest has already been completed or is approaching completion. But substantial concern remains around the health of the crops in the northern states, the country’s most productive region, where the crop remains largely unharvested.

In mid-February, government production estimates had India on course for another record harvest of 111.32 million metric tonne, up from 109.59MMT last year. But the Indian Agriculture Ministry revised its production forecast down last week by almost 5.7 per cent, or 6.32MMT to 105MMT, with further downward revisions possible once the harvest ramps up in the north and the full impact on yields is revealed. Many traders and market analysts are already expecting production to dip below 100MMT, with sub-95MMT also being mooted.

And while the crop has been getting fried, India has been ramping up wheat exports, cashing in on large stockpiles from a string of record harvests and strong demand in the wake of the war in Ukraine. India has exported a record 7.85MMT in the financial year to the end of March, up 275 per cent on the previous year.

As recently as mid-April, India’s food and commerce minister said wheat shipments in India’s 2022/23 marketing year (April to March) could reach an all-time high of 15MMT, more than double the previous year. Traders have reportedly already sold 4MMT for shipment in 2022-23. Vessel data suggests the first month of the new marketing year saw as much as 1.8MMT of wheat shipped from Indian ports, compared to less than 230,000 metric tonne in April 2021.

Meanwhile, government procurement from this harvest remains well below that of recent years, with around 17MMT of wheat purchased by the end of April. This compares to around 28MMT at the same time in last year’s harvest. It appears that exporters are prepared to pay a higher price to farmers than the government’s minimum support price (MSP) scheme, leading to the slowdown in sales and deliveries to government agents and stores.

This is the very scenario that could trigger a restriction on Indian wheat exports. If the exporters can buy and ship wheat at a margin, they will continue to do so until the market dynamics change, or the government introduces a quota or sliding export tax to slow the pace. If the production downgrades escalate, a blanket ban is possible.

The export constraint rumours have been rife in the last week, but India’s food secretary quickly quelled that chatter, saying there is no need to curb exports as the country currently has enough supply to meet domestic demand. But what will be the impact of the higher price regime on domestic demand? The more rationing, the more potentially available for export in the new marketing year, assuming final production exceeds domestic requirements.

Such a move would add to the global wave of crop protectionism as governments seek to safeguard their own food supply amid soaring prices and growing fears of worldwide shortages. It has the capacity to exacerbate global food inflation, already running at record levels and rising rapidly. Indian authorities are clearly worried about such a scenario, with the central bank springing a surprise last Wednesday by raising its key interest rate.

Fewer exports from India mean tighter global supplies; such is the strange and unique trade environment in which we currently find ourselves. Any restrictions on Indian wheat exports would most likely harm neighbouring countries such as Bangladesh and Sri Lanka the most, while several Middle Eastern and Asian markets would also be affected.

Importing countries have increasingly turned to India for cheap supplies in a tightening global market. Leading wheat importers Egypt and Turkey have recently approved the South Asian nation as wheat import origin. An Indian government official said the country was committed to developing its export potential by improving port facilities, upcountry logistics, phytosanitary practices and grain quality checks.

But India could easily turn from hero to villain very quickly. Until the reality of this season’s heatwave hit the news wires, India was being hailed as the saviour of global supply, one of the few export origins with excess stocks and the ability to get it to market, albeit very crudely. However, with production decreasing rapidly, India could very quickly overshoot here and find themselves having to import wheat in a very unfriendly price environment.

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

Drought in Brazil adding to corn conundrum…

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Drought conditions in Brazil escalated dramatically in April as the La Nina influence intensified, leading to the collapse of this year’s monsoon around two weeks earlier than usual. This will seriously impact safrinha corn production, especially in the later planted regions, as yield potential falls due to lack of moisture.

The onset and retreat of the wet season in central Brazil are traditionally quite distinct. Basically, it rains almost every day in the wet season and rarely rains in the dry season. The autumn transition from wet to dry traditionally happens rather swiftly, typically in the first week of May.

The soil moisture profile at the time of seeding the safrinha crop earlier this year was exceptional, with a significant proportion planted ahead of schedule. In Mato Grosso, around 93 per cent of the crop was planted before the ideal seeding window closed at the end of February. This led to a flurry of record safrinha corn production forecasts from both local and global analysts.

However, potential production issues began to emerge as early as mid-March when rainfall intensity declined, and the falls became far more sporadic than normal. That moisture deficit accelerated in April, with precipitation in the first half of the month minimal and then the tap turned off on April 16.

The state of Mato Grosso is facing its driest April in 17 years, according to a recent report issued by weather service EarthDaily Agro. April rainfall for the state is expected to be just 30 millimetres, 70 per cent below the average for the last decade. In the neighbouring states of Goias and Minas Gerais, April rainfall is expected to be just 15 per cent of the ten-year average. The situation in Mato Grosso is very similar to 2016, when the safrinha corn yields finished that season around 30 per cent below average after the dry continued through May and June.

Mato Grosso is Brazil’s biggest safrinha corn production state. Production is currently forecast at 40 million metric tonne, 45 per cent of the most recent national safrinha corn production estimate from Conab, the government’s food supply and statistics agency. Combined with Goias and Minas Gerais, the three states produce around 60 per cent of the nation’s safrinha corn output.

The below-average rainfall in late March and April has seriously depleted soil moisture levels. Ideally, corn enters the pollination stage with close to a full moisture profile. However, only a small proportion of the crop had that luxury this year and yields on those fields are expected to be above average.

The prognosis for the majority of central Brazil’s safrinha corn area is not as rosy. The crop is approaching its peak moisture demand phase, with as much as 40 per cent already suffering a low to moderate level of moisture stress. Coupled with that dryness is the growing threat of frost. There have already been overnight frosts in the higher elevations of southern Brazil. If it stays dry and cold, the possibility of frost impact on safrinha production grows.

Vegetation vigour, measured by the Normalised Difference Vegetation Index (NDVI), is starting to show increasing signs of moisture deficit. This trend is expected to continue as the effects of next to no rain in the second half of April materialise. And there are no significant falls in the ten-day forecast. In fact, it looks dry for the next month.

Brazil is the world’s third-largest corn producer after the United States and China. The most recent World Agricultural Supply and Demand Estimates put total 2021/22 production at 116MMT, around 75 per cent of which will be from the safrinha or second corn crop. In his latest update, crop consultant Dr Michael Cordonnier left his Brazilian corn crop estimate unchanged at 112MMT. In the export stakes, The United States Department of Agriculture has Brazil in second place with 44.5MMT, behind the US with 63.5MMT and just ahead of Argentina on 39MMT.

Brazil’s production hiccup comes at a time of heightened demand for South American corn as the war in Ukraine has landlocked as much as 15MMT corn that was destined for the global export market. The issues in Brazil are globally significant as it is the leading global corn supplier between now and the US harvest in the northern hemisphere autumn. Some analysts expect downward production revisions to hit the wires in the next week, with a lower forecast even possible in this month’s WASDE report, due for release on May 12.

Surprisingly, markets seem to be more interested in the weather situation and potential new crop planting delays in the US, the slowest since 2013, rather than the tightening of the 2021/22 balance sheet. Nevertheless, prices have certainly reacted to the mounting issues, with nearby Chicago futures closing last week at a ten year high of US$8.1350 per bushel.

To put that in perspective, the corn price dropped to just over US$3/bu during the early months of the coronavirus pandemic. In the first four months of 2022, the May futures contract has rallied 37 per cent. There have been 82 trading sessions over that period, with the up days outnumbering the down by a ratio of two to one. In the 31 days from March 29 to April 29, the market was up more than 14.8 per cent, reflecting the growing global supply concerns.

Amid the Ukrainian old crop supply disruptions and the Brazilian weather woes, China has turned its corn purchasing attention to the US. Asia’s biggest corn importer purchased almost 1.1MMT of old and new crop corn in one transaction last week, the fourth flash sale of corn to China exceeding a million metric tonne in April. New crop sales of US corn are almost 5.5MMT, more than 65 per cent higher than at the same time in 2021.

Corn is now well into a demand rationing price regime, but the rally will continue as long as demand is strong, and supply remains uncertain. The global consumer is reeling, caught with inadequate purchases in a rallying market. Global inventories are in a vulnerable state, and the security of cover comes at a high price.

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

Egypt wheat stocks running dangerously low…

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Egypt returned to the global wheat market last week, sealing deals on Wednesday to purchase 350,000 metric tonne, the majority of which will come from Europe, following a tender announced two days earlier by the General Authority for Supply Commodities.

Potential suppliers could submit Free on Board (FOB) offers for a May 20-31 shipment period and/or Cost and Freight (C&F) offers for arrival at Egyptian ports in the June 1-15 window, with payment at sight. The tender had originally specified European origin wheat only, sending the MATIF wheat futures into an upward spiral. GASC later said that offers from Russia and Ukraine would be considered, in conjunction with those from Bulgaria, France, Germany, Hungary, Kazakhstan, Latvia, Poland, Romania and Serbia.

This is Egypt’s first successful international wheat tender since February. It cancelled two tenders as wheat prices soared and offers evaporated following Russia’s invasion of Ukraine, temporarily restricting the prospect of wheat being shipped out of Black Sea ports by two of the world’s largest exporters. Egypt relies heavily on wheat from Black Sea ports. Total wheat imports over the last five years amounted to 62.6 MMT, with 59.7 per cent from Russia and 22.3 per cent from Ukraine, for a combined total of 82 per cent of purchases over the period.

The majority of the business went to France, with four 60,000 metric tonne cargoes purchased on a FOB basis at an average price of US$451.75 per metric tonne. Freight is estimated at US$42.50/MT, giving a landed cost of US$494.25/MT. A 50,000 metric tonne cargo was also purchased from Bulgaria at US$449.50/MT FOB, with the landed price being US$480/MT based on freight of US$30.50/MT. The final 60,000 metric tonne cargo was of Russian origin, purchased on a C&F basis for US$460/MT.

The successful Russian offer was submitted by Aston, one of Russia’s largest agricultural and food ingredients businesses, with activities in farming, oilseeds crushing, edible oils and grain origination and export. The company reportedly has its own vessels, allowing it to mitigate many of the costs most exporters would currently face when shipping out of the Black Sea. The average price across the entire 350,000 metric tonne tender was US$486.35/MT C&F, close to US$150/MT higher than their last tender on February 18.

Earlier this month, the Egyptian government announced that its wheat reserves had dropped significantly since the war in Ukraine began in February. The country only has enough wheat to meet around 2.6 months of domestic demand, well below historical levels and less than half of the government target of six months. The world’s largest importer typically has as much as one month’s import volume, or one million metric tonne, in transit at any one point in time. But with no tenders for more than two months, there are currently very few wheat laden boats on the water.

However, stocks are expected to receive a boost from the local harvest, which commences this month. Production is forecast to increase by 8.9 per cent from 9MMT in 2021 to 9.8MMT this year. The higher production is attributable to a higher harvested area, estimated to be 1.53 million hectares compared to 1.4 million hectares last year. Egyptian authorities are hoping to increase the harvested area by around 30 per cent, or 420,000 hectares, over the next three years.

The higher area came after the government announced its wheat purchasing prices ahead of the planting season last year, allowing growers to make more informed crop rotation decisions. And then, on March 15, in response to the war in Ukraine, the government approved an additional incentive of 65 Egyptian pounds (EGP) per ardeb, or US$27.50/MT, on the prices it had previously agreed to pay farmers to purchase their locally produced wheat.

After this increase, the government payments to farmers will range from EGP865/ardeb to EGP885/ardeb or about US$366/MT to US$375/MT based on quality and moisture. The new price is 22 per cent higher than last season’s procurement price, and payment shall be cash on receipt of the wheat or within a maximum of 48 hours.

The Ministry of Supply and Internal Trade (MoSIT) also issued a ministerial decree requiring every wheat producer to sell a minimum of 12 ardebs per feddan, or 4.28 metric tonne per hectare, to governmental wheat purveyors this harvest season. The decision prohibits farmers from selling the remainder of their wheat production to non-governmental agencies unless a permit is first obtained from the MoSIT.

The decree also stipulated that large farms (greater than 10 hectares) should sell 90 per cent of their wheat production to governmental wheat merchants and, in return, will receive subsidised fertilisers for their summer cropping program.

The government aims to procure six million metric tonne of wheat from local growers this harvest, a historically high 61.2 per cent of estimated national production. This goal is 66.7 per cent higher than last year’s purchases of 3.6MMT and 71.4 per cent higher than the 2020 purchases of 3.5MMT. This season’s procurement program will commence on April 1 instead of April 15 and will continue through to the end of August instead of mid-July.

Egypt’s latest tender purchase came just two days before it announced an agreement to source wheat supplies from India, adding the world’s second-biggest producer, and occasional exporter, to the list of 17 other international import origins accepted by GASC. Logistical limitations and quality issues have long stymied India’s efforts to sell significant volumes of wheat into the world market. However, a run of bumper crops and the exceptional demand resulting from the Ukraine crisis has provided an added incentive for India to solve the myriad of export constraints.

In an announcement last Friday, India’s Commerce Minister said that Egypt is likely to buy around one million metric tonne of wheat from India, 240,000 metric tonne of which is expected to be shipped in April. The acceptance of India reportedly came after a rigorous process of field visits and checks of Indian quarantine facilities by Egyptian authorities due to concerns that Indian wheat imports may contain ‘karnal bunt’ disease, a threat to domestic output.

India is just one of many wheat import origins being considered by Egypt as it attempts to decrease its reliance on Black Sea exporters, Russia in particular, in the wake of major supply disruption stemming from the conflict in Ukraine. The USDA shaved 0.5MMT off its Egyptian wheat import forecast due to rising prices and disruptions to Black Sea supply. However, the north African nation still has some way to go to meet the 12MMT wheat import target for the 2021/22 marketing year, which would enable it to meet domestic demand and slightly rebuild stocks.

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

Europe planning to fill some of the Ukraine export void…

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The Russian invasion of Ukraine has severely disrupted traditional flows of agricultural commodities throughout the world. This has thrust global food security firmly into the spotlight as both countries play a pivotal role in supplying grains and vegetable oils to consumers across the globe.

Collectively, the two grain production powerhouses traditionally export more than 25 per cent of the world’s wheat and barley requirements, around 15 per cent of global corn exports and as much as two-thirds of international sunflower oil and safflower oil requirements.

With grain shipments out of Ukraine’s Black Sea ports at a standstill and no end to the war in sight, the EU is looking to fill some of the void in 2022/23. In its first outlook for the new crop season, the European Commission forecast that EU exports of common wheat, or soft wheat, could reach 40 million metric tonne in the 2022/23 season commencing July 1, up from 33MMT in the current season. The Commission said the sharp rise in anticipated wheat exports for 2022/23 was a reflection of buoyant global demand and lower supply from Ukraine.

The Commission also expects a sharp drop in EU corn imports next season due to tight global supplies. It sees imports at 9MMT, down almost 36 per cent from 14MMT in 2021/22. The EU is a net importer of corn for the stockfeed industry, and Ukraine is traditionally one of its biggest suppliers. The forecast for grain use in livestock feed is lower next season, with wheat consumption dropping from 38.8MMT this season to 37.6MMT and corn use falling from 64.2MMT to 62.6MMT.

A decision to allow EU farmers to use fallow land for grain production is expected to boost supply in coming years – weather permitting. This move is expected to free up almost four million hectares of fallow land to plant grain crops in 2022/23. While it won’t be the most productive land, it will give farmers more flexibility.

The European Commission will also deploy a 500 million euro financial package to help farmers combat higher energy and fertilizer prices and assist with returning fallow land into agricultural production. The package also includes assistance for Ukraine farmers to plant their summer crops and tend their winter crops.

After a largely mild winter across much of the continent, European winter crops entered spring in relatively good condition. Mild weather and ample rainfall in most regions have been beneficial as the crop emerged from winter dormancy, facilitating an excellent start to field operations.

However, continued dry conditions in south-western Europe remain of concern. Production has already been affected in the southern parts of the Iberian Peninsula (southern Portugal and south-western Spain). However, crop development is still at a very early stage in southern France and north-western Italy, and the production impact of the abnormally dry conditions is only minor at this juncture.

Rain is also required in the rest of Italy, save for its east coast, as well as Slovenia, Croatia, Hungary, Romania and south-western Ukraine to rectify minor moisture deficits and avoid potential yield loss as the crop matures. Crop development has been delayed along the Italian Adriatic coast, Greece, and Turkey due to unseasonably cold and wet conditions, but soil moisture is now almost sufficient to finish the crop once warmer conditions prevail. The precipitation surplus in European Russia is also considered favourable for crop growth and production outcomes.

In its first production estimates for 2022/23, the European Commission expects that the 27 member states would see usable output of soft wheat rise from 130MMT in 2021/22 to 131.3MMT. It also expects soft wheat stocks held in the EU at the end of 2022/23 will fall to 12.2MMT, compared to 13.2MMT at the close of this season.

Meanwhile, in western Ukraine, around 1,100 rail wagons carrying grain destined for European consumers or ports are stuck near Izov, the main rail border crossing between Ukraine and Poland. According to data released by Ukraine’s state-run rail company, 24,190 wagons are waiting to cross the border, 10,320 of which are at the Izov junction. In addition to grain, goods include vegetable oil, iron ore, metals, chemicals and coal.

With its Black Sea ports under siege by Russian troops, Ukraine is looking at land routes such as rail to get its exports to market. However, efforts have been hampered by logistical challenges and bureaucratic red tape due to the sheer volume and variety of goods being transported. Prior to the war, around 98 per cent of Ukraine’s grain exports were via the Black Sea. The export volume by rail was minute in comparison, due to higher transport costs.

One of the biggest logistical issues is the difference in rail track gauges between Ukraine and neighbours such as Poland. A legacy of the Soviet era, the Ukraine railway network has a Russian gauge of 1,520 millimetres, while most of Europe, including Poland, uses lines with an inner gauge of 1,435 millimetres. Belarus and the three Baltic states, Latvia, Lithuania and Estonia, also have the Russian gauge, which has long limited trade into Europe.

For containerised freight, the solution is relatively simple; transfer from the Russian gauge flat wagons onto the European gauge flat wagons. But for bulk cargo such as grain, it is far more complex. Railway staff have to use specially designed jacks to lift the wagons so that each bogey can be switched out from the broader gauge to the narrower gauge. Alternatively, they can unload the grains from the Ukrainian wagons and auger them into the Polish ones. Either way, it is a lengthy process, with only 500 wagons currently crossing the border near Izov per day.

However, the task is mammoth. Trying to replace Ukraine’s ocean export capacity via land routes is impossible in such a short period of time. Even if it were boosted to 1MMT per month for all commodities, it would only be a fraction of that required to clear the export backlog. In the meantime, Europe and other major grain export nations will attempt to fill the void, as well as supporting the millions of Ukraine people suffering at the hands of Putin.

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

Algeria feeling the cost of drought and war…

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Algeria’s demand for grain continues to grow with its state-owned grain agency, the Algerian Interprofessional Office of Cereals (OAIC), reportedly finalising the purchase of between 570,000 and 600,000 metric tonne of optional origin milling wheat late last week.

The latest tender sought shipment in two periods, June 1-15 and June 16-30, from main supply regions, including the Black Sea and Europe. If the successful tenderer is sourcing the wheat from South America or Australia, shipment is to be one month earlier.

The OAIC is the state-owned cereals office, which acts as a regulator and supplies the raw materials required to maintain the production of subsidised bread. It is currently responsible for all of Algeria’s wheat imports, and each year the OAIC decides the amount of wheat it will supply based on global wheat prices to ensure a baguette of bread is kept at a set price. Wheat is imported via international tender and provided to the private mills at subsidised prices.

The OAIC does not release the results of its tenders with quantities and prices based on analysis and estimates from the trade. The price paid in last week’s tender is believed to be around US$448 per metric tonne, including freight (C&F), which is significantly lower than the previous tender.

In early March, OAIC purchased between 600,000 and 700,000 metric tonne of milling wheat at US$485/MT C&F for May shipment, some US$37/MT higher than last week’s price. In mid-February, before the Ukraine conflict began, Algeria purchased around 700,000 metric tonne of milling wheat at around US$346/MT C&F, demonstrating the impact of the Russian invasion on the cost of food for Africa’s Maghreb states, which includes Algeria, Libya, Mauritania, Morocco, Tunisia and Western Sahara.

Maghreb countries have long grappled with food insecurity. Climate change has exacerbated this problem, with increasingly regular droughts alternating with large-scale floods that destroy agricultural infrastructure and crops. The COVID-19 pandemic has further disrupted their economies, pushing food prices even higher. Algeria’s annual inflation rate hit 8.5 per cent in December last year and it has continued the upward spiral in the first quarter of 2022.

The latest tender comes less than three weeks after Algeria’s president Abdelmadjid Tebboune ordered an export ban on several imported and manufactured consumer products such as sugar, pasta, oil, semolina and all wheat derivatives. The government will also continue to ban the import of frozen meat to encourage the consumption of locally produced meat. Any company or individual contravening the bans run the risk of legal action and prosecution.

The ban, and the last two wheat tenders, all followed an announcement in early March from Algeria’s minister of agriculture and rural development that the country had adequate grain reserves to last until the end of this year. The government said it had taken all precautions possible to secure enough grain to satisfy domestic requirements. The local press suggests the statement was made amid fears of a supply crisis due to the war between Russia and Ukraine which would increase domestic food prices, potentially leading to civil unrest and political instability.

According to the latest Foreign Agricultural Service update on Algeria, domestic wheat consumption will total 11.1 million metric tonne in the 2021/22 season, 8MMT, or 72 per cent of which will need to be imported. This highlights Algeria’s reliance on foreign supplied wheat, exacerbated this season by poor domestic production. FAS forecasts a wheat crop of just 2.5MMT, down 36 per cent from 3.9MMT in 2020/21.

Throughout December 2021 and January 2022, Algeria received around one-third of its average rainfall. At the start of February, the country’s dams were at 37.56 per cent of capacity. Rainfall in February and March was not much better, and the crop in most regions is suffering moisture stress as it enters the critical grain fill stage.

In the early March tender, French wheat returned to the Algerian menu after it was excluded in February. Russian supply issues forced the Algerian government to renege on a recently announced French wheat exclusion, imposed after relations were damaged in October. President Emmanuel Macron questioned whether there had been an Algerian nation before French colonial rule, accusing it of rewriting its colonisation history.

However, the lower offers in last week’s tender suggested to many that Black Sea origin wheat may be supplied. Trade feedback on Friday of last week confirmed that theory, with Romania and Bulgaria reportedly winning around 80 per cent of the business, the balance likely being of French origin.

And the big irony is that the grain could indirectly come from Ukraine. The Romanian government is in the process of facilitating a transfer mechanism for grain to move from Ukraine to its Black Sea port of Constanta. Ukraine is currently losing around US$1.5 billion per month in agricultural export income after the Russian invasion blocked its Black Sea ports. The government has been actively seeking alternative logistics routes, such as the Romanian option, to get its goods into the export market and earn much-needed income to feed its people and fight off Russia.

The goal is to export 600,000 metric tonne per month via Romania, small relative to Ukraine’s typical export pace but vitally important, nonetheless. Since Romania is a member of NATO its waters are protected, and as the European Union’s second-biggest grain exporter after France, it has the crucial export infrastructure and capacity. Constanta is the largest port on the Black Sea, handling more than 67MMT of exports in 2021, including 25MMT of grain.

Just like the Algerian situation, the Russian invasion of Ukraine is having deadly consequences for many northern African nations, most of which are heavily dependent on grain from the Black Sea region. Supply disruptions can be mitigated to a large degree at the moment via shipment from alternative origins. But the soaring cost of food is having a direct and immediate impact on the lives of millions of people.

This of course, does not bode well for political stability in the region. As Herbert Hoover once famously said; “hunger is the mother of anarchy”.

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

Brazil hoping to be the corn market saviour…

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The plight of this season’s summer crop in South America dominated market wires in the first 54 days of the year as La Nina induced drought conditions severely impacted corn and soybean production. This changed abruptly on February 24 when Russia’s delusional dictator, Vladimir Putin, ordered the invasion of Ukraine, catapulting Black Sea grain production and exports onto the front page of rural publications globally.

But as the war rages on, uncertainty mounts around Ukraine’s old-crop corn exports and new crop production. This has thrust Brazil’s corn production outlook back into the spotlight. Ukraine harvested a record corn crop late last year, and exports were also expected to be a record in 2021/22 before Putin crashed the party. Global consumers have been forced to seek alternative nearby supplies as shipments from Ukraine ports have been halted indefinitely.

This has dramatically increased the importance of Brazil’s second corn crop in the global supply equation. Also known as the safrinha corn crop, it makes up around three-quarters of Brazil’s production each year. Brazil’s first corn crop is usually harvested in the February to April period. It is largely consumed domestically because it is predominantly grown close to the poultry and pork enterprises in the south of the country.

Since the transport costs from most of the major safrinha corn production areas to the export hubs are generally cheaper than freight to the primary domestic consumption regions, the second corn crop has traditionally been far more heavily exported than the first crop. The safrinha crop is also usually harvested in the June to August period each year, just as the peak soybean export period starts to slow, freeing up port capacity for corn exports.

The seeding of this year’s safrinha crop is almost finished. Planted within the ideal climate window, it is reported to be developing extremely well. According to agribusiness consultancy AgRural, 94 per cent of the crop is in the ground, 20 percentage points ahead of the same time last year. The central states of Mato Grosso, Goias, and Minas Gerais account for about 60 per cent of safrinha corn production, and planting wound up in those states early this month. The crop was planted into an excellent soil moisture profile in most regions, perfect for early plant growth.

However, rainfall in March has been more isolated and below average in many districts. Deficits of more than 100 millimetres can be found in Goias and Minas Gerais, with deficits of between 50 and 100 millimetres in much of Mato Grosso. Rainfall deficiencies of this magnitude will eat into the subsoil moisture as corn plants grow and demand more water and will be detrimental to production if widespread rains don’t arrive in the next few weeks.

This comes as producers are looking to bank soil moisture ahead of the dry season, which traditionally commences in the first week of May. However, under La Nina weather conditions, which are persisting much longer than most forecasters expected, the wet season tends to end a week or two earlier. Assuming that happens, maybe as few as three weeks are left to top up the soil profile with enough moisture to finish the crop.

Despite some showers in recent weeks, weather conditions are unusually dry in southern Brazil. Rio Grande do Sul bore the brunt of this season’s drought, which slashed the state’s soybean production by around 50 per cent. Fortunately, it does not produce safrinha corn, but Parana, which is around 94 per cent planted, is also suffering from dryness. Normally the country’s second-biggest producing state, a late plant, the drought and a late-season cold snap cut Parana’s safrinha corn yields in half last year. A repeat would not augur well for this year’s exports.

CONAB, Brazil’s equivalent of the USDA, lowered its first corn crop production estimate to 24.3MMT a few weeks ago, but its outlook for the critical second crop was increased to 86.2MMT. Total production is forecast to end up at 112.3MMT, slightly lower than the USDA’s 114MMT. In 2020/21, the first and second crop output was 24.7MMT and 60.7MMT, respectively, for total production of 87.1MMT.

According to agricultural consultancy Safras & Mercado, farmers in many regions have responded to the high price signals and almost certainly planted more second crop corn than initially planned. As a result, the company is looking to increase safrinha corn production, possibly to more than 83MMT. The company is already forecasting a record total corn crop of 115.7MT.

Agroconsult, a private Brazil-based forecaster, posted a much higher second crop forecast of 92.2MMT. The company will survey corn fields across the country over the next few weeks to confirm the estimate, which is 52 per cent higher than last year’s production.

On the export front, Safras & Mercado have landed on 34.5MT for the moment, up 66 per cent on last year. CONAB is currently a tad higher at 35MMT, down from 36.68MMT in January, but this forecast was released before the Ukraine incursion. International financial services provider StoneX is far more optimistic about Brazil’s increased role in this year’s corn trade, posting a 40MMT export estimate, almost double that of last year. The USDA is higher again at 43MMT, unchanged month-on-month, so it is yet to build in the Ukraine scenario.

Last Thursday’s rumour mill was awash with talk of Spain purchasing upwards of 400,000 metric tonne of Brazilian first crop corn. Notwithstanding the extremely attractive global price environment, this is a huge endorsement for the prospects of this season’s safrinha crop. This talk comes just ten days after Spain temporarily relaxed rules on the importation of Brazilian and Argentinian corn after supply gaps emerged following the Russian invasion of Ukraine.

The disruption to corn exports out of the Black Sea has turned up the heat on Brazil to fill the growing chasm in global supply. The safrinha crop is off to a good start with a timely plant into adequate soil moisture in most regions. March has been dry, but there is still time to top up the moisture profile and lock in output before the dry season arrives.

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

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