Weekly Commentary Archives | Page 2 of 16 | Grain Brokers Australia

Global container crisis disrupting food supply chain…

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The rapid recovery of the Chinese economy relative to the rest of the world following the coronavirus pandemic has led to a surge in export volumes and a global container market crisis.

China’s containerised exports are far greater than their imports with three containers leaving China for every container arriving. Consequently, empty containers are stranded in the west when they need to be in Asia.

Chinese demand for containers is so high exporters are paying huge premiums for empty boxes. These premiums have climbed to such a level it is now more profitable for carriers to send the boxes back to China with no cargo, rather than waiting to have them refilled with goods destined for Asia.

It is not entirely unusual for containers to travel back to the load port empty after a voyage, especially if container imports greatly exceed exports at the destination. However, it is not usually a profitable exercise and is far more common for shipping lines to backfill the boxes to boost round trip earnings and maximise income.

The cost of sending full containers from China to the United States is currently around ten times higher than the reverse journey. This provides the carriers with a huge incentive to quickly reposition bare boxes back to China, rather than waiting for them to be filled with US exports. It is estimated that 75 per cent of containers moving from the US to Asia at the moment are making the journey unstuffed.

This issue escalated late last year just as US agricultural exports were entering their busiest period. It is estimated that shipping lines rejected almost 178,000 twenty-foot equivalent units (TEU’s) of US agricultural produce, worth hundreds of millions of dollars, in October and November alone. And this was from just four ports: Long Beach and Los Angeles in California and the east coast ports of New York and New Jersey.

Port congestion at the US West Coast ports of Los Angeles and Long Beach is also unprecedented due to high inbound volumes and surging COVID-19 cases amongst dockworkers. This has forced shipping lines to cancel scheduled sailings, not for lack of demand, but because of lack of tonnage as the huge container vessels are stuck at anchorage awaiting berths. And when they do berth the quickest turnaround option is to load out empties.

In December, the spot freight rate for the Asia to North Europe route was 264 per cent higher than December 2019, and for the Asia to West Coast US route the rate was up 145 per cent compared to a year ago. Rates for both the China to Europe and China to US routes have surged more than 300 per cent compared to the market low in March last year with freight now costing around US$6,000 per container.

There are approximately 180 million containers worldwide, and when COVID-19 hit in early 2020, the shipping lines cancelled orders for new boxes for fear of a global recession. The speed and magnitude of the Chinese recovery has caught the industry off guard. It meant that almost all of the carriers needed to add significant container capacity, by offering more services on the busy routes, to address the container shortage challenge.

The container freight issue has been exacerbated by the plunge in international air freight capacity. Airfreight providers usually buy the unutilised capacity in the cargo hold of passenger planes to transport high-value goods. The coronavirus pandemic, and subsequent global travel restrictions, has seen passenger services plummet, adding demand to the containerised sea freight market.

Another contributing factor is that containers generally move back and forth along the same shipping route. The disruptions to international trade caused by COVID-19 now mean that many containers are shipped off to one port and then get stranded as the volume of return trade has decreased. That container may then be packed and loaded out to an exotic location to utilise the asset, making it even more difficult to return it to its regular path.

Food importers around the globe depend on a reliable and efficient worldwide container market. While most market sectors have been affected to some degree, the passage of agricultural commodities has suffered greatly. Grain, oilseeds and other farm produce are piling up at port facilities throughout the western world and across parts of Asia.

Pulses out of Canada, such as lentils and peas, have been stranded at port for weeks waiting for space on regular services to Asia. India’s sugar exports were only 70,000 metric tonne in January, less than 20 per cent of shipments twelve months earlier. Vietnam is battling to find container capacity for their regular coffee and rice exports to the US. And US soybean and cotton exports are being rolled out the curve as they can’t find export slots. The list goes on!

The situation is so dire some importers are switching to buying in bulk, putting upward pressure on bulk freight rates. Some buyers are cancelling contracts as the counterparty has failed to meet terms. Others are deferring purchases to avoid delays and high freight costs. Domestic traders and exporters in many jurisdictions are reluctant to offer, especially in the nearby market, due to the freight market chaos.

The global flow of refrigerated containers is also in turmoil. China’s rigorous customs clearance process is causing lengthy delays at ports and a backlog of imported containers waiting to be cleared. Reportedly, there are so many refrigerated containers piled up in the port of Dalian that it is running out of power plugs to keep them operating.

This has been one of the key reasons behind the recent spike in China’s domestic pork prices. Retail prices have risen to their highest level since September last year, prompting Beijing to boost sales from state reserves ahead of the Chinese New Year holiday.

The story in Australia is no different. Container parks are reportedly full of empties, yet they are not being released unless the intended cargo will reposition the boxes back to China. Timber used to be Australia’s biggest containerised agricultural export commodity to China. When China imposed the timber ban last year, it was expected that the decision would free up containers for other agricultural exports. That simply hasn’t been the case.

Australian grain is extremely competitive into Asia, and beyond, at the moment. Exporters are seeing plenty of Asian demand for containerised farm produce, but exporters and packing facilities are struggling to get boxes. Instead, export slots are being rolled by weeks, even months in some cases, and some of the containers are being sent back to China empty as the shipping lines are being paid handsomely to do so.

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

Brazilian crop prospects improve but harvest delayed…

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The rains have arrived across much of Brazil’s row cropping regions with the weather pattern now resembling a more typical summer rainy season.  The increased precipitation has come just as the majority of the country’s soybean crop is setting and filling pods, putting Brazilian farmers on track to harvest a record soybean crop, and easing concerns about South American soybean supplies.

A recent poll of thirteen leading market analysts pegged the Brazilian soybean crop at a 132.2MMT, up from the December forecast of 131.8MMT, and eclipsing the previous record of 126MMT produced in 2020. Yields in the top producing state of Mato Grosso are expected to be lower than last year, but an improved outlook in several other states is expected to compensate for the losses. The current USDA forecast is on the high side at 133MMT.

While there are still areas in moisture deficit, the conditions are generally favourable in the central and northern parts of the country for the remaining crop. Some areas have abandoned and replanted to cotton, but any paddocks not sprayed out by now will go through to harvest.

Extremely heavy rain and flooding in the southern states of Parana and Rio Grande do Sul are raising concerns, and there is more rain on the forecast. Some places have received more than 500 millimetres in the last 20 days, and some farmers have made up to five fungicide applications to control disease outbreaks. This will potentially lead to production downgrades and quality issues across an area that produces about a third of the country’s soybean output.

While the recent rains are certainly welcome and will help finish the crop, it further delays the soybean harvest. This season’s crop was planted late in many regions following an extremely dry start to the sowing season and had already delayed the commencement of harvest by around two weeks. The poor planting conditions and staggered germination have also led to varying levels of crop maturity within paddocks making harvest difficult.

Harvest is underway in Mato Grosso, but it is not at full pace as yet. As of late last week, estimates put the state’s harvest progress at just 5 per cent versus 27 per cent at the same time last year. The rain in the south is expected to delay the commencement of harvest in those states by at least two weeks.

With more rain on the forecast, the delays are expected to continue into February, raising concerns over export flows. Local analysts suggest that no more than 5 million metric tonne (MMT) was harvested by the end of January, less than half the stocks available for export at the same time in 2020. And the pace of harvest is not expected to normalise until late February or even early March.

As a result, the vessel line-up to load soybeans out of Brazilian ports has reportedly risen to almost 9MMT. This comes in a season where prices have been so attractive for the Brazilian farmers that they have forward sold around 60 per cent of their soybean crop ahead of harvest, 20 percentage points above the historical average for the period.

Maybe four vessels finished loading and sailed in January versus thirteen in 2020.  Exporters are concerned that the delays will now affect February shipments which typically total 5-6MMT. The sluggish start to harvest, and competing demand from domestic crushers, means that actual February shipments to China may fall short by as much as 2-3MMT. And there is already 1MMT that didn’t get shipped in January that will be pushed into February.

Whilst the demand will probably be recouped at the end of the Brazilian shipping season, the Chinese continue to buy US beans for February and March shipment due to delays. Further interruptions may push another round of bean sales to the US to make up for Brazil’s nearby export shortfall.

This only exacerbates the supply problems facing the US this summer. The bottom line is: the US is in real danger of running out of beans at the current sales pace and in all likelihood, will require imports to bridge the supply gap to their new crop. There is already talk in the trade that imports of Brazilian soybeans for June are getting very close to working at current values. An exciting space to watch!

It wouldn’t be a typical summer crop harvest in Brazil without the threat of a trucker’s strike. Brazil’s truckers’ federation, which has 800,000 members, is still calling for an all-out strike from Monday of this week over the rising cost of diesel. Higher global oil prices, coupled with Brazil’s weakening currency, have driven up local diesel prices. However, the likelihood of it proceeding has decreased as a split emerged last week over the merits of the action.

The late soybean harvest in Brazil becomes a massive issue for global corn supply. Brazil’s safrinha corn crop is planted after the soybeans have been harvested and represents about 75% of its output. With planting delayed by as much as a month, it means that some corn will be planted well outside of the ideal seeding window. This increases production risk as it pushes the crop further into the drier autumn months of April and May, and delays export onset.

One big difference this year is the price being paid to the Brazilian farmer. The weakening currency has pushed prices higher, ensuring the crop gets planted as they can still make a profit even if yields drop significantly due to the later seeding.

Corn has just had the longest run of monthly gains in more than a decade as Brazil’s planting issues, coupled with a Chinese buying spree, have further tightened global supply. Last week alone saw the Chinese purchase around 6MMT of US corn and further sales are anticipated. Delays to the availability of Brazilian corn and political interference to limit exports from Ukraine, and possibly Argentina, pushes even more demand to the US.

Surely February will be the month of reckoning for the USDA who have been well behind the eight ball on both their estimate for total Chinese corn imports (17.5MMT) and total US corn exports for the 2020/21 marketing year. Before last week’s buying binge, the US had already sold 11.8MMT of corn to China with a further 7.9MMT sold to the sister state, conveniently referred to as “unknown”.

The sustained increase in corn values should, and needs, to be rationing global demand, but last week’s market action suggests otherwise. US corn is currently the cheapest feed grain in the world, and the delay to planting in Brazil only extends its supply window by another month. Corn should now become the rally leader, or at least gain on beans, in the fight to ration global demand and buy area in the next northern hemisphere planting program.

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

China’s affair with the global grains market continues…

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China’s General Administration of Customs released its December trade data last week, and the numbers confirmed that the Chinese economy continues its post-pandemic rebound as the countries manufacturing industry capitalises on coronavirus lockdowns in many western countries.

Exports grew for the seventh consecutive month in December, rising 18.1 per cent on the same month in 2019 but down slightly from the 21.1 per cent growth recorded in November. Imports grew by 6.5 per cent in December compared to a year earlier, and up from 4.5 per cent the previous month.

The surge in exports in December pushed China’s trade surplus to a record US$78.18 billion, eclipsing the previous high of US$75.40 billion set in November. Overall, China’s exports rose 3.6 per cent in 2020 compared to the previous year, while imports declined 1.1 per cent over the same 12-month period. As a result, China’s trade surplus for the year was a staggering US$535.03 billion, the highest since 2015.

In the agricultural commodity space imports soared to record highs in 2020. This was driven by healthy stockfeed demand from a pig sector recovering quickly from the decimation caused by African Swine Fever (ASF). There was also a domestic shortfall of corn, and there was the Phase 1 trade deal commitment with the United States that helped stimulate the record pace.

China maintained its mantle as the world’s biggest buyer of soybeans, importing a record 100.33 million metric tonnes (MMT) in the 2020 calendar year. Brazil was the biggest supplier with exports to the Middle Kingdom climbing 11.5 per cent year-on-year from 57.67MMT to 64.28MMT. After a huge shipping program in the second and third quarters of 2020, December arrivals fell to just 1.18MMT, down from 4.83MMT a year earlier.

The US is the other major supplier of course, with shipments soaring 52.8 per cent to 25.86MMT compared to 16.94MMT last year. The annual US tally included 5.84MMT of imports in December, up 89 per cent, or 3.09MMT, compared to December 2019. The challenge here is there is no evidence of demand rationing as exporters continue to offer US soybeans despite the latest USDA supply data suggesting ending stocks are already extremely tight.

And the pace of soybean purchases is expected to remain at record levels in the first half of 2021 as demand continues to grow and crush margins are solid. Some crushers in Shandong province are reportedly making around 237 yuan (AU$47.37) on every tonne of beans crushed, roughly double the crush margin of this time last year.

On the corn front, tight domestic supplies have continued to push domestic prices higher and drive demand for cheaper imports. China imported a record 11.3MMT in 2020, an increase of 207 per cent on the 5.46MMt imported in 2019. This included 2.25MMT in December, more than double the quantity discharged in December last year.

Corn imports exceeded the annual tariff rate quoted of 7.2MMT for the first time last year, and it is widely touted that China’s corn imports in the 2020/21 marketing year could exceed a staggering 30MMT.

Wheat imports into China in 2020 were reported at a record at 8.38MMT close to triple imports in the previous twelve-month period. This represented 87 per cent of its annual tariff rate quota of 9.64MMT, a noticeable improvement from just 30% in 2019.

Barley imports for 2020 totalled 8.08MMT, including 0.98MMT in December, and sorghum imports have been robust in recent months with the 0.55MMT imported in December bringing the 2020 total to 4.81MMT.

With current domestic corn prices so high, China has been substituting a fair bit of their corn needs with wheat from the state reserve auctions, and cheaper imported feed grains such as corn, wheat and barley.

According to the country’s National Grain Trade Centre China sold 3.94MMT of wheat at its auction on January 13, representing a remarkable 99.74 per cent the total offered. This was up from 52 per cent the previous week and just 12 per cent at the December 23 auction.

The high clearance rate underscores the impact of soaring domestic corn prices as stockfeed manufacturers actively seek corn alternatives, especially as rising coronavirus cases spark supply concerns. The average sales price was 2,504 yuan (AU$501.05) per metric ton compared to 2365 yuan (AU$473.23) per metric tonne the previous week. Estimates put state-owned Chinese wheat stocks at around 69 MMT, or around 4-months’ supply at the current pace.

Nature threw a spanner in the works late last week with a new ASF outbreak reported in the southern Chinese province of Guangdong. It was diagnosed in 1,015 sows on a farm in Pingyuan county, killing 214 of them. According to the Ministry of Agriculture and Rural Affairs, this was the country’s first reported case of the deadly disease since October 26. And similarly, illegal transportation was suspected as the cause of the latest outbreak.

However, later reports suggested that the outbreak was a new form of ASF and may have been caused by illicit vaccines. Authorities have identified two new strains of the virus that are missing one or two key genes. The mortality rate of these strains appears to be lower than strain that ravaged the pig herd in 2018 and 2019, but it does cause a chronic ailment that reduces the number of healthy piglets born in each litter.

All known cases are believed to have been controlled through the immediate culling of infected animals, but an escalation of the situation, or further outbreaks elsewhere in China, could have a dramatic impact on domestic pork production and severely disrupt the escalating feed grain importation and consumption trend.

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

USDA report has more bang than the New Year fireworks…

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It was a pretty explosive chapter in global grain markets last week. Initially sparked by the release of the latest USDA worldwide supply and demand numbers on Tuesday but then fuelled by talk of higher Russian wheat export taxes and the ongoing dryness in South America which is raising row crop production concerns for Brazil and Argentina.

The markets may have traded sideways leading into the release of the January World Agricultural Supply and Demand Estimates (WASDE), but the screens very quickly turned to a sea of green with bullish news across the board sending futures market participants into a buying frenzy.

Perhaps the biggest surprise was corn. The USDA made a small cut to US opening stocks for the 2020/21 season, but they took a scythe to the average corn yield for the recently completed harvest slashing it from 11.035 metric tonne per hectare (MT/ha) in November to 10.795 MT/ha this month.

A yield decrease of 0.24 MT/ha may not seem a lot, but it is actually the biggest ever November to December drop in US corn yield. And when it is spread over 33.4 million harvested hectares, it equates to an 8.2 million metric tonne (MMT) decrease in US production.

Add very conservative production decreases of 1.5MMT and 1MMT in Argentina and Brazil respectively, and small increases to Chinese and Indian output and global production in 2020/21 is suddenly down by 9.7MMT. Of course, with lower production comes the need to ration demand and the USDA made random cuts to the US, Mexican, EU, North African and Asian requirements, seemingly just to make the balance sheet balance.

The questionable decline in demand, in turn, led to lower world imports and thereby lower global exports. The interesting thing here was almost the entire reduction in exports was taken out of the US, which currently has the cheapest corn in the world and whose export pace is running at record highs.

How quickly things can change. Back in June forecasts for US ending stocks for the 20/21 season peaked at an extremely bearish 3.323 billion bushels (BBU), or 84.4MMT. What was the US going to do with all of that corn? Wind the clock forward seven months and the forecast for US ending stocks has more than halved to 1.552bbu, or 39.4MMT, and most in the trade expect it to be lower again next month.

The USDA still has some work to do on the Chinese corn numbers as the current pace of vessel arrivals, plus forward purchases, suggest that imports will be well above the USDA’s number of 17.5MMT.

On the soybean front, the USDA lowered global production by 3MMT. Output in the US was reduced by 1MMT, the Argentinian crop was cut by 2MMT, but the USDA buried their head in the sand with regards to Brazil, leaving the crop unchanged at 133MMT. Some private forecasters have that number as low as 128MMT with a downward bias.

The pace of exports, primarily on the back of Chinese demand, means the US balance sheet is exceptionally tight. The US will be running on fumes by the end of the 2020/21 season with the forecast carry out of 140 million bushels, or 3.8MMT, equal to just 23 days of crush demand. This dramatically increases the importance of South American production as there is almost zero ability for the US to cover any loss in production south of the equator.

China’s imports were left unchanged at 100MMT despite the current pace suggesting it should be around 4MMT higher. This allowed the USDA to add only 0.8MMT to US exports even though current shipping and sales data argue for a significantly higher figure. But with fumes to play with, how does the USDA increase US exports?

The wheat argument on its own is not a wildly bullish story at the moment but when you add the tightening corn scenario and the Russian political intervention it is difficult to see too much downside in the short term.

While still a record, the USDA reduced global production by 1MMT to 772.64MMT. Amongst the major exporters, Argentine output was cut by 0.5MMT to 17.5MMT, Russian production was increased by 1.3MMT to a record 85.3MMT despite the dryness suffered in the southern regions during the season. The big surprise was leaving Australia untouched at 30MMT, despite some local analysts now having the crop at 35MMT, or even higher.

In terms of world trade, exports out of Argentina were reduced by 0.5MMT to 12MMT on the back of lower production and Russian exports were decreased by 1MMT to 39MMT, which seems quite a benevolent response to the export tax situation. Partially offsetting these declines was 0.5MMT added to both the Canadian and EU export numbers.

On Friday, the Russian economy minister announced that the government would adopt a recommendation by a tariff subcommittee to double the proposed wheat export tax from March 1 to June 30. The tax will commence as planned on February 15 at €25 (AUD41.50) per metric tonne and then rise to €50 (AUD83.00) per metric tonne on March 1.

In addition, the government will also introduce a barley and corn export tax of €10 (AUD16.60) per metric tonne and €25 (AUD 41.50) per metric tonne respectively commencing on March 15. The government has also stated that the export taxes are likely to remain in place beyond June 30 but under a formula-based system that was set by government decree back in August of 2013 and never cancelled. This mechanism was last used in 2016 but it was zeroed on September 23 that year and has been running at that level ever since.

In late December leading agriculture consultancy SovEcon reduced its Russian wheat export forecast by 4.5MMT to 36.3MMT on the expectation that farmers would delay sales until July 2021 when the export quota and tax programs expired. With the prospect of the tax continuing into the new season SovEcon is now saying that exports could be as high as 37-38MMT as extending the tax has removed the incentive for growers to carry the grain into new crop. Their propensity to sell will also be shaped by the condition of the new crop when it emerges from dormancy in the spring.

This news magnifies the importance and ramifications for global wheat tenders, most notably from Egypt (GASC) which we saw first-hand last week. On Monday GASC announced a tender for February 18 to March 5 shipment and they passed after only receiving four offers. The lowest was Romanian at USD292.97 free on board (FOB) followed by two French offers. The fourth offer was Russian origin, but it was well off the pace at USD315 FOB.

To put this in perspective the last time GASC tendered for wheat was December 15 and the lowest FOB offer was Romanian at USD270.96. The lowest Russian offer was USD285 FOB which means that Russian export prices have rallied USD30 in less than a month. Effectively, the tax has increased export values rather than reducing domestic prices. What will happen to offers when the revised export tax and quota programs take effect in February and March?

Keep in mind, since July 1, GASC has bought roughly 4.0 MMT of wheat, and they are expected to buy another 3.5 MMT or so by the end of June. European Union inventories are tight on the back of a smaller crop and unprecedented Chinese demand which is likely to keep prices high. This is likely to push global demand to the US (supportive of futures), Canada and Australia in coming months and potentially into the third quarter, new crop Black Sea slot.

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

Indian farmers fighting government reforms…

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Millions of farmers from the Indian food bowl states of Punjab and Haryana have been protesting against Prime Minister Narendra Modi’s government since August last year when three agricultural reform bills were introduced into parliament which they claim threaten their livelihood. At its peak, an estimated 250 million protesters joined the cause, with many more marching in solidarity worldwide.

The contentious bills, which seek to wind back antiquated, socialist-inspired agricultural policies and replace them with a market-driven economic model, were endorsed by the President on September 27. The bills aim to end the system of government subsidised wholesale markets, or mandis, where farmers are guaranteed sales to the state. In addition, it eliminates corporate restrictions on land purchases and the stockpiling of essential commodities.

The government claims the policies will free up the industry and nationalise the market by removing the middleman and allow farmers to sell directly to private buyers such as supermarket chains and food distribution companies. The reforms are devised to give farmers the choice of what they sell, to whom they sell, and for how much.

The government believes that the new system will accelerate growth in the agricultural sector through private investment in infrastructure and supply chain rationalisation. This will improve market efficiencies and ultimately lead to higher commodity prices for the farmers.

However, the reforms do not mandate contractual obligations, and they prevent farmers from taking disputes to court, opening up prospects for abuse by powerful corporate interests. And this is precisely why the farmers fear the new system, leaving them at the mercy of big business such as the Adani Group and Reliance Industries. The landowners fear the government will compulsorily acquire their land or they will be bought out by the corporate behemoths.

Indian farmers have been unhappy for years. Declining productivity and lack of modernisation have stymied progress. Farm sizes are shrinking, as are farm incomes. More than half of Indians work on farms but farming only accounts for one-sixth of the country’s GDP. And farms are small with 68 per cent of farmers owning less than one hectare.

More than 90 per cent of the farmers sell their produce in the local wholesale markets, but only 6 per cent of them actually receive the guaranteed government price support for their crops. Prices can be extremely variable, and the middlemen form regional cartels, swallowing most of the profits. According to a 2016 economic survey, a farming family’s average annual income in more than half of India’s states was a paltry 20,000 rupees, or AU$350.

Last Thursday tens of thousands of farmers on tractors blocked an expressway on the outskirts of the Indian capital New Delhi to protest Modi’s new laws. This was one of the biggest shows of strength since the protests intensified in late November last year. The rally was called to build pressure on the Modi government in the lead-up to India’s Republic Day on January 26.

Representatives of the Indian Farmer Union met with the government last week for the eighth round of talks to resolve the long-running dispute. Prime Minister Narendra Modi’s government has offered concessions on the new laws, but to no avail. Farmer union leader Rakesh Tikait warned last Thursday that more disruptive protests were on the way, saying “the tractor march today was a trailer, the full movie will be shown on January 26.”

The government says the state-regulated mandis will continue to operate in conjunction with the new market system. In the latest round of negotiations, the government offered written assurances to the farmers that they would continue to receive a guaranteed minimum price for their produce.

Meanwhile, Indian farmers are being urged to switch some of their lands to the production of oilseeds, primarily at the expense of wheat. Historically the government sponsored Minimum Support Price (MSP) scheme, introduced to promote self-sufficiency in staples, has encouraged farmers to favour grain instead of pulses and oilseeds.

As a result, India is now the world’s second-biggest producer of both wheat and rice. Simultaneously, lower oilseed output has turned it into the world’s biggest importer of oils, meeting almost 70 per cent of annual requirements.

Imports have soared to 15 million tonnes, up from just 4 million tonnes at the turn of the century. Edible oils are now India’s third-biggest import expense after crude oil and gold. The country imports soybean oil and sunflower oil from Brazil, Argentina, Ukraine and Russia plus palm oil from Malaysia and Indonesia.

Currently, oilseeds are predominantly grown in the lower yielding rain-fed farming regions rather than on Punjab and Haryana’s highly productive irrigated fields. And market analysts say grain growers in these states are unlikely to make the switch in significant numbers unless the government offers financial assistance in the way of a MSP.

An increase in oilseed production would reduce edible oil imports, generate jobs in the domestic crush industry and conserve precious foreign exchange. It would also help the government reduce food wastage by running down huge wheat and rice inventories that lay idle in old and poorly managed government warehouses across the country.

This is certainly a testing time for the Modi government, but they are in a powerful position. They have a substantial majority in the lower house, are faced with a divided opposition and are less than two years into a five-year term. There is no doubt that Indian agriculture requires reform, but to attempt such sweeping transformation during a global pandemic and without consulting the primary stakeholders is fraught with danger.

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

Argentina causing grain market turmoil…

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The crippling strike by Argentina’s port-side oilseed workers was finally resolved midway through last week allowing production at the country’s soybean crush facilities to return to normal and a resumption of port loading operations along the Parana River.

The soybean crush facilities in Argentina’s main grains hub of Rosario lay idol for 20 days and exports were paralysed after the unions representing oilseed workers, and grain inspectors called a strike on December 9. They were demanding better wages to compensate their members for the countries high inflation rate, particularly for those who continued to work through the height of the coronavirus pandemic.

The new agreement includes a 25% increase in salaries to be delivered in two tranches from January to August with increases for the balance of the year to be determined by the inflation rate. The Argentine government was desperate for a deal that would revive agricultural exports and stimulate much-needed foreign exchange inflows.

Argentina is the world’s biggest exporter of soybean meal and the Parana River export facilities in the Rosario region ship around 80 per cent of the country’s agricultural exports each year. The strike halted the loading of export vessels with as more than 170 sitting at anchor when the union members returned to work last Wednesday. That backlog will take weeks to clear as port stocks will have to be replenished before loading can recommence.

However, members of Urgara, the union representing the countries grain inspectors, continue to strike after failing to reach agreement on a wage deal with the Chamber of Private and Commercial Ports (CPPC). The union wants salary increases and an extraordinary bonus for its members who worked during the COVID-19 crisis.

The companies that are members of the CPPC are the same international agricultural export companies that settled with the oilseed workers’ unions last week. Urgara’s strike has the biggest impact on Argentina’s southern, open sea ports of Bahía Blanca and Necochea, as the processing and export companies operating in the Rosario region tend to avoid hiring workers affiliated with the militant union.

Meanwhile, as the oilseed workers returned to the job last Wednesday the country’s agriculture ministry blindsided global grain markets by announcing a suspension to export corn sales until the end of February, in an effort to safeguard domestic food supplies and quell inflationary pressures.

According to a government statement “this decision is based on the need to ensure the supply of grain for the sectors that use it as a raw material for the production of animal protein such as pork, chicken, eggs, milk and cattle, where corn represents a significant component of production costs.”

Argentina is the world’s third largest exporter of corn and up to the end of last month, 34.23 million metric tonne (MMT) of corn from the 2019/20 season has been authorised for export, out of an exportable surplus of 38.50MMT. The government said the measure was implemented to ensure that the remaining 4.27MMT was available for the domestic market over the summer months, especially since winter crop production was affected by the drought.

This is quite a drastic step for a government that is desperate for foreign currency, and the move is at odds with both corn industry and grower associations. They too were stunned by the action as they were not consulted and do not believe the corn supply situation warrants such drastic government intervention at the moment.

To add insult to injury, the La Niña weather pattern continues to dominate Argentina’s climate with moisture deficits across the row cropping regions growing by the day. Light showers are forecast across the western and southern fringes of the summer crop belt over the next week. But the 11-15 day and the 16-30 day outlooks both favour below-average rains and average to above-average temperatures.

The Bueno Aires Grain Exchange rated the soybean crop 42 per cent good-to-excellent against 55 per cent last year. Even more alarming was the early planted corn crop rating of just 17 per cent good-to-excellent, against 35 per cent a year ago.

The bottom line here is the moisture stress area is expanding rapidly and already covers about half of Argentina’s soybean and corn crops. This is likely to grow given the drier than average forecast for the balance of January. The dryness and heat have limited new crop corn seeding progress to just 75 per cent of the intended area, and if the weather in Argentina refuses to cooperate the world has itself a growing row crop supply dilemma.

Multinational grain exporters are already worried that Argentina’s Peronist government could extend their old crop export sales ban to new crop corn and soybean products should the current drought worsen or spread over the next two months. The export ban is also likely to discourage farmers from completing the remaining corn and soybean seeding program amid declining domestic corn values and inadequate soil moisture.

Grain markets farewelled 2020 with fireworks across the board. Soybeans closed above US$13 per bushel for the first time since 2014; corn posted its longest-ever rally and wheat climbed to a six-year high.

The strikes in Argentina have certainly influenced bean values over the past couple of weeks, but it is the prospect of strong demand in 2021, particularly from China, that has been the focus. There is zero room for weather issues in any of the major producers, so the prospect of lower production out of Argentina due to the ongoing drought and less than ideal finishing weather in Brazil has global consumers concerned.

The corn market has all it could hope for at the moment, strong demand, weather hit supply and political intervention. The rally last week, albeit on thin trade, pushed corn values to a six-year high after the Argentine government suspended export licences. Add the realisation that China may have reached a level of corn demand where they are no longer self-sufficient, and the global balance sheet gets tighter by the day.

While the planting of US summer crops is still months away, the race for acres is heating up. A tightening global soybean balance sheet and the lowest US ending stocks in seven years is telling growers to plant more beans. But the prospect of growing import demand from China and production issues in Latin America creates a compelling argument to increase corn plantings. No doubt soybeans will stand tall if corn wants to buy acres at their expense.

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

Panama Canal remains an essential conduit for global grain trade…

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The Panama Canal is considered one of the most difficult engineers projects ever undertaken and makes the list of the seven modern wonders of the world. It cuts across the narrow Isthmus of Panama via a series of locks which lift the transiting vessels a total of 26 metres to Lake Gatun and then lower the ships back to sea level at the other end.

It was originally opened in 1914 to reduce the sailing time between the Atlantic and Pacific Oceans by avoiding the treacherous and lengthy voyage around the southern tip of America. Traffic has increased from around one thousand transits in the first year of operation to almost fourteen thousand in recent years.

Then in 2016 the Panama Canal Authority (Autoridad del Canal de Panamá or ACP) christened a larger set of locks capable of handling the much bigger Neopanamax class vessels. The new locks were opened just months before the trade war erupted between China and the United States, the canal’s two largest transit sources.

The artificial waterway is 82 kilometres in length and is the primary link between the US farmer and the Asian consumer. The canal handles about 30 per cent of all grain exports from the United States and more than 50 per cent of all grain exports out of the Mississippi delta. In terms of soybeans, the Panama Canal now handles more than 50 per cent of total US exports, with China the primary destination.

Since the larger locks opened the three biggest users in terms of transits, have been container ships, liquified petroleum gas (LPG) carriers and liquified natural gas (LNG) carriers. There has been relatively little focus on dry bulk cargoes, even though that category remains the canal’s highest-volume cargo type.

A Panamax dry-bulk vessel, typically used for grain, would typically carry a deadweight tonnage (DWT) of 65,000–80,000 metric tonnes but its maximum cargo is reduced to around 52,000 metric tonnes due to draft limitations in the canal. Panamax container ships can carry about 5,000 containers, or twenty-foot equivalent units (TEU).

However, the Neopanamax dry-bulk ships, typically used for coal and other minerals, can lug a DWT of 120,000 metric tonnes through the canal and the container ships can load 13,000 TEU. That translates into a substantial increase in the canal’s cargo capacity by volume.

In the ACP’s 2018 fiscal year, ending September 2018, dry bulk cargoes – mainly grains and coal – accounted for 47 per cent of volume through the original Panamax locks and 14 per cent through the newer Neopanamax locks. Collectively, this totalled 36 per cent of cargo volume through both locks, by far the biggest category and well ahead of container shipping with a 22 per cent share of total cargo volume.

Fast forward two years and the trade war challenge has been replaced by COVID-19. May and June saw the peak of the pandemic’s impact on the waterway with transits down 20 per cent. This was mainly due to reductions in passenger ships, vehicle carriers and LNG tankers.

Global trade began to recover thereafter, and by August and September transits and cargo volumes had normalised. And now, transit demand for the three key Neopanamax segments, container ships, LNG tankers and LPG tankers is surging simultaneously. This has led to significant delays through the new lock system as the COVID-19 pandemic has reduced resourcing capacity and necessitated additional staff safety procedures.

The delays are primarily affecting ships without reserved transit slots which means the container trade is relatively unaffected as they have fixed routes and timetables and can book up to three weeks in advance.

Vessels that arrive at the waterway without a booked transit slot are waiting up to 5 days to gain passage. The primary offenders are LNG tankers making their way from the US, the world’s fastest-growing LNG supplier, to Asia. This has contributed to a recent rally in the cost of chartering LNG tankers in the spot market. The delays are also prompting some ship owners to take the longer route around the Cape of Good Hope, compounding the spot price pressure.

Changing global trade flows, particularly to and from China, has seen a significant change in the direction of canal trade in recent years. In the 2007 fiscal year, 53 per cent of total volume was from the Atlantic Ocean to the Pacific Ocean. By fiscal year 2020 that flow had increased to 65 per cent.

The principal reason is that dry bulk and liquid bulk make up a much higher proportion of total cargo than containerised volumes. The bulk volumes are fuelled by three key categories: soybean, corn, sorghum and wheat shipments from the US Gulf into Asia; refined petroleum products also out of the US Gulf en route to the US West Coast, Mexico and the Pacific coast of South America; and since 2016 LNG and LPG shipments from the US to Asia.

From a grain perspective, the direction of the trade flow is even more biased. The southbound (Atlantic to Pacific) flow of grains in the twelve months to the end of September totalled 27.5 million metric tonne (MMT) or 16 per cent of total canal volume. The northbound (Pacific to Atlantic) flow was just 3.5MMT, or 4 per cent of the 2020 volume.

And it is not only grain of US origin that is making the southbound journey in recent years. The ACP has signed several tariff agreements with Brazilian exporters to utilise the Panama Canal for panamax size shipments of soybeans and corn from the north of Brazil into Asia, given the similarity in draft with ports on the Amazon River.

Container cargos accounted for 22 per cent of total canal volume in the last fiscal year, the same as in 2018, but down from 29 per cent in 2008. The total container tonnage in 2020 was 57MMT, 7 per cent lower than the 61.15MMT carried through the waterway in 2008. Interestingly, the TEU capacity of transiting vessels rose by 36 per cent over the same period, suggesting that there was a much higher proportion of empty containers on each vessel in 2020.

According to the ACP, grains are now the third-largest commodity category by volume that transits the inter-oceanic route, after oil and its derivatives, and containerised cargo. Mind you, there would be plenty of grain in container statistics. The downward trend in grain volumes through the Panamax locks over the last few years has reversed dramatically with the China-US trade war truce in 2020.

El canal de Panamá is perhaps the most crucial piece of infrastructure supporting the free flow of international trade in the western hemisphere. In fact, the waterway is crucial to just about every economy in the world as we all rely on the import and export of goods and services to sustain life, GDP and economic growth.

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

Condition of European and US winter crops poles apart…

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As Christmas approaches and the brumal cold descends upon the northern hemisphere, the winter crop planting campaign across the European Union and the United States has concluded. The juvenile plants are bracing themselves for the usual weather extremes, and eagerly awaiting a nice white blanket of snow for protection.

Favourable weather conditions across most of Europe in October and November meant that the cereal crop was planted within the traditional sowing window in most regions. There were early delays due to excessive rainfall in some central and eastern regions, but they managed to catch up with the drier weather in November.

On the other hand, the rapeseed area is expected to be smaller than last year after October rains caused waterlogging in a number of regions. The fields only dried out enough for seeding activities just as the planting window was closing. Some later season varieties were planted in France and Germany, but the many paddocks earmarked for rapeseed were switched to cereals or not sown at all.

Europe has been warmer than average in recent months with most of the agricultural regions of northern and eastern Europe experiencing the warmest autumn on record. Those countries on the Scandinavian Peninsula and surrounding the Baltic Sea have seen the most significant variation from average. The warmer temperatures, coupled with average to above-average soil moisture in most regions of Europe, has been ideal for crop establishment.

Hardening is the bio-physiological process by which winter cereals build low-temperature tolerance to withstand the freezing conditions that occur during the winter dormancy period. The mild weather conditions mean that this hardening process only started when the cold weather arrived in early December, much later than normal. As a result, frost tolerance remains low in most of the western, southern, south-western and central cropping regions of Europe.

France is the biggest winter crop producer in the EU, and the country’s farm ministry had expected a dramatic rebound in the country’s planted wheat area this year after rain severely hampered the 2019 sowing campaign. However, its first estimate fell well short of market expectations.

The ministry pegged the country’s soft winter wheat planted area at 4.73 million hectares (Mha), up 12.4 per cent on the 4.21Mha planted in 2019. Nonetheless, that was 1.9 per cent below the five-year average and significantly lower than the market projections of 5-5.2Mha.

The winter barley area was estimated at 1.26Mha, up 6.6 per cent from the previous year but 5.7 per cent below the five-year average. Rapeseed plantings were estimated at 1.13Mha, an increase of 1 per cent on the area harvested in 2020 but a massive 17 per cent below the five-year average.

The French wheat crops will enter winter dormancy in good shape. The soft wheat conditions are estimated to be 96 per cent good-to-excellent compared to 73 per cent at the same time in 2019. Just 4 per cent of the soft wheat crop was rated as poor against quite a substantial 26 per cent in mid-December last year. The winter barley fields are also looking good with 94 per cent of the crop rated as good-to-excellent, up from 75 per cent twelve months earlier.

On the other side of the Atlantic, much of the US winter crop area has been battling drought conditions this fall. The worst of the dry conditions are primarily affecting the western half of the country: west of a line from the Dakotas south to Texas. However, the moisture deficit has been creeping eastward with each week of below-average rainfall.

Around 97 per cent of the High Plains which encompasses parts of Kansas, Nebraska, Wyoming, Colorado and the Dakotas is experiencing moderate to severe drought conditions, with 51 per cent falling into the severe category. Total state-wide rainfall registrations for North Dakota in the three months to the end of November ranked the third driest on record.

Large parts of the Midwest are starting to feel the pinch with 39 per cent of the area dealing with some degree of drought or abnormal dryness. And nearly all of the Southern Plains states are experiencing moderate to extreme drought conditions.

Some much-needed precipitation fell in portions of the US hard red winter wheat (HRW) growing areas over the past two weeks. The ambient temperatures were cold enough for some to fall as snow which will help protect the wheat from potentially damaging cold snaps in coming weeks.

The crop is now in dormancy, but almost the entire HRW area is in moisture deficit and still needs significant moisture before the spring to ensure the crop emerges from dormancy in good condition. A considerable proportion now has a thin snow cover, and that will be available to the plant in the spring as long as it doesn’t evaporate beforehand due to abnormally high temperatures.

The ten-day forecast has above-average temperatures and above-average precipitation for the majority of the winter wheat areas east of the Mississippi River, and above-average temperatures but below-average rainfall for the winter wheat areas west of the Mississippi River.

In their last crop progress report for 2020, the United States Department of Agriculture called the winter wheat crop 52 per cent good-to-excellent, up from 43 per cent a week earlier, reflecting the rainfall over the last couple of weeks. The crop was 92 per cent emerged compared to 89 per cent last week and a five-year average of 91 per cent.

Kansas is the biggest wheat growing state in the US, and the picture is not good for most winter crop farmers. The crop is well behind the national average at 33 per cent good-to-excellent and is in desperate need of good rains.

The long-range forecast from the National Weather Service (NWS) suggests above-average temperatures and below-average precipitation across most of the HRW belt for the first quarter of 2021. day period. The extended outlook remains a concern for the HRW crop in the Southern Plains. The robustness of the crop will be reduced by the dry conditions, leaving it vulnerable to winterkill issues if temperatures plunge into negative territory.

Winter crops are made in the spring, and that is still months away for the northern hemisphere grower. The European farmer is rightly optimistic about new crop prospects at this point in the season. This is offset by drought conditions across much of the US winter crop area. The one thing that appears common on both continents is the crop’s susceptibility to winterkill should there be sustained cold snaps in regions where the crop has inadequate snow cover.

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

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