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Bumper corn crop for South African farmers…

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South African corn farmers are cashing in on heightened global demand, substantially increasing exports on the back of their second consecutive bumper harvest. The crop had an excellent start with widespread rains in October and November 2020, facilitating a timely plant and then favourable late-season weather conditions boosted final yields.

Harvest in the east of the country has been underway for some weeks, with the later western areas about to move into full gear. Dryness across much of the country in late May has benefited harvest progress and crop quality. All going well, headers will all be parked up by the end of June.

South Africa’s Crop Estimates Committee (CEC) is forecasting production at 16.18 million metric tonnes (MMT), up 5.8 per cent from the 15.3MMT harvested last season. The updated estimate is marginally higher than the CEC’s April forecast of 16.095MMT and was at the low end of industry expectations. It will be the second biggest commercial corn crop on record behind the 17.55MMT produced in the 2016/17 season, relegating last year’s crop to third place.

The total area planted to commercial corn in 2020 was 2.755 million hectares, around 5 per cent higher than the 2019 program. At planting time last year, domestic corn prices in South Africa were trading around 30 per cent higher than they were in late 2019, providing growers with an attractive incentive to increase plantings year on year.

Corn prices decreased moderately between January and April this year, primarily driven by the favourable domestic supply conditions. The downward pressure more than outweighed the effects of the high international prices and a weakening of the national currency.

Around 61.4 per cent, or 1.692 million hectares (Mha), was planted to white corn, and 38.6 per cent, or 1.063Mha, planted to yellow corn. With an average yield of 5.31 metric tonne per hectare (MT/ha), white corn production is expected to be 8.982MMT, or 55.5 per cent of the total crop. The average yellow corn yield is higher at 6.77MT/ha, with output at 7.198MMT, or 44.5 per cent of total output. If realised, it would be the largest ever yellow corn crop.

Non-commercial, or subsistence, corn production is forecast at almost 587,000 metric tonne, up 7.9 per cent from just under 544,000 metric tonne last season. The area is also up sharply to more than 319,000 hectares, 7.4 per cent higher than the 297,000 hectares planted in 2019. Corn produced by subsistence farmers is generally consumed by humans or animals on the producing farm and doesn’t make its way into the domestic or export supply chain.

Like so many countries globally, the COVID-19 pandemic has hit the South African economy very hard. Economic growth has been on a downward trend for the past ten years. With unemployment above 30 per cent and the COVID-19 challenges, it is expected to remain sluggish for the foreseeable future.

Consumption of corn in South Africa has increased by an average of more than two per cent per annum over the past ten years, powered by an increase in demand from both the human consumption and animal feed sectors. Domestic demand in the 2021/22 marketing year (May ‘21 to April ‘22) is expected to be around 11.7MMT, with white corn at 6.45MMT (55 per cent) and yellow corn at 5.25MMT (45 per cent).

In the form of a meal known as mielie or maize pap, white corn is the staple food for many South African consumers, especially for lower-income households, as it is a relatively inexpensive source of carbohydrates. The grain is mixed with water until a smooth, porridge-like consistency is achieved. It can be enjoyed for breakfast as a smooth, sweet porridge or made firmer for lunch and dinner and served with vegetables or meat.

On the other hand, yellow corn is the primary ingredient for stockfeed rations, particularly in the poultry sector. Intake of chicken meat has increased substantially as it is the cheapest, and now the most important, source of protein in the South African diet. Higher chicken meat demand has driven considerable expansion in the local broiler industry in recent years, manifesting itself in burgeoning domestic demand for yellow corn.

The jump in domestic production and relative competitiveness on the international stage is expected to see South Africa’s corn exports surge by 40 per cent to 3.5MMT in the 2021/22 marketing year. That follows a 72 per cent increase to 2.5MMT in the marketing year just concluded. High international prices have helped push domestic values above export parity, increasing the incentive to export the country’s production surplus.

South Africa is well placed to supply neighbours in the Southern Africa region. Zimbabwe, Botswana, Namibia, Mozambique and Eswatini all share a border with South Africa and are established destinations. However, they are also expected to have above-average production this year, thereby reducing imports.

Consequently, deep-sea exports to traditional Asian buyers such as South Korea, Taiwan, Japan and Vietnam, and possibly some Mediterranean destinations, are expected to figure more prominently in export bookings ahead of the northern hemisphere harvest later this year.

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

The pace of China’s of new crop corn purchases unprecedented…

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Corn is clearly on top of China’s agricultural commodity shopping list at the moment, with the pace of new crop purchases out of the United States running at unprecedented levels for this time of the year. There were no US sales to China reported last Friday, but it has been quite the ritual over the past two weeks with ‘flash’ sales announced on nine of the previous ten working days.

Bookings of US origin corn last week alone totalled 5.644 million metric tonne (MMT) for the 2021/22 marketing year, which commences on September 1. This included the third-largest ever one-day sale to China of 1.7MMT, which the United States Department of Agriculture announced last Monday. Announcements of 1.36MMT, 1.36MMt and 1.244MMT followed on Tuesday, Wednesday and Thursday, respectively.

The China corn story is not new, with the USDA pencilling them in for 26MMT of imports in both the 2020/21 and 2021/22 marketing years. Last week’s activity pushes China’s new crop US corn purchases past 12.1MMT since the splurge commenced earlier this month. That equates to more than 19 per cent of the USDA’s projected US export program for the 2021/22 marketing year and 46.5 per cent of China’s import estimate.

In 2020 it took until mid-August for the US to sell 12MMT in total, itself a record pace at the time.  By the official start of the 2020/21 marketing year on September 1, 2020, US corn sales to the Middle Kingdom stood at 8.2MMT, with the biggest volume month being July 2020.

If the current purchasing pace is maintained, it won’t take long for the market to aim quite a bit higher, especially when considering that China’s new crop corn purchases out of Ukraine are already as high as 6-7MMT. It seems they simply want to get as much coverage as possible with Brazil’s crop getting smaller and the US farmer chasing an ambitious yield goal of 179.5 bushels per acre with the unknown risks of an entire growing season ahead of them.

Additionally, as China continues to step up to the plate for new crop, they have given no indication that the remaining old crop purchases will not be shipped. The strength in the December corn futures contract and the extremely low cancellations to date support that notion.

As of May 13, old crop US corn sales to China totalled 22.9MMT, and there was still just over 10MMT, or 44 per cent of the program, to be shipped ahead of the new crop export campaign.US export inspections for the current marketing year are almost 80 per cent ahead of the same time last year.

According to customs data, China imported 8.58MMT of corn in the first four months of the calendar year. This is an increase of 301 per cent on the same period in 2020 and means they have already exceeded their tariff rate quota (TRQ) for this year.

Corn imports from all origins in April totalled 1.85MMT, with 1.3MMT coming from the US, the second-highest monthly discharge on record. This was up from 1.08MMt in March and was not far behind the record of 1.45MMT, set in January of this year. On the other hand, imports from Ukraine were the lowest since November 2020 at 536,820 metric tonne.

This month’s World Agricultural Supply and Demand Estimates pegged Chinese corn production for the 2021/22 season at 268MMT. This is a 2.8 per cent increase on the 260.67MMT that was reportedly produced in the current season. The growth is primarily due to a higher planted area, driven by significantly higher prices and government policy aimed at decreasing the nations corn import program.

China’s Ministry of Agriculture and Rural Affairs has reportedly prioritised the planting of grain on all unplanted land and set a goal of an additional 667,000 hectares sown to corn in key growing areas. However, the potential corn production gains will be limited by competing government policies that encourage soybean production. There is also a fear that any new land bought into the grain production rotation will be of poor quality and low yielding.

On the demand front, the WASDE report called 2021/22 Chinese corn demand 294MMT, up 5MMt, or 1.7 per cent, from 289MMT in the current season. The increase is driven entirely by a 5MMT, 2.4 per cent increase in demand from the domestic stockfeed sector of 211MMT.

The high domestic corn prices relative to grain alternatives has reportedly led to a dramatic reformulation in Chinese stockfeed rations. The corn inclusion rate in swine mixes has dropped from 40 to 30 per cent, and in poultry blends, it has declined from 65 to 55 per cent in recent months. While the growth in stockfeed consumption is forecast to continue, the corn inclusion rate will depend more heavily on relative domestic prices than it has historically.

China’s aggressive purchases of new crop corn not only highlight its growing need for corn but maybe also signals its belief that the Brazilian crop will be much smaller than USDA is forecasting. The apparent implication of China’s old and new crop bookings is that the WASDE is alarmingly low on Chinese corn imports for both old crop and new crop, and therefore too low on US exports in both marketing periods.

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

China taking the mushroom approach with agricultural data…

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Mystery surrounds the sudden suspension of operations of one of China’s primary agricultural data providers, leaving domestic and global merchants, analysts, and brokers in the dark about all things agriculture in the Middle Kingdom.

Cofeed is a Beijing based private agricultural consultancy. It has established itself as one of the most influential and comprehensive providers of Chinese supply and demand information since its establishment in 2002. Officially known as Beijing TianxiaLiangchang Technology Co Ltd, the company ceased updating its website on April 29, leaving domestic and global market participants scrambling for alternative sources of trustworthy data.

According to the company website, Cofeed specialises in providing market information, value-added services, business internet solutions and e-commerce to production enterprises and traders of grain, oilseeds and stockfeed.

In the last 19 years, it has reportedly built excellent relationships with governments, industry associations, professional information and research organizations both at home and abroad. Cofeed’s statistics on soybean imports, crush margins, operating rates at oilseed crushing plants, oilseed and meal inventories and regional pricing is regarded as the most accurate and reliable information available to the market.

According to news wires, the company moved out of its Beijing office sometime last year and has been operating from a villa on the capital’s outskirts. However, it appears that local police sealed the doors to those premises on April 29 and staff cannot be reached.

Another company in the Chinese agricultural data sphere is JC Intelligence Co Ltd (JCI). It is based in Shanghai and was also established in 2002. The company provides financial information and trade consultation services as well as agricultural commodity data and analysis. However, the company’s head is reported to have been recently jailed, allegedly for divulging too much information about China’s corn balance sheet.

This data turmoil comes at a time of heightened focus on China, given its insatiable appetite for soybean, corn and wheat imports in recent times. China is expected to import 100 million metric tonnes (MMT) of soybeans in the current marketing year at a cost of around US$40 billion. That represented almost 60% of global trade in soybeans.

Last week’s World Agricultural Supply and Demand Estimates (WASDE) report pegged Chinese corn imports at 26MMT in the current marketing year. With purchases from the US totalling almost 20MMT alone, that number still appears on the light side despite recent cancellations of old crop US sales.

Domestic demand for wheat has risen by more than 19 per cent, or 24MMT, in the 2020/21 marketing year to 150MMT. Relatively high opening stocks helped the equation, but imports are still forecast to be up by more than 95 per cent, or 5.12MMT to 10.50MMT.

And other feed grains such as barley and sorghum are also being sucked up in the China vacuum, especially with the recently announced search for corn substitutes in the feed grain ration. Barley imports for the 2020/21 season are forecast at 9.2MMT, with sorghum not far behind at 7.8MMT.

According to the USDA, the import milestones set in 2020/21 appear to be the new norm. Last week’s WASDE report has forecast China’s imports of soybeans, corn and wheat in the 2021/22 marketing year at 103MMT, 26MMT and 10MMT, respectively. Barley imports are projected to hit 10MMT for the first time in 2021/22, and sorghum imports are also pegged at 10MMT, a mark that has been surpassed only once before.

The perceived crackdown by Beijing on the provision of agricultural data appears to support the concept that the country’s demand for grains, oilseeds and protein meals is far greater than it is currently portraying to the global marketplace. The suppression of information also comes against the backdrop of the Phase 1 trade agreement between the United States and China and the growing political tensions that threaten to scuttle that deal.

It has never been easy to determine exactly what is happening in China’s agricultural sector. Beijing has long been secretive regarding the country’s grain and oilseed production and import requirements. It has been accused of fabricating numbers in the past. In March of this year, China’s National Bureau of Statistics reported that it had uncovered statistical fraud stemming from data supplied by the agriculture ministry back in August 2020.

The detection of misrepresentation in the government’s agricultural statistics was revealed very quietly. It reportedly came not long after Beijing had proudly proclaimed victory over rural poverty and celebrated the surprisingly rapid recovery in the pig herd following the devastating African Swine Fever outbreak. Both achievements were apparently declared on the basis of statistical indicators supplied by the Ministry of Agriculture and Rural Affairs.

China’s rhetoric and actions in global agricultural markets have often been contradictory. They are masters at working the global trade floor. Maybe this time, a confluence of circumstances such as low stocks, COVID-19, African swine fever, floods, high prices and domestic production issues have them reeling. Muffling the flow of market information suggests that they are intent on clouding the true domestic picture and keeping global markets speculating!

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

EU production rebounds, with France leading the way…

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Large swathes of Europe have been denied a traditional spring after enduring one of the coldest Aprils in many decades. This hindered the growth and development of winter crops and delayed the planting and emergence of spring and summer crops across much of the continent.

These conditions were in stark contrast to warmer than average temperatures that dominated late March weather in many countries. On the coldest April days, minimum temperatures were among the lowest on record, with severe frosts battering crops in a belt that extended from Scotland in the north to Italy and Greece in the south.

Fortunately, it is still early in the season, and the negative impacts on winter and spring crop production are expected to be minimal at this stage. However, several instances have led to a downward revision of yield forecasts for canola and durum wheat in parts of France and Italy.

Total wheat production for the 27 member states of the European Union is expected to increase 7.79 million metric tonne (MMT), or 6.2 per cent, to 292.65MMT on the back of more favourable seeding and growing conditions, especially in France. An increase of 3.5 per cent in the seeded area was the primary contributing factor, with the average yield up just 2.6 per cent.

Barley production is also expected to experience a modest rebound in output with the improved seasonal conditions. Total EU production is forecast to increase by just 1.28MMT, or 2.3 per cent, to 56.50MMT, emphasising how well the crop performed last year compared to wheat across most of the EU, France being the exception.

Canola is the other big-ticket winter crop commodity in the EU, but production is now forecast to be quite similar to last season, with the cold start to the spring taking its toll. Farmers are forecast to harvest 16.46MMT in 2021 compared to 16.34MMt last year. The total planted area will be down slightly, with a higher average yield expected to compensate for that loss.

FranceAgriMer released its latest crop report for the EU’s biggest grain producer last Friday. French crop conditions remain well above the same time in 2020, but the data did reveal the French soft wheat crop had deteriorated for the fourth successive week. In the week to May 3, the government farm agency estimated 79 per cent of the soft wheat crop was in good or excellent condition, down from 81 per cent a week earlier.

Rains returned to much of France over the last couple of weeks, and there is more on the forecast, easing production concerns after the dry start to spring. The benefit of this soil moisture boost was reflected in last week’s two percentage point decline in soft wheat conditions compared to a four-percentage point decline in the seven days to April 26.

The proportion of the durum wheat area in the good-to-excellent rating category was unchanged week-on-week at 69 per cent, after tumbling from 77 per cent in the previous seven-day reporting period.

The winter barley crop was rated 76 per cent good-to-excellent, down from 77 per cent the previous week and 81 per cent two weeks ago. On the other hand, the spring barley crop was unchanged in last week’s report at 82 per cent after falling five points a week earlier.

Despite the downward trend, French crop ratings remain higher than at the same time in 2020 when developing crops were battered by torrential rain. This time last year, the good-to-excellent score for the French soft wheat crop was just 57 per cent. The barley rating was slightly higher at 59 per cent.

This season’s superior crop conditions are reflected in a rebound in French production estimates for the upcoming harvest. The total wheat crop is forecast at 36.19MMT, up 19.2 per cent, or 5.83MMT compared to last year. The improved production forecast results from a 14.4 per cent increase in the area planted to soft wheat and a slight increase in the average yield from 6.82 metric tonne per hectare (MT/ha) to 7.15MT/ha.

The year-on-year barley production recovery is very similar, up 20.5 per cent, or 2.15MMT, to 12.63MMT. However, this is primarily a yield story, with the planted area only up 1.2 per cent. The average yield is forecast to jump by 19 per cent, or more than 1MMT/ha to 6.33MT/ha.

The French canola crop has perhaps been the worst affected by the string of severe frosts in April, striking as the early winter varieties were in a sensitive flowering stage. This followed reports back in early March that canola crops in several regions had been hit so hard by early-season cold snaps and pest invasions that fields were sprayed out and resown to spring barley.

The French farm ministry estimates the canola area at 0.99 million hectares, down from 1.13 million hectares in their December update and 11 per cent lower than last year’s planted area. Production is now forecast to be 314MMT, down for the fourth consecutive season. This is 29 per cent lower than the five-year average and 44 per cent lower than the record crop of 5.59MMT set in the 2008/09 season.

Global balance sheets are tightening across the board and the world can ill afford production hiccups in Europe this year. The hole in world corn supply is growing with the ongoing dryness in Brazil and an open cheque book in China. As prices rapidly escalate rationing has begun in earnest. Wheat, and to a lesser degree barley, will be called on to partly fill the emerging chasm. The oilseed story is no different, with supplies at record lows in many jurisdictions, including major European producers, and question marks hanging over northern hemisphere production estimates.

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

Canadian farmers react to market signals…

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Canadian farmers are swinging to canola and barley at the expense of wheat, oats and pulses in the current winter/spring cropping cycle. That was the washup of the latest Statistics Canada principal field crop report, which was released early last week.

Statistics Canada said the total area seeded to field crops this year is projected to increase by 1.8 per cent to 26.893 million hectares based on favourable market conditions and historical trends. However, total production is forecast to decrease slightly, on the assumption of a return to trend yields from the record production of 2020-21.

This year’s four week survey period concluded on March 29, with Statistics Canada tabulating responses from more than 11,500 farmers regarding their planting intentions for the 2021/22 production year. Winter wheat has been in the ground for many months now and is emerging from its winter dormancy. However, the spring planting program is about to move into top gear amid dry soil moisture conditions in many areas and grain prices on fire.

It has been widely reported over the last few months that the area planted to wheat was expected to be lower in the coming season than in the 2020/21 marketing year. And so it came to pass when the numbers were revealed, with the total wheat area forecast to fall by 6.9 per cent or 697,000 hectares, to 9.41 million hectares (Mha). This is the lowest wheat area in the last four seasons and comes in 3.7 per cent below the five-year average.

Spring wheat was the big mover, with the estimated area down by 8.8 per cent, or 642,000 hectares, to 6.61Mha. This is the smallest area planted to spring wheat in the last four years and is 4.7 per cent below the four-year average. The winter wheat area was down 11.2 per cent, but since it only makes up 5.2 per cent of total wheat plantings, it was an insignificant component of the decrease. The area planted to durum wheat was up slightly.

The results of the grower survey suggest everybody wants to grow barley. The area is projected to jump by 13.9 per cent, or 426,000 hectares, to 3.49 million hectares. This is the fourth consecutive annual increase, is 27 per cent above the five-year average and is the largest area seeded to barley since the 2009/2010 season.

Tight stocks have pushed domestic prices higher, making potential returns quite appealing for growers relative to spring planted alternatives. Strong demand from China has boosted export demand, and that is expected to continue throughout the 2021/22 marketing year after China nominated increased barley usage as a means of reducing the nation’s reliance on corn. The Chinese tariff on Australian barley imports has also pushed demand to Canada.

Barley exports in the 2020/21 marketing year are expected to total 3.75 million metric tonne (MMT), and China dominates. According to the Canadian Grain Commission, 94.6 per cent of Canada’s licensed barley exports in the August 2020 through March 2021 period were destined for China. The current forecast would be the highest executed barley exports since 3.9MMT was shipped in 2007/08 and 4.0MMT shipped in 1996/97.

The record low carry-in forecast of just 500,000 metric tonne nationally also reflects buoyant domestic stockfeed demand. Crop progress will be keenly scrutinised as the season progresses with a yield of 3.5 metric tonne per hectare (MT/has) required before stocks start to build, assuming 91.8 per cent of the planted area is harvested, and there is no change to domestic demand or exports in 2021/22. The long-term average barley yield is 3.73MT/ha.

According to the Statistics Canada survey, canola planting intentions for the world’s biggest canola producing nation came in at 8.71Mha. This is an increase of 3.6 per cent, or 300,000 hectares, over the area planted in 2020 and reverses a four year downward trend. However, it is still 0.9 per cent below the five-year average.

And there is now an added incentive for the Canadian farmer to maximise their canola area, with prices soaring to their highest level in more than a decade in the five weeks since the planting survey concluded. This is a function of dwindling old crop stockpiles as crushers and exporters fight to secure old crop stocks. The carry out is forecast to drop to 1.2MMT by the end of the 2020/21 crop year on July 31, the lowest end of season number since 2013.

Around 90 per cent of Canada’s annual production is exported to global customers. Foremost among these importers is China who has accelerated imports of the Canadian produced oilseed despite blocking shipments from two of the country’s major exporters since 2019. Government export data reveals around 1.58MMT of canola was exported to China from licenced facilities in the first seven months of the 2020/21 marketing year, 22.5 per cent of total exports for the period.

According to survey responses, the area planted to oats is expected to fall by 6 per cent year-on-year to 1.46Mha, still 7.8 per cent higher than the five-year average. The Lentil area is forecast to be 0.3 per cent lower than 2020 at 1.83Mha, around 3.1 per cent below the five-year average. The big mover on the pulse front was dry peas, with plantings anticipated to decrease by 9.8 per cent to 1.54Mha compared to a year earlier, the smallest area in three years and 6.7 per cent below the five-year average.

Significant precipitation is needed in south-eastern and south-central Saskatchewan, Northern Alberta, and Manitoba. Planting for most principal spring crops typically begins around mid-May. Still, many farmers in southern Alberta started in early April this year due to a lack of snow cover and above-average temperatures.

The dry conditions could prompt growers to make last-minute changes to their seeding plans, resulting in a reduction in plantings of small-seeded crops such as canola, with barley the potential beneficiary. The weather conditions over the next few months and the elevated price regime will no doubt influence the final seeded area.

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

Nowhere to run to, baby, nowhere to hide…

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Grain futures and cash prices across the globe copped a speeding ticket last week as bullish news flooded international markets, sending the bears back into hibernation. Arguably, the headline ticket right now is the plight of the Brazilian corn crop and the looming supply void, into which wheat will likely need to dive headfirst.

Global corn importers rely heavily on the Brazilian safrinha corn crop, and it is in serious trouble. Also know as the second corn crop, it is sown immediately after the soybean crop has been harvested. But the planting program was late after excessive rainfall delayed the soybean harvest. The soil moisture profile was excellent when seeding finally commenced, but it has been much drier than usual in many key growing regions ever since.

In the central-southern state of Mato Grosso do Sul, which accounts for 13 per cent of national safrinha corn production, the ideal planting window generally closes at the end of February. This year, safrinha planting commenced on January 29, but it didn’t conclude until April 16, around six weeks after the ideal planting window had closed. Approximately 44 per cent of the states safrinha area was seeded in March and early April.

Parana is south-east of Mato Grosso do Sul and produces around 16 per cent of the national safrinha output. By the end of February, only 38 per cent of the safrinha corn crop had been planted. A year earlier, that number was 61 per cent. This season, 58 per cent was sown during the second half of March, but the ideal planting window for safrinha corn in Parana usually closes by February 20.

The late planting was always problematic as the monsoon generally ends in mid to late April with the onset of the annual dry season. And the most recent meteorological evidence suggests that the rainy season is already winding down. With subsoil moisture and crop development well below average going into May, especially in the central and southern states, there is likely to be significant deterioration in crop conditions in the coming weeks.

That is already the case in Parana. Last week’s crop rating plummeted to 62 per cent in good condition, down from 76 per cent just a week earlier and 92 per cent the week before that. There are reports that the moisture stress is pushing the crop into early pollination. The states vegetative index is one of the worst in recent years, and the soil moisture profile is the lowest in 30 years.

Corn crops in Mato Grosso and parts of Mato Grosso do Sul received enough rainfall over the past week to maintain plant conditions but not build soil moisture. Rain was quite scattered across the other Safrinha corn regions, and soil moisture deficits are increasing. The states of Parana, Sao Paulo, Minas Gerais, and Goias will either see minimal rainfall or nothing at all over the next two weeks. Forecasts beyond that point are also unflattering.

The poor crop conditions and dry forecast has local analysts clambering over each other to lower their production forecasts. Agricultural consultancy AgRural called the total Brazilian crop 103.4 million metric tonne (MMT). Rabobank pegged total output at 105MMT, versus their previous estimate of 107MMT. IHS Market (formerly Informa) reduced their estimate by 4.6MMt to 104MMt, with their safrinha crop number reduced from 85MMT to 79.5MMT.

Respected consultant Dr Michael Cordonnier reduced his total Brazilian corn crop projection by 2MMT to 103MMT, with a lower forward bias based on the crop lateness, poor soil moisture profile and dry forecast. He believes that the safrinha corn crop could be cut by 10MMT or more. The last time Brazil had similar crop conditions and weather patterns at this point in the season was in the 2016/17, and total corn production fell by 17MMT year-on-year.

Cordonnier also noted that farmers in Brazil are becoming increasingly anxious about an aggressive new corn pest: corn leafhoppers. Climatic conditions and seasonal history leading into 2021 had agronomists predicting the second corn crop would be a target. That is now playing out in many districts, especially with the crop already stressed. The hoppers can transmit the MRFV virus, which causes stunting and premature wilting of the corn plant.

March may have been a down month for corn futures, but it has been one-way traffic ever since, with only two minor red sessions in the December contract this month. The price has rallied from 452½ US cents per bushel (c/bu) on March 30 to be trading at 558 c/bu, as I write. That is a 23.3 per cent increase in the futures price in just 26 days. Since the contract low of 358¼ c/bu exactly one year ago, the price has risen 55.8 per cent. That is some rally!

Where does it end? The Brazilian safrinha crop issue won’t go away, and it could easily be more than 10MMT if the weather pattern doesn’t change for the better very quickly. In a normal year, such a production hiccup would typically be absorbed elsewhere. But we are not in a normal year. Global demand has skyrocketed, with special thanks to China, whose unrelenting buying spree has not as yet been tempered by the higher prices.

This will certainly boost export demand for US corn. The challenge here is that the forecast growth in US production for the 2021/22 season is predicated on a record yield projection of 179.5 bushels per acre (bu/ac). That is a 4.3 per cent increase on the 2020/21 yield of 172 bu/ac. Yes, the area is up slightly year-on-year, but most of that rise is in poorer yielding states in the north with slight decreases in some of the higher-yielding states throughout the corn belt.

Regardless of the production outcome in Brazil and the US, some serious rationing must occur. And it seems that will have to be outside of China. Of course, this has given wheat a whole new lease of life in recent weeks as it will need to be the global feed grain backstop. However, its capacity to fill the entire gap is being challenged of late, with northern hemisphere production issues of its own emerging in parts of the US, Canada, Europe and the Black Sea.

The corn market definitely has a bit of a Martha and The Vandellas flavour at the moment: Nowhere to run to, baby, nowhere to hide!

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

Nigeria’s people to pay for poor government policy…

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Nigeria’s Central Bank took to Twitter last Friday to announce the extraordinary step of cutting off the supply of foreign currency to importers of wheat and sugar. The embattled country is attempting to conserve US dollar reserves amid a domestic recession and spiralling foreign debt.

The Central Bank of Nigeria (CBN) was a big seller of hard currency in foreign exchange markets on Friday, pushing the Nigerian naira to a record 437.62 against the US dollar. And rising food costs continue to be the key driver of inflation, with the annual rate rising 1.6 per cent last month to 22.95 per cent.

The oil-rich nation relies heavily on food and agricultural imports valued at over US$10 billion annually to feed a population that recently soared above the 210 million mark. However, low oil prices and the ongoing COVID-19 lockdown restrictions have stifled Nigeria’s economy and increased borrowings. Revenue from oil and gas exports fund 90 per cent of the country’s annual budget.

Nigeria is Africa’s most populous nation and the continent’s biggest economy. In 2015 the CBN implemented a foreign exchange (FX) restriction list for 41 items it believed could be produced locally instead of imported. The currency controls were designed to ease pressure on the local currency amid a shortage of US dollars but instead led to skyrocketing inflation and further weakened the naira, making imports more expensive in local currency terms.

The list has expanded to 44 items in the ensuing years, with corn added in July 2020. In 2019 the government banned access to foreign exchange for dairy imports in a bid to stimulate domestic production. This infuriated industry groups arguing that domestic milk production was not enough to meet local demand. After months of discussion and protest, the CBN was forced to lift the foreign exchange restrictions in February 2020 for six firms to import milk.

According to the United States Department of Agriculture, Nigeria’s wheat production in the 2020/21 season will be a paltry 60,000 metric tonne. That equates to 1.2 per cent of domestic demand, which is forecast at 4.95 million metric tonne this marketing year. This is despite ten years of collaboration between the government, flour millers and farmers aimed at greatly reducing imports by increasing local wheat production to 50 per cent of domestic demand.

The Nigerian government collects a five per cent tariff on all wheat imports, plus an additional 15 per cent levy, which is earmarked for the national wheat development program. Despite Nigerian millers’ preference for imported wheat, the government is requiring millers to purchase local wheat at a fixed price of US$400 per metric tonne; well above international values.

However, the farmers prefer to sell their limited production to the Sahel countries to the north and non-government organisations (NGOs) who feed displaced citizens in the crisis-torn northern regions of the country where terror group Boko Haram continues to commit atrocities. According to the UN Refugee Agency, violence perpetrated by Boko Haram has affected 26 million people in the Lake Chad region and displaced 2.6 million of them since 2009.

The USDA has Nigeria pencilled in for wheat imports of 5.50 million metric tonne with around 500,000 metric tonne of exports, as wheat flour, to landlocked Sahel countries to the north, namely Niger, Chad and Mali. The import number is up 3 per cent on the previous year and is 18 per cent higher than the 2018/19 season.

With only 50,000 metric tonne of wheat going into domestic livestock rations, that means that 99 per cent, or 4.9 million metric tonne, of Nigerian wheat demand, is for human consumption. Around 70 per cent of the flour milled from wheat goes into food products such as bread, semolina, pasta and other wheat flour products.

Russia, the US., Black Sea exporters, The European Union, Canada and Australia are the major wheat suppliers to Nigeria, with relative prices and sea freight rates determining their market share from season to season. Larger exportable surpluses and lower prices out of the Black Sea region have increased the market share from that part of the world in recent years.

Nevertheless, imports of cheaper wheat from the Baltic states of Latvia and Lithuania have also grown as domestic millers try to reduce the price of flour and increase their profitability. The mills are blending the low-quality Baltic wheat with more expensive, higher quality, Hard Red Winter out of the United States.

Australian milling wheat is also popular with Nigerian manufacturers when prices allow. More than 300,000 metric tonne was exported to the West African nation in 2017 and 60,000 metric tonne was shipped in February this year.

The changing market dynamics have reduced the market share of US origin wheat from a high of 91 per cent of Nigerian imports in the 2010/11 marketing year to just 35 per cent in 2019/20. That said, Nigeria has consistently been either the second or third largest buyer of US wheat since the 2015/16 season, importing between 836,000 metric tonne and 1.09 million metric tonne annually.

Last week’s announcement by the government appears to be one more in a series of ill-thought policies aimed at reforming food production in Nigeria. This season’s wheat harvest is happening right now, and the next crop is not planted until November. The harvested area is estimated to be about 60,000 hectares which is relatively unchanged for the last six years and puts the average yield at just one metric tonne per hectare.

The domestic market cannot possibly react to the government’s new policy and feed the huge population without imports. If the government’s stated goal of 50 per cent self-sufficiency is to be achieved, it would require an additional 2.4 million hectares of land for wheat production using existing agronomic practices. This would mean a reallocation of corn and sorghum hectares, jeopardising Nigeria’s self-sufficiency status for those commodities.

The foreign exchange limit is a desperate move from a government rife with corruption and an abysmal economic management record. The policy will affect almost the entire population, and its people will simply be collateral damage if the policy is implemented. There will be a local reaction, but will it be enough to sway the policy makers?

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

Lower new crop wheat price regime confirmed…

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Global wheat offers have been on a slippery slide over the last month as confidence grows around new crop northern hemisphere production. This is especially the case in the Black Sea region, where early season concerns around dryness and late planting have been placated by favourable winter and early spring conditions.

The results of last week’s tender by Egypt’s General Authority for Supply Commodities (GASC) confirmed the much lower new crop price regime. It also asserted the Black Sea regions eagerness to get back in the game following the export tax confusion that has dominated market talk, and action, in recent months.

The market was quite surprised that Egypt issued a tender so close to their own harvest, which is expected to commence this week. The shipment period was also a surprise as GASC rarely tenders as far out the curve as they did last week. Speculation suggests this demonstrates confidence around domestic production, with the government hoping to procure 3.5 to 4MMT from local growers this season.

When the tender closed last Tuesday, GASC had received around 1.25 million metric tonne (MMT) of offers. There was 400,000 metric tonne of Russian wheat tendered, with all prices falling within a one-dollar range. No French wheat was furnished, but the cheapest offers from Russia, Ukraine and Romania were all within US$1.65 of each other, underlining the competitive nature of the new crop Black Sea market.

The lowest price was Russian origin at US$234 free on board (FOB) which is around US$230 FOB after additional GASC costs are taken into account. Nominally, this equates to around US$209 after the export tax is applied. The variable rate tax is currently set at 70 per cent of export price above US$200 FOB. Who knows what it will be by the time the grain is actually shipped, such is the uncertainty around the Russian government’s market intervention?

GASC ended up buying six cargoes totalling 345,000 metric tonne for August 1-10 shipment, of which five were Russian origin and one will be shipped out of Ukraine. The prices ranged from US$251 to US$252.75, including cost and freight (C&F), with the average price paid coming in at US$252.09/mt. This was US$45.31 cheaper than the average price paid for six Romanian cargoes in their last tender back on March 11 for April 15-25 shipment.

The old crop / new crop market inverse for wheat out of the Black Sea has been evident for some time, and once production concerns eased, new crop prices were always going to decline. However, this is still one of the largest downward moves GASC has witnessed between tenders for many years. It highlights the eagerness of Russian exporters to get some new crop sales on their books, despite the export tax burden and uncertainty.

The Russian Federal State Statistics Service, Rosstat, released its final 2020/21 production numbers last week, calling the national wheat crop a record 85.9MMT. Debate now revolves around the volume of exports, with the USDA raising its estimate by 0.5MMT to 39.5MMT in last week’s WASDE report. Leading agricultural consultancy SovEcon currently has exports pegged at 38.9MMT.

However, both are at the high end of estimates, with some in the trade as low as 35MMT. Either way, 2020/21 carry out stocks will increase compared to the previous season, with the USDA forecasting a 67 per cent increase to 12MMT and others as high as 17MMT. This will obviously add to new crop supplies and potentially increase Russia’s exportable surplus if the production outlook remains favourable through to harvest.

On the new crop front, SovEcon added 1.4MMT to its Russian production forecast last week due to vastly improved crop conditions in the country’s south. The updated estimate of 80.7MMt would be the third-largest crop on record, but it does come with a caveat around production concerns in Russia’s central regions, where crop health is mixed.

Favourable early spring weather and an optimistic forecast for the balance of April has consolidated Ukraine’s new crop wheat production estimate at 26.7MMT. This is smack on the average of the last six years. Even in the driest cropping districts, soil moisture levels are at or above the long-term average, which augurs well for crop development as the spring temperatures begin to rise in the second half of April.

The big sleeper in this whole Black Sea wheat supply equation are the rising tensions between Russia and Ukraine. They have been simmering since the illegal annexation of the Crimean Peninsula in 2014, but there have been several deadly clashes in recent weeks leading to a build-up of troops and tanks on the Russian side of the border.

As Ukraine is geographically divided between Europe and Russia, so too are the people divided; pro-Russian and pro-Western. Pro-Russian separatists also claim control over eastern Ukraine, including the Donbas region, which they have illegally controlled for the past seven years. It is not the impact on production that is a concern. It is the potential disruption to trade flows out of the Black Sea region if the conflict escalates.

The building expectation of a bumper harvest in the Black Sea region is weighing on Australian export prices. Russia is the world’s biggest exporter of wheat and the global export price setter. While Australia enjoys a substantial freight advantage into Southeast Asia, the substantially lower new crop Russian price means Australian export offers have had to adjust lower to compete with the aggressive Black Sea offers.

After enjoying prices in excess of US$300 C&F Indonesia earlier in the marketing campaign for Australian Premium White (APW) wheat, prices are quoted in the US$280 to US$285 C&F range for nearby business. But exporters have to compete with new crop Black Sea offers of US$270 to UD$272 C&F into Indonesia for July/August shipment.

With soil moisture conditions ideal for planting in Western Australia, New South Wales and Queensland, there is already potential for another big Australian crop. This will increase pressure to clear the exportable surplus from last year’s record crop necessitating competitiveness against new crop Black Sea exports in the second half of the year.

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

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