Saudi appears for one last hurrah - updated | Grain Brokers Australia

Posted by | March 26, 2019 | Weekly Commentary | No Comments

Saudi appears for one last hurrah…
After an absence from the market of more than four months, Saudi Arabia’s state grain buyer (SAGO) finally announced a tender to purchase 720,000 metric tonnes (MT) of feed barley for arrival in May and June 2019. There are seeking offers for delivery of 12 panamax cargoes (60,000 MT) over the two month period.
Saudi Arabia is the world’s largest importer of barley, and they have been absent from the market since early November 2018. The reduced global demand has depressed feed barley prices as global trading houses sought alternative homes for exportable surpluses sitting in the European Union (EU), the Black Sea region, Australia and Argentina.
No doubt this market correction was part of the SAGO strategy as Saudi Arabian consumers utilised above average winter pastures and tapped into state reserves to satisfy domestic demand in the interim.
There has also been a shift in the demand profile for feed barley in Saudi Arabia with purchases of finished feed increasing at the expense of feed barley. These rations provide a more nutritional and balanced diet for the Bedouin livestock. This trend also accounts for the increase in corn imports into the kingdom in recent years.
This will most likely be SAGO’s final feed barley tender of the 2018/19 marketing year which concludes at the end of June. This means it will be the last opportunity for exporters to move substantial quantities of barley before new crop Black Sea exports start rolling in late June or early July.
In the end, SAGO booked 730,000MT for May and June arrival at an average price of US$211.86/MT cost and freight (C&F). The origins offered were Argentina, Australia, the United States (US), the EU and the Black Sea region with the successful seller having the option to choose the origin of the barley that they ultimately deliver.
The final tender price was almost US$55 less than what SAGO paid in their last tender. Argentinian export values have been quoted as low as US$185 free on board (FOB) in the last week and that looks like the most likely origin, particularly for the May and early June deliveries. Both the EU and Australia would be too expensive based on recent FOB values.
The SAGO feed barley tenders have a generous delivery grace period. Basically, successful sellers have the option of taking an arrival date penalty of 1 per cent of the price for each week their vessel is delayed. The cumulative maximum penalty is 6 per cent which effectively means the maximum allowable delay under the contract terms is 6 weeks.
The Black Sea crop has been maturing without any issues and warmer than average weather in early March has favoured early maturity of winter crops. With new crop Black Sea quoted at around US$185 FOB, and the freight advantage over Argentina, barley from that region appears to be well in contention for the June arrivals as delivery could be as late as first half July and still be within contract terms.
The big news out of the US last week was the record flooding in the western Corn Belt, including Iowa and Nebraska which are two of the top three corn producers. This early flooding was caused by rapid snowmelt combined with heavy spring rain and late season snowfall in areas where soil moisture is high.
Some major rivers, particularly the Missouri River, have smashed previous flood records by as much as four feet. What’s more, many of the nation’s well-engineered levees have failed to contain the unprecedented floodwaters. In some areas, ice jams in the river system are exacerbating the flooding.
The flooding is causing all sorts of issues with logistics and grain handling infrastructure throughout the Midwest. Many roads and rail lines have been washed out in Iowa, Nebraska and several neighbouring states. The catastrophe has also destroyed grain being held in storage around the region. Some Midwest growers have been hoping to ride out the US-China trade war by holding their corn and soybeans on-farm in silo bags and on pads, and a significant proportion of those stocks have reportedly been destroyed.
The flooding is fuelling market concerns about late planting and reduced acreage, and there doesn’t appear to be any respite from the rain in the near future. The US National Oceanic and Atmospheric Administration have forecast the flooding to persist in the region through to the end of May.
Should this come to fruition it would leave little time to plant a corn crop within the ideal seeding window. In many regions, it is already being compared to the 2013 and 2015 season when 3.6 million acres and 2.4 million acres respectively were enrolled in the very generous prevent planting program.
Prevent plant crop insurance is purchased by US farmers, and subsidised by the federal government, to protect the potential income from acreage that cannot be planted because of flood, drought, or other natural disasters. On average, the federal government subsidises 62 per cent of the farmer premium.
Prevented planting is a failure to plant an insured crop with the proper equipment by the final planting date designated in the insurance policy, or during the late planting period, if applicable. Final planting dates and late planting periods vary by crop and by area. They are set each season by the Risk Management Agency which is part of the United States Department of Agriculture (USDA).
It is still early days, and modern machinery and planting technology enable grain growers to plant their crop quickly and efficiently when small windows present. Whilst the situation certainly requires scrutiny, it is far too early to write down the corn crop, or write up soybean plantings, at this stage of the season.
Corn plantings in the US are forecast at 92 million acres according to the latest USDA estimate. This is a year-on-year increase of 2.9 million acres but still 5.3 million acres lower than the record of 97.3 million acres set in 2012. The USDA has forecast 2019/20 corn ending stocks at 1.75 billion bushels (44.5MMT) and a stocks-to-use ratio of 11.7 per cent.
The ending stocks number is predicated on a resolution to Don’s Party (the US-China trade war) and a significant lift in corn sales in the last quarter of the marketing year. That said, if ending stocks do get down to that number it would mean the tightest US corn balance sheet since the 2013/14 season.
You can always count on a good weather event somewhere at this time of the year to keep the market on its toes!

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