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Global grain markets looking for direction after benign WASDE report…

Posted by | Grain Brokers Australia News, USDA WASDE Report, Weekly Commentary | No Comments

The United States Department of Agriculture (USDA) released their November World Agricultural Supply and Demand Estimates (WASDE) to the market last Friday (Saturday morning down under) and there was nothing to get the trade, or futures markets, too excited.

Chicago Board of Trade (CBOT) December wheat futures closed the week at 510¼ cents per bushel (c/bu), down 2¼ c/bu on the day and down 5¾ c/bu for the week. Wheat futures have been trending downward since a 3-month high of 532¼ c/bu was set on October 18. That equates to a fall of almost AU$12 over the last three weeks.

The December corn futures contract closed last Friday’s trade at 377¼ c/bu, up 2 c/bu on the day but down 12 c/bu for the week. The soybean contract for November closed at 919½ c/bu, down 5½ c/bu on the day and down 4¾ c/bu for the week. Like wheat, both corn and soybean futures have been trending lower in recent weeks and have lost the equivalent of just under AU$12 and just over AU$11 respectively since the highs of mid-October.

The WASDE wheat production numbers were basically a juggling act, the result being a small global increase of around 0.3 million metric tonne (MMT). Australian production was decreased by 0.8MMT to 17.2MMt, similar to last year’s final number. However, this is still around 1.5MMT above many domestic trade estimates, and a further reduction is expected in the next report, due for release on December 10.

Argentine wheat production was decreased by 0.5MMT to 20MMT. Like Australia, this is around 1.5MMT above the most recent estimates emanating from the South American republic. Last season’s production was 19.5MMT. Reaping has commenced in many parts of the country, and the Buenos Aires Grain Exchange called the wheat harvest 7 per cent done compared to 11 per cent at the same time last year.

The United States (US) was the other major wheat producer which saw production fall compared to last month. The USDA pegged 2019/20 production at 52.3MMT, a decrease of 1.1MMT, but still, 1MMT higher than last season.

Planting of the next US winter wheat crop is well underway with 94 per cent expected to be planted by early this week. This compares to 89 per cent last week, 85 per cent last year and 92 per cent on average. Crop ratings are expected to be unchanged week-on-week at 57 per cent good to excellent, versus 51 per cent last year.

On the positive side of the equation, Ukraine, Russia and the European Union (EU) all saw increases to their final wheat numbers for the 2019/20 season compared to the October report. Ukraine production was increased by 0.3MMT to 29MMT. This represents a significant year-on-year increase of 4MMT, or 16 per cent.

The USDA increased Russian production by 1.5MMT to 74MMT. Here again, the USDA appears to be conservative with their revised estimate as local Russian forecasts are around 1-2MMT higher. That said, it is still around 2.3MMT higher than 2018/19 production.

The most significant increase to global wheat numbers in Friday’s WASDE report came in the EU. Production was posted at 153MMT, an increase of 1MMT compared to October and an increase of 16MMT compared to last season. However, the USDA number is 3MMT lower than the most recent European Commission wheat forecast of 156MMT.

In France, the European Union’s biggest wheat producer, planting of the winter wheat crop is delayed by wet weather. The French state grains board, FranceAgrimer, estimates that 67 per cent of the soft wheat crop has been planted, up 13 per cent on the previous week, but still well behind the long term average of 82 per cent.

With global wheat demand remaining static, the washup of all of the production changes was an increase in world ending stocks to a record 288.3MMT, 142.6MMT (49 per cent) of which is held outside of China.

On the barley front, the WASDE report was slightly bullish. The USDA cut Australian production by 0.2MMT to 8.4MMT. While this may be achievable, it appears to be on the high side based on the hard finish experienced in almost all the major barley production regions of the country.

Elsewhere, Argentine production was decreased by 0.1MMT to 4.7MMT (5.1MMT last year), the EU was raised by 0.2MMT to 61.8MMT (55.9MMT last year), and Ukraine was increased by 0.3MMT to 9.5MMT (7.6MMT last year).

The USDA increased global barley demand by 0.8MMT, predominantly in Russia, Ukraine and EU and world ending stocks were decreased by 0.8MMT, mostly in Russia and Saudi Arabia. Australian barley exports were reduced by 0.2MMT to 4.3MMT, and China’s barley imports were cut by 0.2MMT to 6.3MMt (5.5MMT last year).

There were several decreases to global corn supply, but most had already been factored into trade calculations, hence the subdued futures market reaction. US production was down by 3MMT after the yield forecast was decreased to 167 bushels per acre (10.5 metric tonne per hectare). Mexican, Ukraine and EU production were cut by 2MMT, 0.5MMT and 0.2MMT respectively, and Russian was increased by 0.5MMT.

US corn demand was down by 1.2MMT, but world demand was increased by 0.8MMT compared to the last WASDE report. World ending stocks are forecast to decrease by 6.6MMT, predominantly in Brazil, China, EU and the US.

The soybean numbers were quite benign, with global production down by 2.4MMT, mainly in India and Canada, and global demand down by 2.4MMT, primarily in India, China and the United States.

The grain market needs news, and the WASDE report provided nothing that wasn’t already known and factored into global thinking. From a wheat and barley perspective, 2019/20 production is basically known, even though the USDA numbers still need a little tweaking in several key jurisdictions.

A resolution, or otherwise, to trade disputes involving China is a key driver in the near term. The big one, of course, is the US standoff, with Trump seemingly dousing the most recent positive news with his usual Twitter diplomacy.

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

Australian winter crop teetering as it enters spring…

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The annual Pro Farmer Crop Tour was conducted across seven of the most important corn and soybean states in the US last week. The results were released after the markets closed on Friday and, as most market pundits expected, came in lower than the recent USDA production estimates.

This year’s tour had more than 125 scouts representing 12 countries and included farmers, agribusiness experts, media, government and representatives of the financial industry. The scouts sampled around 3000 individual fields along 20 pre-determined routes across Illinois, Indiana, Iowa, Minnesota, Nebraska, Ohio and South Dakota.

Pro Farmer estimates the average US corn yield at 163.3 bushels per acre (bu/ac) or 10.25 metric tonne per hectare (MT/ha). This was 6.2 bu/ac (0.39 MT/ha), or 3.7 per cent lower than the most recent USDA forecast of 169.5 bu/ac (10.64 MH/ha). Total US corn production came in at 13.358 billion bushels, or 339.3 million metric tonne (MMT).
The soybean production estimate came in at 3.497 billion bushels or 95.2MMT. This was based on an average national yield of 46.1 bu/ac (2.89 MT/ha), 4.9 per cent, or 2.4 bu/ac (0.15 MT/ha) lower than the latest USDA mark of 48.5 bu/ac (3.04 MT/ha).

One key observation from the tour was the maturity of the corn crop. Many scouts put it up to three weeks behind the average for this time of the year in the regions worst affected by the delayed sowing. The eastern reaches of the corn belt were the worst affected, but the crop certainly improved in quality and maturity as the tour moved west.
The forecast for cooler weather in coming weeks will slow the maturity of the crop even more. With autumn fast approaching, the days are getting shorter, and the average daily temperatures are on the decline. This raises the concern of early frosts and the potential impact on final yields.

Here in Australia, spring is almost upon us. As the days get longer and average day temperatures increase the evapotranspiration rate of each plant rises significantly, increasing moisture demand of the maturing crop. The possibility of frost also becomes a significant production risk as the crop moves into its reproductive phase.

Rainfall last week has continued the hand-to-mouth pattern evident across most of Victoria, South Australia and Western Australia this season. The falls were generally less than 10mm with most of the more marginal cropping regions receiving less than 5mm. New South Wales didn’t fare as well with some minor falls limited to districts south of the Murrumbidgee River. Central New South Wales, northern New South Wales and all of the Queensland cropping areas received absolutely nothing.

Victoria is the pick of the states at the moment, with forecasts suggesting average to slightly above average production. All but the north-west corner has received at least 25mm of rainfall so far this month. That said, the picture is not uniform across the entire state. There are parts of the Western Districts that are too wet and conversely a significant portion of the Mallee is starting to struggle due to lack of in-crop rainfall.

In South Australia, it is also a tale of two stories. The South East, lower Mid-North, lower Yorke Peninsula and the lower Eyre Peninsula are all tracking along quite nicely, but the more northern production areas have only been catching the edge of each change and have been struggling for almost the entire season.
Primary Industries and Regions South Australia (PIRSA) released their latest crop estimates last week with the wheat crop currently estimated at 4.8MMT and barley at 2.2MMT. This would appear to be extremely optimistic based on the current state of the crop.

In Western Australia, most grain growers are in the game but, overall, the crop is running around three weeks behind average. The crop went in on time, but most of it was dry sown. The break didn’t come until late in the first week of June, so germination was delayed accordingly. Canola appears to have lost the most potential with poor germination in many paddocks and flowering running very late, especially in the Kwinana and Geraldton zones.

Southern New South Wales is starting to feel the pinch. Most of the crop south of a horizontal line through West Wyalong was planted, but rainfall registrations in most regions have been well below average through July and August. The crops in many areas are showing signs of stress and production potential is falling quickly.
Save for a few isolated areas, crop prospects in New South Wales north of that line are a disaster. Much of central and northern New South Wales have had less rainfall year-to-date than at the same time in 2018. Southern Queensland is no better. Less than 30 per cent of the crop was planted, and less than half of that still has some prospect of harvesting more than next years seed requirements, assuming adequate spring rainfall is forthcoming.

The big outlier across the entire country this year is the size of the area that will be cut for hay. In Western Australia, livestock producers have been forced to feed for a much longer period this year as the break came late and ensuing pasture growth was slow. Reserves have been depleted as a result and growers will be looking to restock.

The situation in the eastern states is far more dire. It was dry across all eastern states last year, and hay stocks were not replenished last spring. Back-to-back droughts in central and northern New South Wales and southern Queensland has sustained hay prices at extremely high levels for an unprecedented length of time.

For those doing the calculations, the high prices are certainly providing a significant incentive in many regions to minimise production risk by cutting their crops for hay rather than carrying through to harvest. This is especially the case where the crops are already under moisture stress and potential grain production is decreasing.

The entire Australian winter crop area is currently behind the eight ball in terms of year-to-date rainfall. While the drought area on the east coast is currently less than what it was last year, much lower production prospects in Western Australia and high demand for hay across the entire country means that above-average rainfall and a kind spring will be required to ensure that this season’s domestic winter crop production exceeds that of 2018/19.

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

USDA corn numbers don’t lie! Or do they?

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The global grain markets were rocked last week when the United States Department of Agriculture (USDA) amended this season’s US corn production estimates, printing yield and area numbers much higher than the trade had expected.

The latest monthly World Agricultural Supply and Demand Estimates (WASDE) report was released on Monday of last week (Tuesday morning Aussie time) and it was generally expected to have a few surprises. Yet, an increase in corn production was the complete antithesis to industry wide projections.

The USDA decreased the corn area by a meagre 690,000 hectares to 36.42 million hectares. This area was far higher than the average trade estimate of 35.5 million hectares. The higher than expected area was a big surprise, but not as big as the increase in yield from 10.42 metric tonne per hectare (MT/ha) to 10.64MT/ha.

It is widely accepted that the corn crop was planted under less than optimal conditions, and it has not been a walk in the park for the developing crop since planting. If that is the case, it is difficult to swallow a projected yield that is only 4.5 per cent below the long-term average.

The net effect of the USDA changes was an increase in total corn production from 352.4 million metric tonne (MMT) to 353.1MMT when the average trade estimate had total production decreasing to 335.1MMT. Consequently, many don’t believe the USDA numbers and are expecting gradual downward revisions in coming months.
Maybe the Market Facilitation Program, designed to assist farmers affected by tariffs and reduced exports, provided a bigger than necessary incentive for farmers to plant regardless of the chances of crop success. But the prevent plant numbers (also released early last week) do not support that notion.

US farmers reported they were not able to plant crops on more than 7.9 million hectares this year. This is the highest prevent plant area reported since the Farm Service Agency (FSA) began releasing their report in 2007. It is also 7.08 million hectares more than was reported at the same time last year.

There is a saying that says numbers don’t lie, but these don’t seem to make sense. Corn made up more than 58 per cent of the prevent plant area or 4.53 million hectares. If you add that to the latest WASDE seeded area, it comes to a total of 40.95 million hectares.

This is 9 per cent higher than the 37.55 million hectares the USDA expected farmers to allocate to corn production in their May update, before the seeding program commenced. It is also be more than 5 million hectares above the previous record corn area.

US corn futures took a shellacking as soon as the WASDE report was released. The nearby contract was very quickly limit down (25 cents per bushel) and, despite a small rally on Friday, was down 8.8 per cent across the week. That represents the biggest weekly fall since June 2016.

The market has essentially fallen back to early May values, but production has fallen 29MMT and ending stocks are down by almost 8MMT over the same period.
The speculators in the corn market have had a rough time. They had a significant short position at the beginning of May. They lost money when the market rallied as planting conditions rapidly deteriorated. They spun around and went long only to get stopped out last week back near contract lows.

Where to from here? The market has lost around 100 US cents per bushel in the last eight weeks. Maybe it has done enough for now? With substantial scepticism around the high USDA numbers, the final disposition of the corn crop and the weather from here through to harvest, it would seem logical that a modest risk premium would be justified.
Wheat took a back seat to corn in the aftermath of last week’s WASDE report, but there were some significant revisions to global production. The production declines were led by Turkey, where a lower harvested area and poor yields led to a 2MMT reduction in output.

The USDA trimmed production in the European Union by only 1.3MMT to 150MMT, with the dry, sweltering June conditions having a much smaller impact than had initially been anticipated.
In the Black Sea region, Russian production was lowered by 1.2MMT to 73MMT, a far cry from the 80MMT being spruiked just a few months ago. The Kazakhstan wheat crop was reduced by 1MMT to 13MMT, but Ukraine bucked the regional trend with a 0.2MMT increase in production.

The picture in the Americas was positive, with US production increased by 1.6MMT to 53.9MT. Down in Argentina, the season continues to improve with another upward revision of 0.5MMT to 20.5MMT. Nevertheless, this is lower than the most recent Buenos Aires Grain Exchange estimate of 21.5MMT.

Australian production was left unchanged at 21MMT. Rainfall across much of the Western Australian, South Australian and Victorian production areas in the first half of August is keeping the crop ticking along, but we still need more rain and a kind spring to avoid a downward revision to production before harvest.

The overall impact of the revisions to global wheat production was a decrease of 3.4MMT from 771.5MMT to 768.1MMT. The key point here is that despite the decline, global production is still up by 37.5MMT year-on-year, carry-out is healthy at 285.4MMT, and the stocks-to-use ratio of 37.6 per cent is running at a historically high level.
Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.

Egypt’s demand for wheat and corn is growing…

Egypt’s demand for wheat and corn is growing…

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Egypt’s demand for wheat and corn is growing…

Population growth and increased feed grain requirements are expected to drive up Egypt’s demand for wheat and corn in the 2019/20 marketing year, which ends in June 2020.

Egypt is the most populous country in the Arab World, and it is also the largest importer of wheat globally. Wheat has been a critical element of the typical Egyptian diet for centuries, and per capita consumption is amongst the highest on the planet. Wheat represents almost 10 per cent of the total value of agricultural production and about 20 per cent of all agricultural imports.

With more than 25 per cent of the population living at or under the poverty line, the government’s wheat policy is critical in assuring the food security of all citizens. A central component of government policy in this regard is the provision of low-priced bread to the population. This is accomplished through a number of subsidies at the different stages of the value chain: from subsidised inputs such as fertilisers to subsidies on the price of the final product, a flatbread called Baladi.

Under the Egyptian ration card system, around 80 per cent of the population, or 65 million Egyptians can purchase Baladi at a heavily subsidised price of 5 piastres ($A0.005) per loaf. This price has been fixed since 1989 and is a fraction of the current free-market price of around 65 piastres ($A0.06) per loaf.

One of the biggest challenges for the government moving forward is funding the ration card system. A weaker currency, growing population and high world wheat prices have pushed the cost of the program up significantly over the past decade. Reform of the scheme is a top priority for the government; however, a strong sense of entitlement means it is an extremely politically sensitive process.

An added complication is the government is the primary purchaser of all domestically produced wheat. To encourage farmers to plant wheat over alternative cash crops each season it pays an artificially high procurement price which tends to distort farmer crop rotations and reduces farm efficiency.

The principal wheat and corn production areas in Egypt are the Nile Delta region, along the banks of the Nile south of the delta, and in several newly reclaimed agricultural areas. Landholdings are very small, with 90 per cent of them being smaller than 1.3 hectares.

Nonetheless, constant irrigation, adoption of raised beds, a climate that favours an irrigated production system, fertile soils and new varieties that are heat tolerant and consume less water mean the average yields are quite high.

This season’s wheat production is forecast at 8.77 million metric tonne (MMT), up around 3.8 per cent on the 8.45MMT produced in the 2018/19 season. The harvest area is expected to be around 1.37 million hectares, resulting in an average yield of 6.4 metric tonne per hectare.

Egyptian wheat consumption is forecast at 20.4MMT in the 2019/20 marketing year, up from 20.1MMT the previous year. Increases are forecast in all three sectors, food, seed and industrial use. The rise in domestic demand is primarily attributable to population growth, which is running at around 2.4 per cent per annum. The population of Egypt ticked above the 100 million mark earlier this year.

Egypt’s wheat imports for the 2019/20 marketing year are forecast at 12.5MMT, with the General Authority for Supply Commodities (GASC) the primary purchaser. In the 2018/19 marketing year, it issued 26 tenders and imported 6.49 MMT of milling wheat.

In last week’s tender GASC purchased 240,000 metric tonne of Russian wheat and 60,000 metric tonne of French wheat for October 28 to November 5 shipment. On a FOB basis, the French wheat was offered cheaper than the Russian as the European Union’s major cereal producer works hard to shift excess stocks following a bumper harvest. However, at US$214.95 C&F, it ended up being US$1.15 more expensive than the Russian offer on a delivered basis due to additional freight costs.

GASC also purchased 180,000 metric tonne of Russian wheat the previous week for US$211 C&F. That is US$2.80 lower than last week’s Russian offers. Black Sea FOB values have been edging higher in recent weeks so maybe the season lows are behind us; only time will tell.

Indeed, the spate of wheat tenders in recent weeks suggests global consumers see more upside in this market than downside and are eager to take some risk off the table at current values.

Over the last six marketing years, GASC’s largest foreign suppliers have been Russia (17.49 MMT) and Romania (7.02 MMT), followed by France (4.14 MMT), Ukraine (3.05 MMT) and the United States (1.17 MMT).

On the corn front, Egypt’s 20919/20 season production is forecast at 6.4MMT off a harvested area of 800,0000 hectares. While the yield of 8 metric tonne per hectare remains constant, the production and harvested area are down from 6.8MMT and 850,000 hectares respectively the previous season. The decrease is due to increased plantings of rice at the expense of corn.

Corn consumption is expected to jump 4.3 per cent, to 16,9MMT, on the back of increased demand in the country’s poultry, dairy, and aquaculture sectors. Poultry demand is forecast to expand 2-3 per cent annually as the Ministry of Agriculture and Land Reclamation provides land and incentives for increased investment in the sector.

The dairy industry is also seeing significant investment, experiencing a growth rate of 3 per cent per annum in recent years. The sector is automating rapidly, driven by increased demand for fresh and refrigerated dairy products.

Higher corn demand means higher imports and they are forecast to increase by 3 per cent year-on-year to 10MMT. This is up from 9.7MMT in the 2018/19 marketing year and 9.5MMT the previous year.

From an Australian viewpoint, increasing demand for grain, wheat in particular, through the Middle East, Africa and Europe should mean that Russia will have less wheat to ship to traditional Australian markets in Asia. That said, the Australian wheat crop is getting smaller every day, and current export values are far too high to buy back lost demand.

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

Weekly Report 2/1/16

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CORN/BARLEY

In a subdued finish to 2015 corn hit new contract lows of US$3.57 during the week.

March 16 CBOT corn futures closed lower at US$3.58 per bushel down 6.8 Usc/bu for the week.

To avoid national shortages and to slow down rising prices, India will import 0.5Mt of duty free corn, the country’s first overseas imports in 16 years. For the second year in a row, severe drought in India has hindered domestic output. India traditionally is a major exporter of corn to Southeast Asia. The switch in the country’s position could give more trade to other large corn exporters such as US, Brazil and Argentina.

Severe drought conditions currently persist in South Africa is raising concerns, they may have to import corn as early as May if conditions do not improve.

BEANS/CANOLA

Chicago May-16 soybean prices closed at 865.6 USc/bu, down 15Usc/bu in comparison to the previous week.

The condition of Ukraine’s winter rapeseed crop was little changed in the week ending 24 December. A marginal improvement (of 0.4% week-on-week), took the proportion of the crop rated good/satisfactory to 68.6%, down from 80.4% at the same point in time last year.

One of the watch points for oilseed markets over the last week has been the impact of improved weather in Brazil. While dryness remains widespread throughout stretches of northern and north-western Brazil, rains over the last week have helped to improve soil moisture. This has led to pressure for US soybean prices. However, additional rains are still needed to curb dryness in key growing regions.

To read the full report please click the below link.

Weekly Report 16_01_02

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