Exports Archives | Grain Brokers Australia

Chinese economy faltering as Don’s Party rolls on…

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News that a Chinese trade delegation had cancelled this week’s planned visit to farms in the states of Montana and Nebraska has put a dampener on the upcoming US-China trade negotiations. The delegation reportedly headed back to Beijing earlier than scheduled after mid-level talks wound up in Washington late last week.
The delegation was involved in preliminary trade talks with US officials to find a resolution to the ongoing trade war (Don’s Party) ahead of cabinet-level negotiations which are scheduled to take place in Washington in October. Their early departure has raised doubts about a possible breakthrough and sent US soybean futures more than 1 per cent lower in Friday’s trade.

High hopes were set for last week’s trade talks in Washington, which came after both sides softened trade tensions earlier this month with gestures such as tariff exemptions and delays. China purchased 600,000 metric tonne of US soybeans the previous week and said it would exempt American pork and soybeans from additional tariffs, taking effect this month, as a sign of goodwill heading into the talks.

The plan for the farm visit was only announced a few days earlier and the sudden change of plans appears to have come on the back of comments from US President Donald Trump (The Don) saying that he wanted a complete trade deal with the Asian nation, not just an agreement from China to buy more agricultural goods from the United States.
But both sides moved quickly over the weekend to indicate that the negotiations will continue, and that high level talks pencilled in for October would still proceed. The two countries agreed to keep communicating on related issues and discuss the details of the next round of trade talks.

Negotiators on both sides have continued to look for an avenue to resolve their differences as tensions ratcheted up a notch or two over the northern summer. Both the US and China want to see a resolution to the long running dispute, particularly with the United States heading into elections in 2020.

However, plentiful global grain supplies and declining Chinese demand has dulled their appetite for imports. Overall feed grain demand in China is expected to decline amid substantially lower domestic swine inventories due to the continuing African Swine Flu epidemic.

It seems that the biggest hurdle facing negotiators on both sides may be agreeing on the scale and ambition of any deal they try to formalise. China wants to agree on a partial deal that would head off Washington’s planned tariff increases on Chinese imports in October. ‘The Don’ clearly wants a far more comprehensive deal.

US soybean exports have been the hardest hit by Trump’s brinkmanship and the Brazilian farmer has been the biggest beneficiary. One of the best barometers of the degree of tension surrounding US-China trade negotiations this year has been port price premiums paid for Brazilian soybeans over US soybeans. When the tensions escalate, premiums develop at the Brazilian port of Paranagua over US Gulf ports. Similarly, when tensions diminish the premiums slowly fade.

These price premiums have risen and fallen within the context of global price movements that have centred on the progress of the 2019 US crop. Prices rose in both Brazil and the US as the early season wet conditions hindered corn and soybean planting in the US and high water levels in the Mississippi River raised the cost of moving old crop soybeans to US Gulf ports. As conditions have improved over the past couple of months, prices of both Brazilian and US soybeans have trended lower.

The rise and fall of the Brazilian export premium correlates directly with the rise and fall of trade tensions. In May this year, the US announced plans to raise tariffs on $200 billion of Chinese products from 10 to 25 per cent. Brazilian soybeans moved to a 7 per cent premium over US soybeans as a result. The premium gradually fell back to around 1 per cent by late July. However, a new round of tariff hikes that took effect on September 1 pushed Brazilian premiums up again to almost 10 per cent.

The concern for Australia is that any deepening of the trade impasse will potentially weaken an already vulnerable Australian economy. The trade crisis comes amid a weakened domestic housing market and stifled economic growth. The health of the Australian and Chinese economies is intricately linked. Our agricultural exports, mining exports, tourism exports and education exports all depend heavily on China.

As Don’s Party rolls on endlessly, China is beginning to admit its traditionally high rates of growth are in jeopardy. And the latest numbers tell the story. Industrial production growth fell to 4.4 per cent in August, its lowest in 17 years. Growth in retail sales also fell last month to 7.5 per cent. A lofty number by Australian standards but much lower than the 10 per cent growth consistently seen over the last ten years.

Beijing is now saying that it will be very difficult to grow at 6 per cent this year, well below the numbers seen in the years since the global financial crisis. If Chinese growth continues to decline it will undoubtedly be reflected in demand for Australian goods and will have countless flow on effects across the domestic economy.
The best result for all concerned, including Australia, would be a swift resolution to the standoff. No doubt this is front of mind for Prime Minister Scott Morrison as he tours the United States and meets with The Don.

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

US-China trade war is now a love fest…

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World grain markets trod water early last week ahead of Thursday’s release of the October World Agricultural Supply and Demand Estimates (WASDE). Ramifications of same were quickly forgotten after the announcement on Friday (Saturday morning Aussie time) of an interim trade pact between China and the United States (US).

US futures were a sea of red on Thursday following the release of the WASDE report, with CBOT wheat, corn and soybeans closing down 9 cents per bushel (c/bu), 14¼ c/bu and 1¼ c/bu respectively. That all turned around on Friday after news of the trade deal broke with wheat up 16 ½ c/bu, corn gaining 18 c/bu and soybeans up 10¾ c/bu.

The Friday action was predominantly fund buying as they scrambled to cover their shorts. They are reported to have purchased 40,000 contracts of corn, 15,000 contracts soybeans and 10,000 contracts of wheat. This equates to 5MMT, 2MMT and 1.4MMT of corn, soybeans and wheat respectively. Not bad for a day’s work!

Political pressure had been mounting for both leaders to reach a compromise after economic headwinds had struck both economies in recent months. It also came at a time when both leaders were trying to deflect attention away from domestic issues; impeachment for Trump and unrest in Hong Kong for Xi Jinping.

Trump had been holding out for a comprehensive deal that addressed a range of concerns around Beijing’s management of its economy. The Chinese negotiators were equally resilient, responding to US threats of increased tariffs with new measures of their own and refusing to include many of the US concerns in negotiations.

In the end, it seems that they have settled on an interim agreement that involves China buying more US agricultural products and undertaking several minor measures to open up its economy in exchange for the United States waiving the planned tariff increase set to take effect this week.

According to President Trump, the agreement was going to be great for both countries and was “a great deal for world peace. You know there was a lot of friction between the United States and China, and now it’s a love fest.”

He said that Beijing had agreed to buy $40-50 billion worth of US agricultural products which was a massive win for the US farmer. With the summer crop harvest ramping up in the US at the moment it will certainly be welcome news across the US corn belt, a key area for Trump in his run for re-election in 2020.

With the details of the pact yet to be inked, the biggest concern, for now, is how long the renewed affections will last and whether the deal will ever be consummated.

Meanwhile, there were a few surprises in the United States Department of Agriculture (USDA) October WASDE numbers compared to the previous month. The corn yield was raised slightly from 168.2 bushels per acre (bu/ac) to 168.4 bu/ac. It may have been quite a minor increase, but the trade was expecting a decrease of as much as 3 bu/ac. The USDA did cut the expected harvested area by 200,000 acres leading to a fall in US production of 0.5MMT.

Global production was decreased by 1 million metric tonne to 1.104MMT with non-China production decreasing by the same amount to 850MMT. Ending stocks were up in Brazil and Mexico and down in the US and Ukraine. The net effect was a fall of almost 4MMT in global and non-China ending stocks to 303MMT and 107MMT, respectively.

On the soybean front, the USDA reduced the expected harvested area by 300,000 acres to 76.5 million acres and cut the forecast yield from 47.9 bu/ac to 46.9 bu/ac. This led to a decrease in US production of 2.25MMT compared to the September estimate. Production in all other major production jurisdictions remained the same month-on-month resulting in a global number of 339MMT.

Soybean ending stocks were reduced in the US by almost 5MMT. This was partially offset by increases in both Argentina and Brazil culminating in a net fall of 4MMT to just over 95MMT globally.

World wheat production was virtually unchanged at 765MMT, but the numbers for several of the major producers are questionable. The USDA reduced the Australian crop by 1MMT but still have us pencilled in for 18MMT. The crop in Australia is suffering big time at the moment, and anything above 16MMT would be a miracle.

Argentinian wheat production was left unchanged at 20.5MMT. However, the season has taken a turn for the worst in many areas with drought conditions expected to have a significant impact on final yields. The provinces of Cordoba, La Pampa and the west and south of Buenos Aires province are in serious need of rain to arrest the decline.

The Buenos Aires Grain Exchange have reduced their production estimate from 21MMT to 19.8MMT and called the wheat crop 23 per cent good /excellent, against 30 per cent last week and 37 per cent last year. The Rosario Grain Exchange have also cut their estimate by 1.5MMT to 20MMT. However, private forecasters are saying wheat production could already be less than 19MMT.

The biggest swinger in the world wheat space could be Russia. The USDA left production unchanged at 72.5MMT, but Russia’s Agriculture Ministry put production at 75.6MMT with 1-1.5 million hectares still to harvest. That means that the early season forecasts of a 78MMT Russian wheat crop is highly possible.

This all means that the world wheat balance sheet is burdensome. Production is 30MMt higher than last year, projected global demand has fallen by 8MMT since the June WASDE report, forecast exports have dropped 6MMT over the same period, and world ending stocks are now expected to be 4MMT higher year-on-year. Competition from the major exporters is increasing, but world stocks continue to grow.

Wheat is lacking a significant demand driver at the moment, and the overall landscape is only likely to change if there is a significant weather event to disrupt supply or a political event that interrupts traditional trade flows.

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

Australia losing relevance as a global wheat exporter…

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The Australian Bureau of Statistics released their July export data last week and the grain numbers undoubtedly reflect the effects of last year’s drought and the many dilemmas for Australian exporters this year.

Wheat exports for July came in at 737,000 metric tonne (MT). This was up from the June number of just 585,000MT but well down on the 1.227 million metric tonne (MMT) exported in May, the biggest wheat export month of the current marketing season (October 2018 to August 2019).

Not surprisingly, Western Australia and South Australia accounted for almost the entire volume, shipping 494,000MT and 216,000MT respectively. The balance of 27,000MT were container shipments from east coast (Queensland, New South Wales and Victorian) ports.

In terms of destinations, Yemen, Vietnam and Japan were the biggest in July taking 113,000MT, 109,000MT and 83,000MT respectively. In June it was the Philippines, followed by South Korea and Japan with 216,000MT, 86,000MT and 81,000MT respectively.

Year-to-date wheat exports now stand 7.457MMT with 57 per cent, or 5.286MMT, shipped in the January 2019 to June 2019 window. Western Australia made up the lion’s share of Australia’s wheat production last year, and at a pinch under 6MMT, the state accounts for more than 80 per cent of national wheat exports this season.

South Australian wheat shipments stand at 1.102MMT since the beginning of October last year or around 15 per cent of national wheat exports. Total east coast wheat exports for the marketing year stand at just 355,000MT. The majority of that volume went out in containers, with Victoria accounting for 194,000MT, New South Wales 102,000MT and Queensland 60,000MT.

Exports of barley in July totalled 209,000MT, almost double the June shipments 113,000MT, with Western Australia making up more than 99 per cent of that volume. Malting barley made up 39 per cent of the July exports, and feed barley made up 61 per cent.

Japan was the biggest importer of Australia barley in July with 105,000MT shipped, followed by China at 62,000MT. This was the opposite of June, where China was the primary destination at 53,000MT, followed by Japan on 51,000MT.

Total exports of barley for the 2018/19 marketing year stand at a healthy 3.459MMT. December 2018 is the biggest month thus far at 1.107MMT, more than double the next closest month. The split between malting barley and feed barley is almost equal with 1.751MMT exported as malting and 1.708MMT exported as feed.

Western Australia has exported 3.143MMT of barley this season, almost 91 per cent of total Australian barley exports. At 279,000MT South Australian exports make up most of the balance, and Victoria has chimed in with 37,000MT of containerised trade.

Interestingly, China has been the biggest destination for Australia barley in the October 2018 to July 2019 window. They have taken 2.231MMT, or almost 71 per cent of total Australian barley trade to international clients. This is despite the ongoing anti-dumping investigation, which appears no closer to a resolution.

The investigation commenced in November last year, and the final decision of the twelve-month inquiry is due in November this year. However, Beijing can extend the investigation by a further six months, to May 2020, if they feel it is required.

While the potential outcomes remain uncertain, it appears that the Chinese government have their hands full on other fronts and are happy to let market speculation and confusion reign in the Australian market until a decision is announced.

On the canola front, July exports totalled 39,000MT, with one 33,000MT cargo loaded out of Western Australia and small parcels of container business out of both Victoria and South Australia.

Marketing season canola exports currently total 1.447MMT, with 79 per cent shipped from Western Australian ports and 14 per cent from South Australian ports. The balance of 7 per cent or 95,000MT were exported from Victoria with one bulk vessel in March and the rest via container trade across the season.

With a run of poor sorghum crops in northern New South Wales and Queensland, sorghum exports total a paltry 62,000MT for the first ten months of the marketing season. This is well behind last year and a long way short of the record 1.6MMT exported in 2013/14.

Last year may have been bad, but this season’s production outlook is not looking any better as the late winter dry continues into the spring. There are good pockets in most states, but widespread rains are required now, and then follow up falls for at least the next month to arrest the deterioration.

Australia has lost significant market share and relevance as a global wheat exporter as a result of last year’s drought and the considerable fall in the continent’s exportable surplus. A repeat of last year is a free leg up for the likes of Argentina and the Black Sea origins who have filled the void into Australia’s traditional Asian wheat consumers.

We have even seen export values out of both regions fall in recent weeks as the plight of the 2019 Australian harvest gets factored into global supply and demand calculations. One thing is for sure, winning back that business in the face of similar competition will not be easy when Australian production recovers.

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

The small Australia crop is quickly getting smaller…

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Last year’s Australian winter crop production was the lowest in more than a decade after drought in the eastern states cut production to well under that required for domestic demand.

However, prospects for the 2019/20 season in Australia are now worse as the unseasonably dry August and September extends into October, sapping the early season yield potential and bringing crops to harvest much earlier than usual in many regions.
According to the latest Bureau of Meteorology climate update, rainfall is likely to be below average across most of the country for the remainder of 2019, with high chances of a drier than average October and November in particular.

They predict that daytime temperatures are very likely to be above average across Australia for the remainder of the year with a spell of hot weather likely in early October. These are precisely the conditions experienced in many districts over much of the last week, and this will hasten the ripening process in many regions.
The BOM expects that night-time temperatures will generally be warmer than normal and that a positive Indian Ocean Dipole (IOD) is highly likely to remain the dominant climate driver until at least the end of spring.

This gloomy outlook does not bode well for some late yield relief, and further reductions in production estimates are highly likely as the remaining crop moves swiftly toward harvest. Soil moisture levels have been below average across most of Australia’s farming area for most of the year, and the crop in many regions has simply run out of gas.
This fate has been borne out in the area that has already been dropped for hay, across all states. And the warm weather over the last week will no doubt force growers to a make further assessment of the yield prospects on crops still standing and weigh that up against potential returns being offered by an extremely buoyant hay market.
Production estimates are always a moving target, and this is no more apparent than in the current season. There is a wide variation in production estimates being tossed up by the trade and market analysts, but one thing is undoubtedly common for them all, it will be less tomorrow.

In late September I was thinking national wheat and barley production were around 16.50 million metric tonne (MMT) and 8MMT respectively. One week into October and I struggle to get the wheat crop above 15.75 MMT and the barley crop above 7.75MMT, such is the decline in the very short period of time. Falling production in both South Australia and Western Australia over the past few weeks have been the biggest contributors to that decrease.

So how will this affect trade flow over the next twelve months? Like last season, the market will be driven by the requirements of the domestic consumer. As national production decreases the exportable surplus will decrease, and any need to be competitive into Asia for anything but inelastic Australian demand will diminish accordingly.
In the 2018/19 season demand for grain in Queensland, New South Wales and Victoria far outstripped supply. This resulted in around 3.4MMT of grain, primarily wheat and barley, being shipped around the coast from ports in South Australia and Western Australia to eastern state ports. This was supplemented by around 300,000 metric tonne of rail movements and at as much as 500,000 metric tonne of road movements to east coast consumers.

In addition, the east coast supply deficit paved the way for the approval of milling wheat imports from Canada. The grain was shipped into Port Kembla and then taken by train to Manildra’s Shoalhaven starches facility at Nowra, a distance of around 70 kilometres.

While national production will be down year-on-year, the production landscape has changed. Total wheat and barley production in Western Australia will be down by as much as 5MMT and production of the same grains in the eastern states (including South Australia) will be up by around 3.0MMT, based on the aforementioned production estimates.
Demand tributary to the ports of Brisbane and Newcastle will be heavily reliant on coastal movements from Western Australia and South Australia, supplemented by rail and road movements from Victoria and South Australia. Manildra will continue to buy locally and has already booked more shipments out of Canada to meet their quality requirements.
How the trade reacts at harvest will be the most interesting market dynamic. With drought on the east coast last year many bought up big at harvest believing ownership would be king, only to see cash prices and basis drop dramatically in early 2019.

One would expect their approach to be a little more measured this harvest, especially with Western Australian values currently well above export parity and the delivered Queensland markets priced at, or close to, full execution from the west.

For the eastern state grower, it will be all about capturing the domestic premiums without taking on an undue amount of counterparty risk. This means that the highest price may not always be the best price. Many Victorian, New South Wales and Queensland producers will have existing end-user relationships and cash flow will be generated by selling into the domestic market direct off the header and then filling on-farm storages.

South Australia will be a little different. Pricing for the Eyre Peninsula and the Yorke Peninsula growers will be focussed on coastal movements through the ports to New South Wales and Queensland. The Adelaide zone grower may find an incentive to truck their production east. Better prices may be found at silos in Victoria or even New South Wales than at the local silo, especially at harvest time.

It may seem a long way to go, but from the right locations, the higher price should more than make up for the additional freight cost. If the grower doesn’t move the grain east, the trade will, so it is definitely worth doing the analysis and banking the spread if it is available. Better still, let your trusty grain broker point you in the right direction.
Agricultural production globally is at the whim of the weather. The one thing we do know is that drought-breaking rains in Australia are a day closer. In the meantime, the relatively small Australian crop is quickly getting smaller.

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

Mixed fortunes for Canadian farmers…

Mixed fortunes for Canadian farmers…

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The first official Canadian crop estimates for the 2019/20 crop year were released last Wednesday by Statistics Canada, the national statistical office. Surveys of more than 13,100 farmers were conducted between July 4 and August 5 and farmers were asked to report their estimated area, yield and production of grains, oilseeds and special crops.

Adverse seasonal conditions have been blamed for a fall in production of wheat, soybeans and corn with either wet and cold weather in the east, or hot and dry weather in the west, taking its toll on anticipated production.

Total wheat production is expected to fall by 2.9 per cent, or 950,000 metric tonne, to 31.25 million metric tonne (MMT) compared to the 2018/19 season. However, this still comes in at 880,000 metric tonne, or 2.9 per cent higher than the five-year average. The fall is on the back of a 1.1 per cent decline in harvested area and a 2.1 per cent decline in anticipated yield to 47.5 bushels per acre (3.19 metric tonne per hectare).

Breaking the total wheat number down, spring wheat production is expected to be the largest crop in six years, up 1.17MMT (4.9 per cent) to 25.11MMT. Countering that increase is a 23.1 per cent decline in Durum wheat production to 4.42MMT and a 31.4 per cent fall in winter wheat production to 1.72MMT.

At 18.45MMT, Canada’s canola production is expected to be the lowest in four years and 3.9 per cent below the five-year average. This is a fall of 9.3 per cent, or 1.89MMT, compared to last season and was almost 1MMT below trade expectations. The main contributor to this drop was an 8.2 per cent tumble in seeded acres as farmers reacted to the ongoing trade dispute with China.

In the row crop sector, soybean yields are expected to fall by 5.4 per cent to 40.2 bushels per acre (2.70 metric tonne per hectare). The harvest area is expected to decline by 9.7 per cent to 2.3 million hectares leading to a production decline of 14.6 per cent to around 6.2MMT.

An anticipated increase in the corn area of 1.5 million hectares will not be enough to counter a 4.1 per cent decrease in estimated yield. Final production is forecast at 13.6MMT, a year-on-year reduction of 2 per cent and the lowest in five years. The culprit was cold, wet weather across the major producing areas at seeding time leading to a delayed planting and poor germination.

The big winner out of the decreased canola area is barley, with Statistics Canada expecting a 12.8% increase in harvested area to 2.71 million hectares. At this stage in the season, barley yields are estimated to average 66.4 bushels per acre (3.57 metric tonne per hectare), 2.2 per cent higher than last season. The upshot is a substantial increase in production this season to 9.64MMT, the highest since 2013.

Oats is a minnow in the global cereal picture. Nonetheless, Canada is a significant producer. Production is forecast to increase to 3.95MMT based on a 15.2 per cent increase in the area expected to be carried through to harvest. The actual seeded area came in at 1.46 million hectares, but only 79.4 per cent of the crop will be harvested according to Statistics Canada, with the balance either grazed out or cut for hay and silage.

It has been a grim year for Canadian farmers, as canola exports bore the brunt of the trade stoush with China. Earlier this year China halted imports of Canadian canola, citing pests in some shipments. Canada is the number one producer and exporter of canola in the world. Since the turn of the century, China has grown from a relatively minor market for canola to the world’s biggest importer.

The importance of canola to Canadian agriculture has expanded significantly over this same period. In recent years, China has been the biggest buyer of Canadian seed, purchasing up to 40 per cent of the crop. According to Statistics Canada, canola production contributes more than $26 billion to the Canadian economy each year.

The wheat story is the complete opposite to canola, with Canada’s share of total Chinese imports increasing to more than 60 per cent in the 2018/19 season, compared to just 32 per cent in the previous twelve-month period. At 1.9MMT, the total export volume to China was almost double the previous season and the highest since the 2004/05 marketing year.

Fortunately, the spike in wheat sales is partially compensating producers for the lower canola sales with the export gains coming at the expense of the United States (US) and Australia. US wheat exports to China have plummeted over the last twelve months after China imposed a 25 per cent tariff on US wheat.

In Australia, the drought on the east coast last year led to a substantial decrease in the exportable surplus and pushed Australian values above export parity. This resulted in decreased exports overall and a reduction in Chinese market share.

The weather has traditionally been the most significant influence on global grain production. Farmers across the world accept that it will always play the lead role in their fight for sustainability and profitability.

However, we have now entered a new era of tariff and no-tariff trade barriers. These will continue to significantly impact traditional international grain trade flows as Canadian farmers have discovered to their chagrin in 2019.

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

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