grain marketing Archives | Grain Brokers Australia

World wheat production on the rise again…

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The International Grains Council (IGC) released their latest grain market report late last week, and global wheat production is forecast to set another record high of 769 million metric tonne in the 2020/21 marketing year. This compares to 763 million metric tonne expected to be produced in the current season, itself a record, being 1 million metric tonne higher than the previous mark set in 2017/18.

Australia alone could more than account for the projected increase in 2020/21 global production as a return to a more average season would see at least 10 million metric tonne added to domestic output. A repeat of the 2016/17 season could see almost 20 million metric tonne added to this season’s disappointing production outcome, especially considering the potential area earmarked for wheat following the back-to-back east coast droughts.

Since surpassing the 700 million metric tonne level for the first time in 2013/14, global wheat production has been steadily rising each year. The only hiccup was the 2018/19 season where production dropped to 733 million metric tonne, primarily due to production falls in Australia, Russia, Ukraine and the European Union.

IGC estimates that the harvested area for wheat in the 2020/21 global campaign will increase 2 per cent year-on-year to 221 million hectares. This is well below the harvested area record of 239 million hectares set way back in the 1980/81 season.

Global grain production has come a long way in the last forty years, thanks to the broad adoption of vastly improved agronomic practices. Back in the 1980/81 season, the world produced 450 million metric tonne of wheat. That represents an average global yield of 1.88 metric tonne per hectare compared to IGC forecasts of 3.52 and 3.48 metric tonne per hectare for the 2019/20 and 2020/21 seasons respectively.

The turnaround in this season’s world wheat production compared to the 2018/19 can primarily be attributed to improved production in the major exporting countries, excluding Australia. However, Indian production has increased to such an extent in recent years that it is now a potential net exporter, albeit in small quantities, in coming seasons.

India is the second-largest wheat producer in the world behind China. Early last week the Indian Agriculture Ministry released its grain production forecasts for the 2019-2020 season, in which wheat output is projected to be a record 106.2 million metric tonne. This compares to the 103.6 million metric tonne produced in 2018-19, the first time the 100 million metric tonne production barrier had been breached.

The expected bumper Indian crop can be attributed to two key factors. Firstly, the area seeded to wheat increased to record 33.6 million hectares, up 3.7 million hectares compared to last season and almost 2 million metric tonne higher than the previous record set in 2016/17.

Secondly, the excellent monsoon season delivered 10 per cent more than the Long Period Average of 880 millimetres of rainfall. As a result, yields are expected to average close to 3.2 metric tonne per hectare, well above the national long term mean. With the Indian harvest commencing this month, progress will no doubt be monitored with increased interest by the global trade.

On the demand side of the equation, world carry-out stocks are expected to increase in the 2019/20 marketing year. The IGC has forecast global wheat consumption at 753 million metric tonne, up 2 per cent on 2018/19, resulting in a 10 million metric tonne increase in stocks at the conclusion of the current marketing season on June 30.

However, the devil is in the detail as this increase will more than likely reside in traditional non-exporting countries such as India and China. Ending stocks in the major exporting countries are expected to decrease to around 67 million metric tonne, a year-on-year fall of more than 4 per cent.

Meanwhile, Saudi Arabian milling wheat demand continues unabated with the state grain buyer, SAGO, booking 715,000 metric tonne for second-quarter. It booked 360,000 metric tonne for Jeddah delivery at an average price of US$243.25, an increase of US$3.35 on the previous tender back in October last year.

The average price for the 300,000 metric tonne booked for Dammam delivery was US$253.00, up US$5.28 on the October price. SAGO also booked one panamax for delivery to the southern Red Sea port of Jazan at US$245.39. While the prices were higher than the last tender, they are much lower than if the tender had been issued in January.

However, the more interesting tender result released last week was the Philippines who purchased 275,000 metric tonne of optional origin feed wheat for May to July delivery. The May price is reported to be around US$238 cost and freight (C&F), the June price around US$228 C&F and the July (new crop) price around US$218 C&F.

The majority, if not all, of the wheat is expected to be executed from the Black Sea. The only position where Western Australian values get close is May. But even then, last week’s grower bids suggest domestic wheat would still be at least US$5 out of the money unless the exporter owns elevation assets and is willing to discount the pipeline.

Additionally, the spread between the May and July prices is a reflection of the old crop/new crop inverse that currently exists in the Black Sea export market. While old crop Black Sea prices have been falling in recent weeks, so too have new crop prices at almost the same pace meaning the inverse has only narrowed slightly.

Mixed fortunes for Canadian farmers…

Rail blockades hindering Canadian grain exports…

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Rail blockades across Canada continue to paralyse grain movements, leaving export grain stranded on the nation’s Prairies and slashing grain export income by as much as US$7 million per day from lost sales, contract penalties and demurrage.

In early February protesters set up blockades east of Belleville, Ontario, and west of Prince George, British Columbia in solidarity with Indigenous leaders from the Wet’suwet’en Nation who oppose construction of a natural gas pipeline. Wet’suwet’en chiefs claim the proposed pipeline would run through the hereditary land of their people.

The blockades have since sprung up at several strategic locations across the country disrupting most key rail corridors bringing both passenger and freight train services to a grinding halt.

They have cut off critical crude-by-rail shipments to three eastern refineries that account for about a third of the country’s refining capacity. And farmers who rely on propane to heat livestock barns during the winter and keep animals comfortable are having to ration their supplies because of the blockades.

The dispute has struck a chord across the country and led to widespread protests that are about far more than the future of a single pipeline. It is giving voice to those who believe the Trudeau government is not delivering on its pledges to take climate change more seriously and transform its relationship with Canada’s indigenous people, who make up about 5 per cent of the population.

This is the latest crisis to face Justin Trudeau at the start of his second term as Canadian prime minister. After spending days calling for talks and making clear he didn’t want police to dismantle the blockades by force, Trudeau’s tone hardened late last week. He demanded aboriginal protesters lift the rail blockades that are hurting the economy and made it clear police would, if necessary, enforce injunctions to remove the obstacles.

About 94 per cent of Canada’s grain exports travel to port by rail on an annual basis. The blockades are further impeding grain shipments that already faced severe backlogs stemming from a delayed harvest and a week-long strike at the Canadian National Railway Company back in November last year.

According to data released by the Canadian government last Friday, wheat exports from all ports were less than 174,000 metric tonne in the week concluding Sunday February 16, down 37 per cent compared to the previous week and 28 per cent below the five-year average. Shipments of wheat from Vancouver, Canada’s main grain export hub, fell 68 per cent to 44,200 mt while exports from Prince Rupert decreased from 77,000 mt to zero.

The latest weekly grain monitoring report stated there were 40 vessels lined up at the port of Vancouver and ten at Prince Rupert as of February 16. The Vancouver line-up compares with the average of 24 vessels for the port, while the yearly average at Prince Rupert is only five. Eight grain vessels were cleared to sail from Vancouver in week 29 of the Canadian grain shipping calendar, but none from Prince Rupert.

The blockades are not only disrupting the passage of grain to port for export but seriously impeding each rail company’s ability to reposition empty rail cars back upcountry for loading. This has led to a sharp increase in upcountry elevator stocks. Growers have been delivering as arranged with exporters, but the grain is not being railed out of the sites at the same pace.

The effects on the Canadian farmer is real. As elevators fill up, growers have to stop delivering, and they don’t get paid when they are unable to deliver their grain. This may lead to a financial squeeze as farmers need the money to cover the costs to seed and fertilise the upcoming spring crop,

The ships currently waiting at anchorage put the 2019/20 shipping season on track to match the disastrous winter of 2013-14 for grain shipments. Agriculture and Agri-Food Canada’s February supply and demand estimates included a 400,000 metric tonne drop in exports of the grains and oilseeds for 2019-20.

The blockade comes at a time when grain sales, in particular wheat, have been booming into Asia. Canadian wheat sales to China were at a 14 year high in 2018/19, and the trend has continued this season. This is in stark contrast to canola, where the continuing trade dispute between the two countries has stymied the traditional trade flow.

The increased wheat enquiry from China is really by necessity. China needs to fill a void created by the long-running trade war with the United States and lower than normal exportable surpluses out of Australia after back-to-back droughts on the east coast. They have also purchased French wheat in recent weeks.

Sales of Canadian wheat have also been increasing to countries such as Indonesia, Philippines, Thailand, Vietnam and South Korea. The dynamic has changed to such an extent that in the 2019/20 marketing year Indonesia was Canada’s biggest global wheat customer. Their exports to Indonesia totalled 2.28 million metric tonne, almost double Australia’s shipments to the same destination.

Sales of Australian wheat to China have continued in recent weeks. However, with a smaller exportable surplus this season compared to last, the cupboard will be empty very quickly. This will frustrate our ability to take advantage of Canada’s grain export woes and clawback traditional Asian demand, particularly for Australian wheat.

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