Happy Grain Year: Time to check presents

“EU and the Black Sea started early grain harvesting. Total grains production in Ukraine soon reached 100 MMT, exports could be compared with Russian. After a record wheat crop 2017/18 TY, Russia decline in wheat exports but remains the leading seller. In 2018/19 TY, wheat exports number expected to be 37 MMT. According to USDA, world wheat stock to use ratio now at ~39%, the highest for the last 30 years. But as corn overpriced, and weather could impact production levels and quality in the next month, wheat could get support. And the red line for the new season will be weather condition for next month and the USA policy.”

Elena Faige Pitek (Neroba)
Head of Analytics
Marcopolo Commodities SA
The twenty-eighth IGC Grains Conference took place on the 11th and 12th June 2019 in London. Main points at the conference;
• weather conditions and planting delay at the USA
• outstanding markets that could influence on grain market: biofuel,
• finance and hedge
• Ag-tech and IT

As conference participation covered all the world, key producers and players were represented in London. The conference was very successful with around 320 delegates attending.

Robert Johansson, Chief Economist at the Department of Agriculture (USDA), spoke about tricky international grains and oilseeds trade. A lot of uncertainty at the moment, notably in the US. Current corn and soybean emergence is also a problem. Mr. Johansson mentioned that long-term opportunities exist for increased trade through new trade agreements and the resolution of disputes. It will take several years to unwind high US soybeans stocks caused by China tariffs. Unclear how much of current sales will ship to China due to tariffs and ASF impact. Johansson’s title slide is over an image of a flooded Iowa interstate surrounded by waterlogged fields. setting the tone. Largest one-week change in corn planting progress was in 2013 at +43% nationally with +61% in Iowa.

China’s government policies are being refocused on the long-term improvements in grains and oilseeds quality, instead “quantity” approach followed prior, said Hui Zhou, Deputy Division Director, Department of Monitoring and Prediction, China National Grain and Oils Information Center (CNGOIC)

As usual, very insightful speech from EU Commission, represented by Michael Scannell, Director for Markets and Observatories, highlighting concerns about Brexit. Regulation of GMOs, pesticides, and herbicides are also of concern. Uncertainty of Brexit is of great concern to the European Union grain industry.

Stefan Vogel, Head of Commodities RaboFoodAgri, talking about the situation in soybean trade, where China is shifting to exclusively source from South America, while African Swine Fever (ASF) is not properly understood by the market. “We think 25-35% of pork production in China will be lost… equivalent to all of the pork production in North America.”

While Randy Giroux from Cargill spoke on economic and trade policy uncertainty, Bayer’s Philip Miller points out how new technologies and climate change can shape the grains and oilseeds sectors.” Unheard of a decade ago that you’d be growing corn in Western Canada. A combination of climate change and breeding technology have made that happen.” said Mr. Miller.

Jonathan Brooks, Head of OECD Agro-Food Trade and Markets Division expects demand for ag commodities to decrease in the next decade except for dairy. “Dairy demand will be driven by India. The grains and oilseeds sector will be affected by slowing demand growth for the three main uses: food, feed and fuel, leading to a flat to falling price environment. We expect the growth in demand for agricultural commodities to slow dramatically over the next decade, except for dairy. Per capita income effect seen slowing.”

The African food import markets expected to grow from its current USD35 bln a year to USD110 bln by 2025, according to Eastern Africa Grains Council’s Gerald Masila. India has the largest area under rice and is the world’s largest exporter, but comes second in production to China due to reliance on rains, small scale farming and low mechanization.

So main speakers concurred in the opinion that 2019/20 will be managed by weather and Trade War.

By that time, the new season is coming. After a record wheat crop 2017/18 TY, Russia decline in wheat exports but remains the leading seller. In 2018/19 TY, wheat exports number expected to be 37 MMT or 21% of total world wheat exports. 2019/20 TY production and exports might be not less. Russia covered world main wheat consumer such as Egypt, Turkey, Bangladesh etc. As per all grains exports, Russia takes the 4th stage with 12% of world trade with more than 42 MMT.

India has the largest area under rice and is the world largest trader but comes second in production to China due to reliance on rains, small scale farming, and low mechanization.

Few days after USDA’s NASS has been published new numbers which emoted market: instead ‘intended to plant’ it was read as ‘planted’ but US’s farmers didn’t realize their intentions because of weather conditions. Market players still don’t understand how much corn has been planted and waiting for renewing clear data.

Meanwhile in Brazil dryer weather in Mato Grosso has allowed farmers in the state to make good progress in harvesting their 2018/19 safrinha corn crop. According to the IMEA the safrinha corn in the state was 40.8% harvested on the 1st of Jul. This represented an advance of 16% for the week and it is nearly double last year’s harvest pace of 21.8%. The most advanced region of the state is the mid-north where 53% of the corn has been harvested. Farmers are reporting record corn yields as safrinha corn to be planted during the ideal planting window and later beneficial weather for the entire growing season. Some small negative for the crop was poorer quality seed from some of the earliest harvested corn due to wet weather but grain quality has since improved as the harvest has progressed and the grain elevators have been able to blend the poorer quality corn with better quality corn to meet the standards. The second-largest safrinha corn producing state is Parana. For the end of June, they reported that 34% of the safrinha corn had been harvested. The corn that has not yet been harvested is rated 2% poor, 16% average, and 82% good. Recent wet weather in southern Brazil has slowed the harvest pace somewhat. The state of Parana is expected to produce approximately 19% of Brazil’s safrinha corn production.

Conab is estimating the 2018/19 Brazilian corn crop at 97.0 million tons with 70.6 million tons from the safrinha crop (73% of Brazil’s total corn production) and 26.3 million tons from the full-season corn crop (27% of Brazil’s total corn production). Some private estimates have the 2018/19 Brazilian corn production at 100 million tons or slightly higher. Brazil’s corn exports come primarily from the safrinha production and Brazil is now the second-largest corn exporter after the United States.

IMEA recently indicated that the cost of producing both crops in 2019/20 is on the rise: for high technology corn production to R$ 2,724 per hectare. This would equate to approximately $3.13 per bushel if a farmer produced 92.4 bu/ac on the exchange rate of 3.8 Brazilian reals per US dollar. Farmers in the municipality of Nova Mutum, which is located in the mid-north region of Mato Grosso, estimate that if the corn price was $2.15 per bushel, it would take a yield of 110 bu/ac to break even. These yields may seem low compared to yields in the U.S., but virtually all the corn in Mato Grosso is a second crop planted after soybeans.

In their May report, Imea estimated the cost of producing cotton in Mato Grosso in 2019/20 is R$ 9,146 per hectare or approximately $975 per acre. This represents an increase of approximately 2% compared to April. The main reason for the increase was once again the higher cost of inputs priced in dollars. The vast majority of cotton in Mat Grosso is also produced as a second crop after soybeans.

The burrowing cost for large producers will increase to 8% this year up from 7% last year. The interest rates for small and medium producers is subsidized by the government and could be as low as 3%. The Minister of Agriculture indicated that the higher interest rates for larger producers was needed in the face of very tight budgets and a desire to hold down the budget deficit. The Minister also indicated that the 2019/20 Harvest Plan places increased emphasis on small producers and subsidized crop insurance.

Recent rains have slowed the harvest of soybeans and corn in Argentina as well as the planting of the winter wheat crop. According to the BAGE, the 2018/19 soybean crop is 99.1% harvested with 150,000 hectares left to harvest in southern Buenos Aires province and in northern Chaco province. In the northern locations, recent rains and localized flooding have delayed the soybean harvest for approximately 15 days.

The corn crop in Argentina is 44.2% harvested which represents an advance of only 1.9% for the week. In the core production areas, the corn is 90-95% harvested with 40-60% harvested in southern Argentina and approximately 10% harvested in far northern Argentina.

Crop yields in Argentina are setting records this year. The soybean crop ended very strong with record nationwide yields at 49.8 bu/ac, corn yield at 142.7 bu/ac. Farmers in Argentina are expected to plant 6.4 million hectares of wheat and the wheat planting is 49.7% complete. Planting has been delayed by recent wet weather. In many areas of Argentina, June rainfall has been above normal. Even though the rainfall has delayed planting, the benefit of all the rain is that it is providing good soil moisture for the start of the winter wheat crop. USDA stay at 20 MMT and IGC see 19.7 MMT. Anyway, it’s higher 2018/19 with 19,5 MMT wheat production.

EU and the Black Sea started early grain harvesting. Winter wheat and rapeseeds in Ukraine also on truck. For 8th of July Ukraine harvested more than 11.3mmt of grain from 3.4 mln ha or 35% planted areas:
• wheat 7.3 mmt/2.1 mln ha or 32% of the forecast;
• barley 3.6 mmt/1.1 mln ha/43%;
• peas 402k mt/187k ha/66%
• winter rapeseeds 1.1 mmt/519k ha/40%

Total grains production in Ukraine soon reached 100 MMT, exports could be compared with Russian. As per Russia, wheat production highly depends on weather condition. Hot, dry and lack of soil moisture report pushes local analyst to cut the expectation. It looks already much less 80 MMT vs previous 80+mmt numbers, Ukrainian –up to 29 MMT.

GASC tenders, so long from April, give to the market new indicative price: 209-211 USD/MT C&F is the lowest since June 2018. According to USDA, world wheat stock to use ratio now at ~39%, the highest for the last 30 years. But as corn overpriced, and weather could impact production levels and quality in the next month, wheat could get support.

Barley also couldn’t fine high price as Ukraine production 19/20 ~9 MMT vs 7.6 MMT 18/19, exports 4.5 MMT vs 4.2 MMT YtY. Russian barley production expectations 18 MMT vs 16,737 MMT last year, exports also increase up to 5.3 MMT from 4.8 MMT in 18/19. MARS cut EU barley yields this year from 4.96 t/ha to 4.92 t/ha. decrease exceeds the avg 5-year figure by 1.2%. Spring barley reduced from 4.2 t/ha to 4.14 t/ha. decrease exceeds last year’s figure by 3.5%. But in relation to the avg 5-year indicator, it is 0.5% less. World barley production +8% YtY, exports just +6%. SAGO tendered 720 kMT for Red Sea ports 2H August – 1H October for avg price 191.42 USD/MT and 180 kMT for Arabian Gulf ports 1H September – 1H October for avg 202.53 USD/MT.

So the red line for the new season will be weather condition for next month and the USA policy. Yes, again.

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