July 16, 2019
Russian production down but quality up…
Hotter and dryer than normal weather patterns over the European portion (west of the Ural mountain range) of the Russian Federation since late May appears to have had a drastic impact on the size of this year’s wheat crop and projected exports for the 2019/20 marketing year.
Production estimates have been lowered as a result, but they are still higher than last year and, if they come to fruition, will be the second highest on record for the world’s biggest exporter.
Early last week two of Moscow’s leading agricultural consultancies, SovEcon and IKAR downgraded their production and export estimates and the United States Department of Agriculture (USDA) followed suit by doing the same when they released the latest World Agricultural Supply and Demand Estimates (WASDE) later in the week.
However, the lack of consensus amongst the agencies demonstrates how difficult it is for the global trade to get an accurate picture of production and potential exports this season. SovEcon had previously been the most optimistic regarding the size of this year’s crop, but they made the biggest cut due to the recent drought-like conditions.
SovEcon’s previous production estimate of 82.2 million metric tonne (MMT) was slashed by 5.6MMT, to 76.6MMT. IKAR, on the other hand, was not as pessimistic about the effects of the recent weather, cutting their production estimate from 79.3MMT to 78.5MMT. However, that number was revised down by another 1MMT early this week to 77.5MMT, and IKAR suggested that further cuts may come as more harvest data becomes available.
SovEcon also took a knife to their export numbers, cutting expectations by 4.6MMT, to 33MMT. That is 3MMT lower than 2018/19 wheat exports, despite their production forecast being around 5MMT higher than last season.
The latest WASDE report was quite bullish for wheat with production cut by 9.3MMT across the major exporters including Ukraine, European Union, Canada and Australia (even though domestic conditions have improved over the last month). However, the biggest surprise to the market was the 3.8MMT taken off Russian production.
The USDA is forecasting 2019/20 production at 74.2MMT, down from 78MMT last month, but still higher than the 71.7MMT produced last season. The total area to be harvested is forecast at 26.3 million hectares, representing an average yield of 2.82 metric tonne per hectare.
In line with the drastic production cut, the USDA lowered their 2019/20 wheat export estimate by 2.5MMT to 34.5MMT. This is a year-on-year fall of 1.5MMT, with the USDA obviously expecting supplies to tighten this season.
The recent hot and dry weather hasn’t been all bad for the Russian farmer, with protein levels boosted as a result of the hard finish. Harvesting commenced in the southern wheat belt about three weeks ago, and protein levels in approximately 80 per cent of the deliveries made to date have been higher than 13 per cent. That is four times greater than the long term average.
Higher protein wheat is highly sort after by global millers as it is linked to gluten, the component that makes bread dough strong and stretchy. The challenge for the Russian farmer is extracting a better price for their high-quality product. With an abundance of 12.5 per cent protein wheat available to the market at this early stage of harvest, the trade is very reluctant to pay a premium.
That is reflected in the current price spread between milling wheat and feed wheat, which has more than halved since harvest commenced, and the high protein trend became evident. In late May, the premium being paid for 12.5 per cent protein wheat was more than US$12 per metric tonne. That is now down to under $US5.00 per metric tonne, or even as low as parity in some regions.
Some growers are reportedly seeing protein levels as high as 16 per cent but are only being offered 12.5 per cent protein prices. This is encouraging them to hold onto their highest quality wheat in the hope that overall Russian quality falls as harvest moves into the central and northern farming regions before finishing in Siberia in September.
Egypt is the world’s biggest importer of wheat, and Russia is traditionally their primary supplier. Egypt’s state grain buyer, the General Authority for Supply Commodities (GASC) needs to purchase around 900,000 metric tonne per month. It was back in the market last week after booking just one cargo (60,000 metric tonne) of Romanian wheat the week before.
GASC booked the top four offers on the tender lineup, for a total 240,000 metric tonne, with Russia overlooked yet again. The successful exporters were Romania with three cargoes and Ukraine with the fourth. They paid US$198 Free on Board (FOB), a slight increase on the previous week’s purchase, but under the price paid at the same time last year.
No doubt Russia will feature in the GASC tenders soon, given the size of their wheat crop and the exportable surplus that needs to start moving. That said, the Egyptians would appear to be sending a subtle message to Russian exporters to sharpen their pencil if they want a piece of the action.
The Russian export lineup is reported to be around half of what it was this time last year. Nevertheless, it is too early in the new crop marketing season for the Russian shippers to resort to discounting quality, particularly with production, and exportable surpluses, dropping in most of the major export origins, except for the United States.
Call your local Grain Brokers Australia representative on 1300 946 544 to discuss you

7 May, 2019

China’s pork plight in the Year of the Pig …

Since the outbreak of African Swine Fever (ASF) in the northeast of China in August last year the contagion has spread nationwide and has now crossed the border into neighbouring Vietnam and Mongolia. Most recently, the same strain of the virus has been detected further south in Cambodia.

The virus causes haemorrhagic fever, similar to the Ebola virus that afflicts humans. Mortality rates are incredibly high in domestic pigs with some strains causing death as quickly as one week after infection. Unlike swine flu, ASF poses no direct health threat to humans as it is not zoonotic meaning it cannot jump from animals to people. Nevertheless, it is incredibly contagious among pigs and can have severe economic impacts.

The virus that causes the fever cannot replicate outside of a living cell, but it can survive for extended periods without a host. It is also able to endure harsh environments and extreme climatic conditions.

Transmission of the virus can be by ticks, direct contact between infected animals, contaminated animal feed, food scraps, swine offal and people travelling between infested places, all of which make the fever extremely difficult to control and eradicate.

There is currently no approved vaccine for ASF, so control of the disease relies on rigorous sanitary measures such as early detection of outbreaks, destruction of contaminated carcasses and products, disinfection of sites, and most importantly movement restrictions in and away from affected areas.

ASF is widespread in Africa where at least 23 strains of the virus have been identified, and it is mostly spread by wild boar. The virus has also spread through parts of Europe and more recently established itself in Russia, but it has always been relatively well contained.

It is believed the Chinese outbreak spread from eastern Russia as analysis of the virus genome revealed it was almost an exact replica of the virus that was discovered in Siberia in March 2017. This was the first time the disease had been detected in the eastern parts of Russia, and it was only 1,000 kilometres from the Chinese border. The Kremlin denies this, saying it was transported from the Europe in contaminated pork products.

The eventual spread to China was expected, but the way the virus has reacted to its new environment has caught experts across the globe by surprise. Somewhere along the journey, the virus has mutated, and the strain that has infected the Chinese pig herd thrives in the new environment.

The situation has been exacerbated by extremely poor biosecurity protocols and the free movement of potential vectors across the country in relatively short time frames. Beijing’s reaction to the outbreak was slow and inadequate, and authorities have actively downplayed the severity of the disease from the outset.

Additionally, it seems that not all outbreaks are being conveyed to the authorities due to mistrust and inadequate compensation arrangements. There are reports that some farmers who suspect infection in their herd have been selling animals that do not demonstrate symptoms for fear of massive livestock and financial losses.

Beijing recently reported that 1.02 million pigs had been culled from 129 reported cases in the eight months since the outbreak was detected. Unofficial reports suggest the cull is much higher.

According to China’s statistics bureau, there were 428 million pigs in the country in December last year. This is about half of the world’s pig population. However, by the end of March, that figure had fallen to 375 million head. Pork producers will undoubtedly be reluctant to restock with the ongoing threat of ASF, but that is a huge decrease in a relatively short time frame.

According to Rabobank, China could lose up to 200 million pigs as a result of the epidemic, with fatalities expected in all 31 of its autonomous regions and provinces. That is nearly triple the pig population of the United States (US), and if it came to fruition, there would not be enough pork in the world to fill the void.

China is the biggest global producer and consumer of pork by volume. At 34 kilograms per head, the population is also the third largest per capita consumer in the world. That is expected to rise to more than 50 kilograms by 2026 when the population is projected to be more than 1.4 billion. That is a lot of pork demand.

Domestic supply is reportedly down by as much as 20 per cent already this year, and prices have risen by more than 70 per cent. The Chinese government is struggling to fill the demand gap. If the availability of pork falls or it becomes too expensive, it could create the kind of domestic unrest Beijing is desperate to avoid.

The ongoing US-China trade war is adding to the woes. The outbreak couldn’t have happened at a worse time. When Beijing levied additional import tariffs on US pork last year, many Chinese traders were forced to stop buying as it became too expensive. Now that the requirement for imports has increased, government tariffs as high as 70 per cent on some products are standing in the way.

The decrease in pork production in China will undoubtedly reduce demand for imported grains such as soybeans, corn and sorghum. If pork production drops by 30 per cent, demand for soybeans could reportedly fall by as much as 5 per cent. This would severely hamper China’s capacity to increase imports of US soybeans.

Demand for imported grains may decrease in China, but it will most likely increase the demand for feed grains such as corn and soybean meal in the major pork exporters such as the US and Canada (assuming they can both work through their existing China issues), Brazil, Germany and Spain.

The Australian farmer will not be immune. Demand for feed barley will potentially fall as well as it is a vital ingredient in the Middle Kingdom’s stockfeed rations, a significant proportion of which goes to the pork sector. This is on top of the ongoing anti-dumping investigation which has gone extremely quiet in recent months.

The Year of the Pig is quickly turning into hog hell…

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

30 April 2019

Canadian farmers react to market and political influences …

Canada’s national statistical office, Statistics Canada (Stats Can), provides insights into the state of their economy, society and the environment. Included in the Stats Can charter is the provision of regular updates on agricultural intentions, production and exports.

The agency conducted a farmer survey in March and issued its annual intended acreage report last Wednesday (April 24). It seems that Canadian farmers have reacted to recent trends in crop prices, old-crop stocks and the disastrous Chinese canola situation.

The total area planted to the major agricultural crops is unchanged from the previous two years, but the allocation among crop types reveals historically significant year-on-year changes. Farmers have said that they will plant 4 per cent more wheat, 11 per cent more barley, 7 per cent less canola, 12 per cent more peas, 10 per cent fewer lentils, 21 per cent less soybeans and 17 per cent more flax than in 2018.

Looking at the data in more detail, all wheat planting intentions were pegged at 25.7 million acres (10.4 million hectares). However, there were significant changes among wheat types, with the durum area expected to see its biggest single-year drop since 2010, falling 19 per cent to 5.02 million acres (2.03 million hectares).

Conversely, the spring wheat area is predicted to increase by 12 per cent to 19.39 million acres (7.85 million hectares), the highest in 18 years. The area sown to winter wheat in the autumn fall was estimated to be only 1.26 million acres (0.50 million hectares), down from 1.34 million (0.54 million hectares) a year earlier.

The area intended to be sown to barley came in at 6.82 million acres (2.76 million hectares), and the soybean area is projected to be down significantly from 6.3 million acres (2.55 million hectares) to 5.69 million acres (2.3 million hectares). The latter is primarily due to poor yield results and lack of suitability compared to alternatives.

Canola is the second biggest crop in Canada, and the seeded area was forecast to be 21.10 million acres (8.54 million hectares) in the three prairie provinces of Alberta, Saskatchewan and Manitoba. This represents the lowest area in three years and compares to a five-year average of 21.72 million acres (8.79 million hectares).

The Chinese embargo on canola imports has undoubtedly had an impact on planting intentions, as has the recent downward price trend. Canola is a high input crop, and with on farm stocks currently at their highest ever level, the market uncertainty is rattling the Canadian farmer.

It is highly possible that the Stas Can report could understate the swing away from canola as the farmer survey was conducted before the enormity of the China situation was known. It is entirely possible that the final area could be less than 20 million acres (8.09 million hectares).

Canadian farmers are reportedly returning expensive canola seed and chemicals and cancelling or changing fertiliser orders, as they swing acres away from canola in favour of wheat and barley.

Canada and China have been locked in a trade and political dispute since the chief financial officer of Chinese telecoms giant Huawei Technologies was arrested in Vancouver on December 1 on a US extradition request. The Chinese responded by detaining two Canadian citizens, stripping two major Canadian grain companies of their canola export licenses and has subsequently stopped purchasing Canadian canola seed altogether.

Over half of the agri-food products grown in Canada are exported, and China is one of the key destinations. Canola exports to China in 2018 were worth US$2.7 billion. Around 90 per cent of the canola seed grown in Canada is exported, and 40 per cent of that total goes to China. The loss of the Chinese market hits Canadian producers directly, and the flow on effect for the economy will be severe.

Canadian farmers are also less than happy with the response of their government. According to reports, this has become the norm under the Trudeau led parliament. Since he became Prime Minister, Canadian farmers have lost more and more access to the global grain markets on which they depend for their livelihood.

Italy has locked out Canadian durum wheat, and India has imposed punishing tariffs on Canadian pulses (they are not alone there). Vietnam has stopped importing Canadian wheat supposedly due to thistle seed contamination. And now China has placed an embargo on Canadian canola. What will be next they are asking?

Meanwhile, in Australia, the east coast drought appears no closer to an end, and winter crop production will be impacted as a result. The one exception is Central Queensland where April rainfall across the entire region has been above average or well above average, and planting of the wheat and chickpea crop is in full swing.

The Bureau of Meteorology (BOM) released a climate outlook last Friday (April 26) and they suggest that May is likely to be drier than average in eastern South Australia, Victoria, and the grain growing regions of both New South Wales and southern Queensland.

According to the BOM, the warmer than average days are expected to continue for the next three months for almost the entire country. Whilst this is great for crop establishment, the lack of subsoil moisture and accompanying rainfall is a major concern.

We are now well into the ideal planting window for many areas. Some growers are planting dry, but the areas are relatively small at this stage. In many districts, the appetite for risk is low after a poor 2018, and most growers are waiting for additional rainfall to provide a degree of production certainty before going all in.

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

23^rd April, 2019

When it comes to agriculture across the globe the name of the game is production, and global grain markets are definitely being driven by the production side of the equation at the present time.

The northern hemisphere wheat crop is looking good on the whole. There are always pockets here and there that are too dry, too wet, too hot or too dry, but the good areas tend to make up for the bad ones and the really good areas much more than makeup for the poor ones.

At the moment the crop is getting bigger rather than smaller. That said, we all know it can all turn around very quickly, and it is still far too early to call the crop “made”, or otherwise. The one thing that really counts for wheat is adequate moisture during the grain fill stage, and in the northern hemisphere that generally does not occur in the month of April.

The critical grain fill stage for the European wheat crop is usually June & July, in Russia it is July and August, and in the United States (US) the hard red winter (HRW) crop is commonly made in May, and the soft red winter (SRW) is traditionally made in June.

If there is an issue in the US, it is the slow pace of the spring wheat planting program due to too much rain and wet paddocks. Last week the United States Department of Agriculture (USDA) reported the crop was 2 per cent planted against an average of 13 per cent for the date. However, with much warmer weather on the way, no one seems to believe that there is a danger of not getting most of the intended acres in the ground.

The USDA reported that the winter wheat crop was 6 per cent headed versus 9 per cent average, and the crop rated 60% good to excellent versus 60% last week. This is significantly better than the 31 per cent reported at the same time last year and is the best rating in the last 5 years.

Winter crops across most regions of Europe have benefited from the predominantly mild weather conditions and are advanced in their stage of development. The crop is said to be in good shape and production is expected to be significantly higher than last year. Almost every state is currently forecasting yields at or above the five year average with the exceptions being Slovenia, Hungary, Bulgaria and Greece.

In Germany, the country’s association of farm cooperatives (DRV) have forecast wheat production at 24.4 million metric tonnes (MMT). The is an increase of almost 21 per cent compared to last year’s drought-reduced harvest of only 20.3MMT.

Government agency FranceAgriMer estimates that 81 per cent of the French soft wheat crop is in good to excellent condition, down slightly from 83 per cent last week. They also have the good to excellent condition rating of both the winter and spring barley crops down two percentage points week-on-week to 77 per cent and 89 per cent respectively. All ratings are well above the same week last year.

The accuracy and credibility of Russian forecasts and estimates are always quite problematic and none more so than last week. Moscow based agricultural consultancy firm IKAR released its latest 2019 Russian wheat crop estimate mid-week, raising it by 1MMT to 79MMT.

Within 24 hours, Russia’s oldest agricultural markets and consultancy company SovEcon had raised its Russian wheat crop forecast by more than 4 per cent from 80MMT to 83.4MMT. This was on the back of what is described as good conditions across a majority of the country’s cropping regions.

The SovEcon number is almost 12MMT higher than the current USDA forecast, and if it came to fruition, would be the second biggest Russian wheat crop on record, behind 2017. A crop of that size would mean at least 40MMT would be available for export and could even challenge the export record of 41.3MMT set in 2017.

In South America, summer crop estimates are definitely in bull mode with local scouts increasing the size of the Brazilian soybean crop by 1MMT to 116MMT. They have also increased the size of the Argentinian crop by the same amount to 56MMT.

The corn crops are heading in the same direction with Brazilian production estimates increasing by more than 3MMT to almost 98MMT, and in Argentina, the government is forecasting a corn crop as high as 55MMT. Some analysts are suggesting that the South American corn harvest will be 30MMT more than last year.

In China, there are rumours that the government may have sold down as much as 90 per cent of its reserve stocks of corn, and that temporary state reserves could be as low as 10MMT. This probably explains why there have been no reserve auctions of late.

This will be music to the ears of US exporters as the one thing that could change the burdensome US corn balance sheet at the moment is a substantial Chinese buying program to replenish reserves and attack the balance of payments deficit.

Back to wheat, where a rebound in northern hemisphere production, burdensome stocks in the US and relatively static year-on-year demand has turned it into a supply driven market where the bears definitely outnumber the bulls. The strengthening US dollar is also pressuring markets to the downside.

Global wheat values are unlikely to rally in the current environment unless there is a weather-driven problem in a major producer that severely impacts production, or prices get down to a level where the demand curve starts to rise again.

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