Weekly Commentary Archives | Grain Brokers Australia

Mar 09 2020

Sorghum production forecast to be lowest in 50 years…

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What a difference a month makes. Substantial rainfall across the majority of nation’s winter and summer cropping regions over the last four weeks, on top of isolated storms in the preceding five weeks, has swung the mood across rural Australia from one of heightened pessimism to one of guarded optimism.

The vision on our television screens of flooded roads, overflowing gutters, children playing in puddles and farmers dancing in the rain have been a welcome distraction from the summer bushfires and the global coronavirus pandemic.

While there is still a long way to go, the general change to the weather pattern has growers and consumers across the country genuinely excited about crop prospects for 2020 and the possibility of a significant turnaround in domestic grain supply compared to the previous two seasons.

After such a prolonged dry spell, particularly in the eastern states, the soil moisture in many regions was at record low levels entering 2020. Replenishing those soil moisture reserves will be a long process with above-average rainfall required for a prolonged period of time.

The recent widespread falls have started the process of reducing the significant rainfall and soil moisture deficits accumulated over the last couple of years. However, despite substantial registrations in many locations, most were still below the long term average for the December to February period.

The rainfall has not been confined to the cropping regions. Drought affected pastoral districts have seen an unbelievable turnaround in pasture growth and feed availability. But most graziers were forced to substantially reduce stock numbers during the drought as the cost of maintaining livestock became prohibitive.

They are now looking to restock as quickly as possible to utilise the abundant forage. The challenge here is the rains have been so widespread that the demand for restocking quality sheep and cattle is unprecedented. It has forced the price of store stock in sale yards across the country to extraordinary levels.

Many livestock producers who have the option of planting a winter crop are looking to sow paddocks that haven’t seen a tractor for many years as the costs involved in buying stock make growing a crop a much better financial option this season.

Growers with mixed farming enterprises will almost certainly have an extra paddock or two allocated to winter crop when planting commences as their livestock numbers are well below normal levels. This means that the potential area available for winter cropping in the eastern states of Australia in 2020 will be substantially higher than in recent years. The potential for a big crop is building, but there is still a very long way to go.

Meanwhile, in Queensland and northern New South Wales, the limited area sown to sorghum this summer now has a genuine shot at achieving average yields, assuming regular rainfall continues for the balance of the growing season. It is extremely difficult to get an accurate handle on the actual area sown as the planting rains came so late. Suffice to say it was well below the total area growers intended to plant if the rains had been timelier.

At this stage, total production in Central Queensland, Southern Queensland and New South Wales are estimated to be 250,000 metric tonne, 125,000 metric tonne and 75,000 metric tonne respectively. That comes to a total of 450,000 metric tonne and would make it the smallest Australian sorghum harvest since the 1969/70 season.

One of the biggest challenges of a late sown sorghum crop in southern Queensland and northern New South Wales is the autumn/winter harvest. Getting grain moisture readings down to acceptable levels can be a challenge as the days are quite short, there is invariably a morning dew, and the daytime temperatures are much cooler. The harvest also tends to be occurring when the winter crop is being planted which strains farm resources and challenges management priorities.

In international sorghum news, the United States Department of Agriculture has revealed, via its daily reporting system, that China has purchased 110,000 metric tonne sorghum. The global trade has been waiting for news of grain sales to China as a sign that it was starting to fulfil the Phase 1 commitments it signed off on in mid-January.

Last week’s transaction is the first single sale of more than 100,000 tonne of any agricultural commodity to China since the trade deal was signed. As part of the continuous disclosure regulations in the United States, exporters must promptly report such transactions, commonly referred to as flash sales. Sales of smaller amounts only have to be reported on a weekly basis.

According to USDA export data, China has booked more than 475,000 metric tonnes of sorghum this marketing year. However, that total does not include sales of 325,000 metric tonne to ‘unknown destinations’ in the third week of February. Sales tagged accordingly are usually destined for China, and the trade is confident they were the buyer in this instance.

The USDA estimates that the US farmer planted 1.9 million hectares of sorghum last summer. This is 7 per cent lower than the previous two seasons and is well down on the peak of 6.7 million hectares back in 1986/87. Production in that year was just short of 29 million metric tonne, compared to 8.7 million metric tonne this marketing year.

China has been a traditional destination for Australian sorghum in recent years, particularly for the Baijiu market, But, one thing is certain, Australia will not be challenging the United States for bulk sorghum business into China in 2020.

Mar 03 2020

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.

Mar 03 2020

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.

Jan 30 2020

Ongoing strikes slowing French exports…

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Ongoing strikes in France over pension reform are disrupting the country’s rail services and port activities, and have the potential to severely impact the grains sector if a quick resolution is not found to the dispute that has now been running for almost eight weeks.

Like so many countries in the developed world, France is wrestling with how to fund its relatively generous pension schemes amidst falling birth rates and an ageing workforce. The country’s hard-left trade unions are trying to force President Emmanuel Macron to abandon the biggest overhaul to the French pension system since World War II.

France has 42 different pension schemes, each with varying levels of contributions and benefits, and Macron wants to streamline them into a single system that gives every pensioner the same rights for each euro contributed.

At just under 14% of economic output, French spending on public pensions is among the highest in the world, a vital component of an expensive but treasured welfare state. The government says the new system would reduce billions in future deficits in pension funds.

The public transport strike that has stymied rail freight services and a series of rolling stoppages by stevedores have left merchants struggling to get wheat and barley to port for export and to domestic consumers across the country.

According to the French grain organisation Intercereales, the situation is now getting quite drastic. There are more than 450,000 metric tonnes of grain, worth around 100 million euros (AU$166 million), blocked in French ports, unable to be loaded onto export vessels that are lined up at anchorage off the French coast.

The strikes are paralysing this season’s grain marketing campaign in the European Union’s biggest grain producer. The big concern now is that merchants will be forced into loading optional origin sales via alternate export pathways out of competing countries to meet their contractual obligations.

Additionally, buyers are reported to be switching purchases to other exporting regions such as northern Europe, Baltic countries, the Black Sea, the United States or Canada to avoid the possibility of getting squeezed on delivery due to inadequate logistics. This was evident in the latest Egyptian tender, where there was only one French offer, and all the business went to Black Sea exporters.

France harvested 39.5 million metric tonne (MT) of soft wheat this season (July 2019 to June 2020) it’s second-largest crop on record, and up 16 per cent on the drought reduced 2018/19 crop. Before the strikes, current season exports outside of the European Union were estimated to reach more than 12MT, a four year high and up 14 per cent on 2018/19.

The grain industry in France is extremely reliant on rail freight to execute the massive grain transport task from interior storages and railheads to ports around the country each season. It is estimated that road freight costs an additional 4 and 6 euros per tonne depending on the distance to port, effectively reducing France’s competitiveness in the global marketplace.

That said, French 11.5 per cent protein wheat is quoted at US$224 Free on Board (FOB) for a February loader, maintaining its discount to Black Sea values which closed last week quoted at US$229 FOB.

German and Baltic export premiums have been strengthening against French wheat values as domestic merchants and exporters look for alternate European Union supplies in the wake of the French crisis. They closed the week quoted at around US$228 and US$227 respectively for 12.5 per cent protein wheat. If you call the 11.5 per cent protein discount $3, they remain quite competitive and provide a cheap means of avoiding the French system.

All this comes at a time when French exporters were hoping to rebuild their export clientele after a poor production year in 2018/19 reduced the exportable surplus, forcing traditional wheat customers to other origins. France had a rare shipment of wheat to China at the beginning of the season, and traders are hopeful French wheat will regain market share in West Africa and catch extra demand from Morocco, which had a poor harvest.

On the barley front, France harvested a record 13.6MMT off 1.9 million hectares in the current season. This was up 2.5MMT or 22 per cent compared to 2018/19 and restores quite a healthy exportable surplus.

In terms of quoted export values, French barley remains extremely competitive. It closed last week at around US$191 FOB compared to Black Sea replacement at around $192 FOB and German at around US$195 FOB.

The latest Saudi tender results will be out early this week, and at those values, it is hard to see exporters shorting French execution with the current industrial turmoil. German barley is more expensive and has a freight disadvantage, so it is highly likely the business will go to Black Sea nations unless the Argentinians decide to pop their head in for a look.

Major reform is always difficult in politics, especially when it potentially affects the majority of the country’s constituents. The unions in France hold a lot of power and finding a resolution could be drawn out.

We also know how militant the French farmers can be when they are riled. It will be fascinating to see what action they take and what influence It has when the strikes start to materially affect their farm income and profitability.

Jan 14 2020

USDA welcomes the New Year with very little fanfare…

Posted by GBA Administrator | USDA WASDE Report, Weekly Commentary | No Comments

Released late last week, the January World Agricultural Supply and Demand Estimates (WASDE) report tends to be quite significant, given that it’s usually the final numbers in terms of yields, harvested area and production for the crop year in the United States (US).

However, the case is not closed on 2019 US production just yet as the United States Department of Agriculture (USDA) acknowledged it would resurvey producers in Michigan, Minnesota, North Dakota, South Dakota and Wisconsin for corn production and Michigan, North Dakota and Wisconsin when it comes to soybean production.

Heading into last Friday’s release, much of the market chatter suggested that the report would be bullish, based on the expectation of lower summer crop yields. But the opposite happened with the USDA raising the national yield for both corn and soybeans.

US corn production was forecast at 347.7 million metric tonne (MMT) with an average national yield of 10.55 metric tonne per hectare (mt/ha), slightly higher than last month’s yield estimate of 10.48mt/ha.

Globally, corn production in South America was left unchanged by the USDA with Brazil and Argentina forecast to produce 101MMT and 50MMT respectively. These numbers seem to belie the dry conditions being experienced in many parts of Brazil and Argentina this summer.

The only production increase amongst the major exporters was Russia which the USDA increased by 0.5MMT to 14.5MMT. The washup of all the changes was an increase in global output by a little more than 2 MMT to 850MMT excluding China, and 1,111MMT including China.

However, the bullish part of the corn equation comes in the demand number, increased by more than 6MMT globally compared to the December report. The US accounted for just under 6MMT with a 1MMT increase in China countered by a 0.5MMT decrease in Ukraine and several other minor downward revisions.

The USDA pegged final 2019 US soybean production 90.4MMT, on an average yield of 3.19mt/ha compared to 90.2MMT and an average yield of 3.15mt/ha in the December report. This was a surprise to most analysts who expected to see the impact of the extremely challenging season continue to ripple through the country’s soybean supplies. Nonetheless, this is still 20 per cent lower than the previous season’s production of 112.5MMT.

Like corn, the South American soybean production numbers remain steady with Brazil estimated to produce 123MMT this summer and Argentina expected to harvest 53MMT. Brazil’s National Supply Company (Conab) released estimates last week that seem to ignore drought worries and support the USDA number. They are forecasting soybean production at 122.2MMT off 36.8 million hectares.

Eventually, soybean losses will happen if it remains dry, but most agronomists believe that the current lack of moisture only affects the first corn crop at this point in the season. The state raising the biggest concern is Rio Grande do Sul, the top summer corn producer in the country. Conab maintained its estimate for first crop corn production at 26.6MMT, down 3.8 per cent compared with 2019, based on a 1.1 per cent increase in the seeded area.

When it comes to wheat, global production for the 2019/20 marketing year was reduced by a meagre 1MMT to 764.4MMT. Half of that decrease was in Australia, where the USDA decreased production by 0.5MMT to 15.6MMT. While this is getting closer to reality, it is still at least 1MMT higher than the majority of domestic estimates.

Argentine production remained at 19MMT against the latest Buenos Aires Grain Exchange (BAGE) estimate of 18.8MMT. BAGE increased their estimate by 0.3MMT last week on the back of better than expected yields in the late-harvested regions. The balance of the global production decrease was in Europe with the Russian crop decreased by 1MMT to 73.5MMT and the European Union (EU) crop increased by 0.5MT to 154MMT.

On the wheat export front, global trade for the 2019/20 marketing year was increased by 1.3MMT to 181.1MMT. The US, Argentine and Canadian numbers were all unchanged compared to the December report. The major tweaking was in Europe where the Ukrainian and EU export numbers were increased by 0.5MMT and 2MMT respectively, and the Russian forecast was decreased by 1MMT on the back of lower supplies.

The USDA adjustment to the Australian wheat export number was hardly worth the token effort with a mere 0.2MMT shaved off expectations. Like the production forecast, the figure of 8.2MMT is at least 1MMT higher than most domestic expectations, and it simply should not be possible given domestic demand and the poor harvests receivals in Western Australia and South Australia.

Looking at the US new crop, the USDA reckons their farmers have planted 12.47 million hectares of winter wheat. This compares to 12.61 million hectares last year and is the smallest winter wheat area since 1909.

On the barley side of the equation, global production was decreased by 0.7MMT to 156MMT up more than 12 per cent, or 17.4MMT compared to the 2018/19 season. Australia was down 0.2MMT to 8.2MMT, EU up 0.5MMT to 62.75MMT and several minor producers collectively down by 1MMT.

The net change to global demand was minor at 0.1MMT, but the USDA did make some quite hefty regional adjustments to arrive at total demand of almost 153MMT. The big one was a 0.9MMT decrease in Chinese demand, potentially decreasing Australian exports over the coming months.

Countering that were demand increases of 0.4MT in the European Union and 0.6MMt in Turkey. Most importantly, Saudi Arabian demand was untouched at 8.5MMT, a year-on-year increase of 20 per cent or 1.5MMT. All this leaves 2019/20 global ending stocks at just under 21MMT, down 1MMT on last season’s number.

It could be said that last week’s WASDE report was mildly bullish for wheat, barley and corn, but on the whole, it was quite underwhelming for a report that invariably has huge trade and market ramifications.

Read the full USDA report here.

Jan 07 2020

Indian Ocean Dipole returns to neutral territory…

Posted by GBA Administrator | Weekly Commentary | No Comments

Extreme weather conditions and unprecedented bushfires across many parts of the Australian continent have been dominating the news cycle over the past few weeks. The extent of the catastrophe and the tragic loss of human life has touched all Australians, and many across the globe.

While all this has been happening the weather phenomena that underpinned Australia’s warmest and driest year since records began has finally broken down, returning to a neutral state in late December after sitting in positive territory since July last year.

The Indian Ocean Dipole (IOD) is one of the key drivers of Australia’s climate. The IOD measures the difference between seas surface temperatures in the tropical parts of the western and eastern Indian Ocean.

It has three phases; positive, neutral and negative. The different phases impact rainfall and temperature patterns over the Australian continent by influencing the trajectory of weather systems to the south of the country.

Under a negative IOD phase the sea surface temperatures in the eastern Indian Ocean (off the northwest coast of Australia) are warmer than average, while in the western Indian Ocean the sea surface temperatures are cooler than average.

This usually results in above-average winter and spring rainfall over many parts of southern Australia as the warmer waters off the northwest coast deliver more available moisture to weather systems crossing the country. This is the most favourable phase for agricultural production in Australia, particularly in the southern two thirds of the continent.

A positive phase means that the sea surface temperatures in the eastern Indian Ocean are cooler than average with the opposite occurring in the western Indian Ocean. The result is an increase in the intensity of easterly winds across the equatorial Indian Ocean region pushing the warmer waters towards Africa.

This generally means there is less moisture than normal in the atmosphere to the northwest of Australia, frequently resulting in less rainfall and higher than normal temperatures over Australia during winter and spring. The impact of a strongly positive IOD on agricultural production can be dramatic, as we have seen over the past six months. A positive IOD is also often associated with a more severe bushfire season in the southeast of the continent.

The latest positive IOD phase peaked in mid-October with a weekly index value of +2.2 °C, one of the highest readings since IOD records began. Since then the temperature gradient across the Indian Ocean has continued to ease. The latest value (for the week ending 5 January) is +0.17 °C, well below the +0.4 °C threshold for a positive IOD phase.

IOD events, whether positive or negative, generally end in late spring or early December, meaning the decline of the positive event in 2019 was much later than normal. This is tied to the delayed migration of the monsoon trough into the southern hemisphere and the accompanying changes to wind patterns over the tropical reaches of the Indian Ocean.

It is the monsoon’s interaction with the IOD that normally brings about the end of an IOD phase. The delay in the southern passage of the monsoon in late 2019 has meant the widespread drier and warmer than average conditions have continued well into the southern hemisphere summer.

The majority of global climate models are now predicting that IOD values will remain in the 0.0 °C to +0.4 °C range in the first half of 2020.

Meanwhile, most models of the El Niño–Southern Oscillation (ENSO), the primary climate driver in the Pacific Ocean, have it continuing in a neutral band until at least April of this year. The latest sea surface temperatures have cooled compared to the preceding two weeks, but they do remain warmer than average in the far western equatorial Pacific.

Under a neutral ENSO (neither El Niño nor La Niña) the trade winds blow as normal from east to west across the surface of the tropical Pacific Ocean. This brings warm moist air and warmer sea surface waters towards the western Pacific and keeps the central Pacific Ocean region relatively cool.

A neutral ENSO generally means that its influence on Australian and global weather patterns is much reduced compared to El Niño or La Niña phases. With both the IOD and ENSO now in neutral territory we start 2020 with fewer impediments to more normal weather patterns. While this doesn’t portend the weather in Australia will change immediately, if the models are correct, it does take these two prevailing climate drivers out of calculations ahead of the next winter crop planting window

Dec 23 2019

US-China trade deal ‘totally done’…

Posted by GBA Administrator | Grain Brokers Australia News, Weekly Commentary | No Comments

Farmers in the United States have received an early Christmas present after Beijing and Washington finally arrived at a preliminary agreement to lift some tariffs of Chinese imports in exchange for purchases of a range of US goods and services, including agricultural commodities.

China was first to announce the deal, which follows almost two years of protracted negotiations, punctuated by Trump’s tariff hikes and Beijing’s immediate retaliation.

The US trade representative Robert Lighthizer was quite upbeat about the phase one deal saying it was ‘totally done’ and would be signed in January. However, the Chinese were far more guarded in their comments, stating that they would act reciprocally and that they had not decided when they would ink the deal.

The US is ostensibly retaining 25 per cent tariffs on US$250 billion of Chinese imports while halving the tariff rate it imposed in September on US$120 billion of Chinese goods from 15 per cent to 7.5 per cent. The US has agreed not to proceed with 15 per cent tariffs scheduled to take effect on December 15 on almost US$160 billion of Chinese imports, and Beijing has cancelled its retaliatory tariffs which were due to commence at the same time.

China has committed to increase purchases of US agriculture products by US$32 billion over two years, but this appears to fall well short of Trump’s boast in October that China would increase purchases of US farm goods to as high as $50 billion annually in two years.

The increase will be measured against the 2017 level of US agricultural and related product exports to China, the last full year before the trade war commenced. In that year, China’s purchases totalled $24 billion, bringing the annual commitment to just US$40 billion, or US$10 billion short of Trump’s objective.

Lighthizer said Beijing would aim for an additional US$5 billion in farm purchases annually, but there were no guarantees. He said broad targets for Chinese acquisitions would be released publicly. There would also be more specific targets for purchases on a range of products, but those would not be made public to avoid distorting markets.

US exports of soybeans have been hit hard by the trade dispute, and China said they would immediately increase their purchases of US beans. However, they did place a significant caveat on that action saying imports would be based on domestic demand, and the US had to be competitive compared to alternative origins.

Lighthizer confirmed that notion by declaring Beijing would be free to buy “when it’s the perfect time to buy”. Given that from February onwards, South American soybeans are generally cheaper than US imports, even without tariffs, it begs the questions as to eventual subsidies by the Chinese government on purchases of US soybeans.

The China trade representative stated that they would increase their buying of US wheat and corn, not hard since they bought nothing over the last year, but the quantities would be subject to quotas. In any case, the deal is supposedly bullish on corn, with potential for an additional 3-4MMT of imports from the US, and as one market pundit said, ‘corn is the locomotive that pulls the wheat train”.

But many in the trade question whether it is actually feasible to achieve the additional purchases of US$16 billion per annum in 2020 and 2021. Under China’s Tariff Rate Quota (TRQ) system for certain agricultural products, the total quotas of 9.2 million metric tonne (MMT) for wheat and 7.6MMT for corn equate to just US$3.5 billion.

On the futures market, it was a case of buy the rumour, sell the fact. The news of an impending deal surfaced on Thursday last week and corn, wheat and soybean futures were all up. Come Friday, the markets started the day in positive territory but gave away those gains when the deal was announced. A very subdued response from the funds which are sitting on short positions in both corn and soybeans.

Given the conflicting rhetoric throughout the negotiation process, it would be understandable if the funds and traders want to see more details and some supporting action from China before they get too excited.

Early celebrations could also be embarrassing knowing that China still holds hefty tariffs on US soybeans and pork, only waived at their discretion. And there is the prospect of a record Brazilian soybean harvest in early 2020, much of it driven and financed by China’s tariff on US soybeans.

The trade deal with China comes at a critical time for Trump, just a couple of days before a new round of tariff increases were set to take effect. The impeachment process has also been stealing the headlines in recent weeks, and Trump is desperate for some good news to deflect attention away from the impending trial.

Next year is an election year in the US and Super Tuesday, the first big test of voter sentiment, is only eleven weeks away. More delegates to the presidential nominating conventions can be won on Super Tuesday than on any other single day on the primary calendar, and it is a critical test for presidential candidates from both sides of US politics.

In an attempt to keep the good news rolling, Trump said negotiations on a “phase two agreement” with China would begin immediately, instead of waiting until after the 2020 election.

Hopefully, news of the trade deal is not another empty political promise to farmers, but the beginning of a commitment to right the vast amount of damage done to the global agricultural economy over the last two years.

Dec 10 2019

Canadian farmers can’t take a trick this year…

Posted by GBA Administrator | Grain Brokers Australia News, Misc, Weekly Commentary | No Comments

Canadian farmers produced the smallest canola crop in four years on the back of lower plantings and unusually wet autumn weather that left crops sitting in the paddock unharvested, the latest blow in a miserable year which started with the Chinese ban on canola imports.

The heavy snow and rain during harvest across the Canadian Prairies have left around 810,000 hectares of canola buried under snow until spring.

Crops that remain in the fields over the winter are subject to wildlife damage and moisture spoilage, but some of it can usually be salvaged and marketed at a discount in the spring. However, the need to harvest the previous crop once fields dry can seriously delay the commencement of the spring planting program in affected districts.

Statistics Canada released their Production of Principal Field Crops report last Friday the more than 700,000mt was dropped off the countries 2019/20 canola production. Estimated production came in at 18.65 million metric tonne (MMT), down 8.3 per cent on last season, and 2.9 per cent below the five-year average.

The total harvested area fell 8.8 per cent to 8.34 million hectares but yields did rise by 0.5 per cent compared to the 2018/19 season to 2.24 metric tonne per hectare.

Canada is the world’s biggest producer and exporter of canola, and the crop has long been regarded as the most profitable for the Canadian farmer. China, Japan and Mexico have traditionally been the key export destinations, with the seed primarily used for the production of cooking grade vegetable oil and canola meal for stockfeed rations.

In the absence of their largest export customer, demand has been falling, inventories have been rising, and prices have been lower as a result. Nonetheless, Canadian farmers are adjusting to the reality of life without China by working on cutting costs, improving efficiency and modifying crop rotations to decrease their reliance on canola.

As of November 24, Canadian canola exports had decreased by 9.5 per cent compared to a year earlier. But the decline is much less than many had feared and is a reflection of the success in finding alternative consumers for the surplus export stocks. Several European countries are importing more Canadian canola for biofuel production, and shipments to the Middle East have also picked up in recent months.

In terms of wheat, Statistics Canada estimated current season production at 32.3MMT, a minor reduction of 140,000 compared to their previous all wheat production forecast. This put production around 0.5 per cent higher than last season and 6.5 per cent above the five-year average.

While all wheat classes were revised lower compared to the September estimates, it was a year-on-year rebound in spring wheat production that drove wheat production higher overall.

Spring wheat production is forecast to rise by 7.2 per cent to 25.67MMT, the largest spring wheat crop in six years. The harvested area is estimated to be 6.5 per cent higher than last year, and the average yield of 3.48 metric tonne per hectare is slightly higher than the 2018 harvest.

Canada western red spring makes up 86.4 per cent of all spring wheat produced, up from 83.7 per cent in 2018/19, well above both the five and ten-year averages. Durum production was estimated to fall by 13.4 per cent to 4.98MMT, with a year-on-year increase in yield unable to offset a 22.6 per cent decline in the harvested area.

Barley estimates were revised higher compared to those released earlier in the northern hemisphere autumn. Statistics Canada put total production at 10.38MMT, an increase of 23.9 per cent over the 2018 number and 28.2 per cent above the five-year average. The increase was due to harvested area, up by 13.9 per cent, and yields, which rose by nearly 9 per cent to 3.81metric tonnes per hectare.

Agriculture and Agri-Food Canada are suggesting that year-on-year barley stocks will double, quite a bearish scenario, particularly for the Canadian farmer. Up to the end of November total barley exports for the current marketing year sat just north of 600,000 metric tonne, 4.4 per cent behind the 2018/19 pace. With the world well supplied for malting barley requirements, feed channels would appear to be the best hope of boosting exports.

Even the humble oat, now considered a ‘superfood’ in eateries across the globe, benefitted from the swing away from canola with the crop 21 per cent up on last year, at 4.16MMT, and 23.7 per cent above the five-year average.

Statistics Canada revised both the soybean and corn numbers lower compared to their September estimates. Soybean production came in at 6.05MMT, down 18.5 per cent from 2018 and 11.7 per cent below the five-year average. The corn crop is forecast at 13.40MMT, down 3.5 per cent from 2018, just below the five-year average.

Unlike Australia, where a dry season has decimated national grain production, in Canada the wet has made 2019 a year to forget. Not only has it severely hampered the winter crop harvest, summer crop farmers are calling it the ugly trifecta. Late planting, far too much rain and snow through harvest and high-moisture grain meaning substantial drying costs will be incurred to bring it down to a market acceptable level. On top of the unharvested winter crop area, the adverse autumn weather has left many farmers facing unharvested corn paddocks into December and possibly beyond. Of all the issues the Canadian farmer has faced this year corn left standing in the paddock deep into the winter is perhaps the one they dread most.