Weekly Commentary Archives | Page 4 of 9 | Grain Brokers Australia

Australia losing relevance as a global wheat exporter…

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.

August 15, 2019

Russia expanding their supply footprint…

Saudi Arabia’s grain agency announced last week that it would relax the bug-damage specifications for wheat imports, potentially opening the door to Black Sea imports as soon as their next tender.

The Saudi Arabian Grains Organisation (SAGO) said that it would raise the maximum bug damage threshold from zero to 0.5 per cent to allow more nations to participate in the regular tender process.

The Kingdom generally imports between 3.0 and 3.5 million metric tonne of wheat annually, with the vast majority currently shipped from German and Baltic ports. The change in policy will bring wheat exports from Russia and Romania firmly into play, and to a lesser extent, Bulgaria and Ukraine.

This is a big win for Russian exporters who have been lobbying the Saudi government intently for more than twelve months. With burgeoning grain production in the Russian Federation in recent years, their exportable surplus has grown so much that they are now the world’s biggest wheat exporter. It also seems quite a logical step as Riyadh has been buying Russian barley for a number of years.

There has also been a substantial improvement in the quality of wheat being grown across the entire Black Sea region in recent years. This year’s Russian crop is a case in point. Production may be down on early expectations, but the quality is so good that there is a shortage of feed quality wheat compared to trade expectations and historical numbers.

Russia is a major supplier of wheat into the world’s biggest importer Egypt, and Saudi Arabia is one of the last wheat markets not dominated by Black Sea origin wheat. Russian exporters have desperately been trying to take further market share into Middle Eastern and North African markets from European Union (EU) exporters and the United States (US).

With the Black Sea origin wheat now in the frame, freight spreads will play an increasingly important role in allocating EU exports. Execution out of the Black Sea region is currently around US$5 cheaper than German or Baltic ports into the Red Sea port of Jeddah.

This represents a massive change in global trade flows and is a potential game-changer for wheat markets in both Germany and the Baltic States. Saudi Arabia was the second-largest buyer of EU wheat last season. In the absence of this historical exclusivity, German, Lithuanian and Latvian wheat will have to price itself into other high-quality markets such as Algeria, a crucial market for French exports.

Wheat of Black Sea origin is effectively excluded from the Algerian market as the North African republic has a low bug threshold on imported grain, similar to that which Saudi Arabia has just relaxed. But that won’t stop the Russians. They will be actively targeting Algeria now that they have added Saudi Arabia to their list of authorised destinations.

The trend to Black Sea supply is not limited to the Middle Eastern and North African importers. Asian consumers have been progressively incorporating Black Sea origins into their list of accepted wheat suppliers in recent times. This, of course, comes at the expense of the Australian farmer.

Drought reduced production, and lower exportable surpluses have not helped our cause in recent years. But the challenge is that once a market gets a taste of alternatives, such as the Black Sea, and they build comfort with the quality and reliability of supply, it is tough to wrangle that demand back is the absence of a supply issue.

The relaxation of the Saudi Arabian wheat quality thresholds appears to be an extension of recent cooperation between Moscow and Riyadh to prop up global oil prices by curbing supplies of crude. This is in defiance of pressure from the White House to increase supply by pumping more oil in an attempt to put a cap on global oil prices.

This is a very interesting development. It seems the Saudi government, in horse racing parlance, is hedging its bets by having a little each way. Saudi Arabia has historically considered the US its most important ally. While they have opposing views on the war in Yemen, they sit on the same side of the fence (the opposite side to Russia) in the Syrian conflict.

In another win for Russia, and a blow for the Australian farmer, China announced on August 1 that it had authorised the import of Russian barley. The barley approved for import must be grown in seven Russian regions that are not considered to have risks involving a plant disease called dwarf bunt.

According to Chinese officials, any barley imported from Russia will be used only for processing and not as seed for planting. The latest announcement comes on the back of Chinese approvals granted in late July for the import of wheat and soybeans from Russia.

Australia and France have traditionally been the major suppliers of barley to China, most of which goes into the brewing market or the livestock sector. But Australian exporters also have a challenge as they are still waiting for a decision on the anti-dumping probe launched by China in November last year.

However, front of mind for Beijing at the moment is the US-China trade war, and there is no end in sight. Add the US sanctions that are restraining Russian exports, and Donald Trump is providing a huge incentive for collaboration between the two Asian neighbours.

Russia has an increasing amount of agricultural produce to sell and China is looking for food security via alternate supply pathways.

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

July 30, 2019
Harvest action heats up in Europe
Many European regions recorded record high temperatures last week as the continent sweltered through its second heatwave of the summer. However, reaction of the grain markets has been tempered by expectations that this heatwave will be short-lived and is not expected to last long enough to cause severe losses in winter crop production.
Field conditions through most of Europe are generally quite good, and the trade is not expecting a repeat of last year’s terrible harvest. Those crops that were still at grain fill stage may lose between 0.25 and 0.50 metric tonne per hectare (MT/ha), but the heat will probably lead to a boost in protein levels according to local analysts.
Government agency FranceAgriMer said that 63 per cent of French wheat had been harvested by July 22, compared to 33 per cent only one week earlier, and 88 per cent at the same time last year. The dry conditions are ideal for reaping, and the French wheat harvest is expected to be almost completed by month-end with production in the 38 to 39 million metric tonne (MMT) range.
Harvest in Germany, the second-biggest wheat producer in the European Union (EU), is also progressing well. Reports suggest that it is now more than half completed with yields equal to, or even a little better than expectations.
The condition of the French corn crop had fallen to a rating of 67 per cent good to excellent before the record heat struck last week. This compares to 75 per cent a week earlier. The corn crop is at a critical growth stage and yields will fall dramatically if beneficial rains don’t arrive very soon. The latest heatwave will no doubt take a further toll on the health of the crop and this is expected to be reflected when crop rating numbers are updated this week.
There is talk in the trade of corn fields in northern France being cut for silage due to the heat; a trend that will be monitored closely in coming weeks. The trade is now estimating the country’s corn production at around 11MMT, versus 13MMT last year. Some rain over the weekend bought relief in some areas to pollinating corn crops.
Meanwhile, the International Grain Council (IGC) released its latest grain market report last Thursday. It was highlighted by a 6MMT decrease in global wheat production to 763MMT. While still a record, the decline is a reflection of smaller crops in the European Union, Russia and Canada compared to their June report.
The IGC pegged EU wheat production at 148.7MMT. This compares to their June estimate of 151.2MMT and 128.8MMT last season. There were downward revisions for France, Germany, Britain and Poland, primarily due to the June heatwave, which occurred when the crop was more susceptible to damage, as opposed to last week’s high temperature hit.
The Russian wheat crop was trimmed by 5 per cent from 79.5MMT to 75.7MMT. This is still higher than SovEcon’s latest forecast, which was pared by another 2.9MMT last week to 73.7MMT. The Russian agency also slashed its wheat export forecast for the 2019/20 marketing year by 6.2MMT to 31.4MMT. This is well below the 2018/19 export volume of 36MMT.
Moscow agency Rosselkhoznadzor (Federal Service for Veterinary and Phytosanitary Surveillance) said the Russian wheat harvest was 36 per cent completed as of late last week, with average yields coming in at around 3.7MT/ha, versus 3.83MT/ha last year. However, yields have been trending downward as harvest has progressed, a result of extremely dry conditions throughout June.
The IGC also cut the Canadian wheat crop by 5 per cent, from 33.6MMT to 32MMT. The crops in many regions showed stress after a dry spell through June and early July. Rainfall in late July has improved the soil moisture situation but conditions are reported to be quite variable from region to region.
Ukraine is reported to have completed 76 per cent of this year’s wheat and barley harvest. As of last Thursday, 19.7MMT of wheat and 6.7MMT of barley were in the bin. Wheat yields are reported to be improving as the harvest progresses with the average now sitting at around 3.85MT/ha, compared to 3.59MT/ha just a week earlier.
Some traders are reportedly increasing their Ukrainian wheat production estimates to 28MMT, or even higher, given the improving yield trend. This compares to the Agriculture Ministry’s estimate of 26.9MMT. The quality of Ukrainian wheat is excellent with about two-thirds milling quality and one third feed quality. This has caught the trade by surprise, leaving feed wheat shorts scrambling.
In further trade news, China’s General Administration of Customs (GAC) has reportedly granted permits for wheat imports from Russia, specifically from the country’s Kurgan region. This will compete with Australian origin wheat into China, particularly the northern ports. GAC has also approved soybean imports from all parts of Russia.
Closer to home, a group of private importers from the Philippines purchased 275,000 metric tonne of Australian feed wheat from CBH for October to December shipment at an average price of AU$240.60 Cost & Freight (C&F).
That is quite interesting when compared to Black Sea values. European harvest pressure sees Black Sea wheat prices challenging season lows with sluggish global demand and a lack of forward sales holding values at bay.
Last week Black Sea feed wheat was quoted at around US$187 Free on Board (FOB) for September. Add sea freight of US$33, and the 7 per cent import duty, the Black Sea origin price comes to US$235 C&F, more than US$5 under where the business was booked.
Does that represent a quality premium for Australian origin? Unlikely for feed wheat. Are replacement Black Sea values higher than are being reported? Maybe. Or is there a reluctance to book Black Sea origin over Australian at similar price levels? Hopefully so, as that will augur well for Australia’s marketing program into Asia moving forward.
Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.

July 23, 2019
Some more Argie bargy ahead for Australian wheat exporters…
Farmers in Argentina have nearly finished the planting of their 2019/20 wheat and barley crops according to the latest Buenos Aires Grain Exchange (BAGE) agricultural report.
Grain producers are reported to have sown 6.078 million hectares, or 92.1 per cent of the intended area by Wednesday of last week. This compares to 93 per cent planted at the same time last year, and a five year average of 85.6 per cent. BAGE is forecasting that a record total of 6.6 million hectares will be sown to wheat this season. This represents a 6.5 per cent increase on the 6.2 million hectares planted last season.
Soil moisture levels are very favourable in Argentina this season, and some fields are too wet to plant. This is the main reason that the planting program is not further advanced or even finished by now. According to BAGE, 96.6 per cent of the wheat crop is in favourable to optimum moisture conditions. This compares to only 67.5 per cent at the same time last season.
Early wheat production forecasts peg the crop at a record 21.2 million metric tonne (MMT). This compares with the most recent United States Department of Agriculture (USDA) forecast of 20MMT. Wheat exports are expected to be around 14.5MMT this marketing year, up from 13MMT last year. Brazil will continue to be the biggest destination at around 7MMT, but Asia will be a key focus as exporters look to build on the export relationships formed this year.
Argentine wheat consumption in the 2019-20 marketing year is forecast at 5.75MMT, excluding wheat milled for flour exports. Wheat consumption in Argentina is generally quite inelastic, but analysts are predicting a marginal year-on-year increase on expectations that the domestic economy will experience some recovery in 2020.
There are approximately 170 flour mills in Argentina with the vast majority of the plants located in provinces of Buenos Aires, Cordoba, Santa Fe and Entre Rios. Industry sources suggest that most of these facilities are currently operating at around 50 per cent of capacity.
This follows the imposition of an export tax of 3 pesos per United States dollar in September last year, adding an additional 7 per cent to the cost of wheat flour exports. Since September 2018, flour exports have dropped by more than 20 per cent and shipping data this year reveals that some monthly volumes are down by as much as 50 per cent compared to last year.
On the barley front, significant planting progress has been made in the last two weeks, especially in the southern cropping areas. BAGE reports that 775,000 hectares or 81.6 per cent of the intended area had been sown as of July 17. Despite a 30 percentage point improvement in July, the southern cropping areas are still well behind the rest of the country, with planting hampered by ongoing wet weather.
They are forecasting that the total area planted to barley this season will finish up at around 950,000 hectares, down 5 per cent on the 1 million hectares planted last year. Production is forecast at 3.8MMT, down by around 16 per cent compared to the 4.5MMT harvested last year. However, favourable seasonal conditions could easily see production exceed 4MMT. The USDA has the Argentine barley crop at 4MMT, off 1 million hectares.
Domestic consumption of barley for the 2019/20 marketing year is expected to be 1.35MMT, excluding barley that is malted for export. The primary consumers of feed barley in Argentina are the feedlot and dairy sectors and demand is forecast to fall slightly on the back of the lower production.
The malting industry in Argentina is made up of three large and two smaller plants and between 25 and 30 per cent of the malt they produce is consumed domestically. The balance is exported to the Mercosur trading bloc and other South American countries. In the 2018/19 marketing year, around 2MMT of malting barley made its way to domestic maltsters or was exported as malting barley.
Total barley exports in 2019/20 are expected to be much lower than the previous marketing year as a result of the smaller crop. Current forecasts are suggesting exports could be as low as 2.2MMT. Shipments of feed barley are pegged at 1.2MMT, with Saudi Arabia, the primary destination. Malting barley consignments make up the balance of 1MMT, with Brazil the leading destination, followed by Chile.
Here in Australia, the only significant areas that remain unplanted are the drought-stricken parts of central and northern New South Wales and southern Queensland. The prospect of adequate rainfall in the near future is low, so the planting window is basically closed.
One of the big turnaround stories in Australia this year is Central Queensland. They are currently in the middle of their sorghum harvest and any grain hitting the market is being snapped up very quickly. The wheat crop is also looking above average in most districts. Production of as much as 350,000 metric tonne is on the cards and no doubt that will be gobbled up by domestic consumers in Queensland as soon as it hits the market in September.
But this will not solve the northern demand deficit. It will continue until late next year, and the shipment of wheat and barley from Western Australia and South Australia to the port of Brisbane will continue to fill the void.
On the whole, the Australia winter crop conditions are better than this time last year. If current estimates of a circa 20MMT wheat crop come to fruition there will be plenty to satisfy domestic demand, and Australia will have a sizeable exportable surplus.
This is where a bigger wheat crop in Argentina becomes a challenge for Australian exporters. The Argies have been an unwelcomed competitor into some of Australia’s traditional Asian markets this year, and that looks set to continue in 2019 if current production forecasts are met.
Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.

Grain Brokers Australia Weekly Market Report
July 2, 2019
USDA shocks the market…
The United States Department of Agriculture (USDA) released quite startling corn and soybean planting intention numbers late last week, and the futures markets reacted accordingly. The trade was left scratching their heads as the corn number was well above expectations, and the soybean number was the opposite.
According to the USDA, United States (US) farmers have planted 91.7 million acres (37.1 million hectares) of corn, well above the average industry forecast of 86.7 million acres (35.1 million hectares), and only slightly lower than the prospective planting number of 92.8 million acres (37.6 million hectares) released back in March.
In the World Agricultural Supply and Demand Estimates (WASDE) report released earlier in June, the USDA revised the corn area down by 3 million acres (1.2 million hectares) to 89.8 million acres (36.3 million hectares). This was due to the widespread rains and flooding through much of the Corn Belt. It was, therefore, a huge surprise to see the number increase so significantly when the weather continued to delay planting throughout the month.
All this took the wind out of corn futures, with the September contract finishing down 21 cents per bushel (AU$11.80 per metric tonne), or 4.71 per cent, at the close of Friday trade. If the USDA had not lowered the corn area in their June WASDE report, the latest number would probably have been greeted with a far more subdued reaction.
However, after the market closed the USDA said that the National Agricultural Statistics Service (NASS) will conduct a second survey of growers in 14 states and if the newly collected data justify any changes, NASS will publish updated acreage estimates in the Crop Production report due to be released on Monday, August 12.
The anomaly probably occurs as the survey was conducted in the first two weeks of June. At the time of the survey, the area that farmers intended to plant, but had not yet planted due to excessive rainfall, was 15.5 million acres (6.3 million hectares). They may have intended to plant the corn, but the big question is what proportion of that area was actually seeded by month end? Most in the trade believe it is far less than the USDA has reported.
On the soybean front, the USDA reported that US farmers had planted 80 million acres (32.4 million hectares), 4.6 million acres (1.9 million hectares) less than both the average industry estimate and the prospective planting number released back in March.
Soybean futures did not react as much as corn, but they did rally after three down days in a row. The September contract closed 11 cents per bushel (AU$5.75), or 1.22 per cent higher, at the end of last week’s trade.
Improved harvest weather in the US and the fall in corn values pushed wheat prices sharply lower late last week as well. Soft Red Winter futures closed 19½ c/bu (AU$10.20), or 3.57 per cent lower on Friday, erasing all of the week’s gains and finishing only a tad higher than the first trading day in June.
The winter wheat harvest is well and truly underway in the southern plains of the US. The pace is picking up with the weather turning warmer and drier, but it is still lagging the 5-year average by 14 percentage points. Yields reports have been excellent thus far, and the average protein has been improving as the harvest moves north.
Harvest is also underway in Russia. The French consultancy Agritel is not buying the talk of crop damage due to the hot, dry weather, increasing their Russian wheat production estimate to 81.7 million metric tonne (MMT). This is up 2.5MMT from their last estimate and is 13 per cent higher than last year’s production.
Yields are reported to be higher than last year, but lower than the records set in the 2017/18 season. The hot dry finish is likely to push protein levels higher making Russian wheat exports more attractive to global millers.
The European Commission has been forced to cut their European Union wheat production forecast for the 2019/20 season to 142.3MMT. This is down 1.5MMT from last month’s estimate of 143.8MMT, but still more than 10 per cent higher than last season’s drought-affected production of 128.8MMT.
France is the biggest wheat producer in the European Union, and their soft wheat crop is rated 80 per cent good to excellent, unchanged from last week despite the heat wave, and up 6 per cent from this time last year.
In South America, the Buenos Aires Grain Exchange is expecting 6.6 million hectares of wheat to be planted in Argentina, up from their last forecast of 6.4 million hectares. This, of course, will add tonnage to their exportable surplus and increase competition in key Asian markets for Australian exporters.
Here in Australia, it is another season of two opposing stories. Fortunately, the good story accounts for a much higher proportion of the continent’s cropping area than last year, but the drought is still seriously affecting production in substantial parts of eastern Australia.
In most quarters of southern New South Wales, Victoria, South Australia and Western Australia the winter crops are progressing well. Soil moisture levels in most districts are close to average for this time of the year.
However, farmers through central and northern New South Wales and southern Queensland are doing it tough. In some districts, year to date rainfall is the lowest ever, and many have not had a crop since 2016.
The planting window is closing fast. Nonetheless, if sufficient rain came in the next few weeks, many growers would still plant as much as they could. There would most likely be a swing to chickpeas at the expense of cereals, but they need the income, and the only way to get that income is to plant a crop.
But there is one big problem! There is no forecast for substantial rain in the foreseeable future.
Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.