This little piggy went to market…

The big news in Agricultural markets last week was the release of a plethora of data by the United States Department of Agriculture (USDA). Most of the reports had been delayed due to the partial shutdown of US government agencies.

The biggest of these reports was the World Agricultural Supply and Demand Estimates (WASDE) which incorporated two months of data. The January report could not be collated as USDA employees were furloughed throughout the record 35-day shutdown.

Surprisingly, there weren’t any significant surprises. The USDA trimmed world wheat ending stocks from 268.1 million metric tonnes (MMT) to 267.5MMT. Nothing there to scare the market. They left the United States (US) and European Union (EU) wheat exports unchanged at 27.2MMT and 22MMT respectively, but they did decrease Australian wheat exports to 10MMT. This is now roughly in line with most domestic trade estimates.

Interestingly, the USDA increased Russian wheat exports by 0.5MMT to 37MMT. There has been much speculation around the unsustainable pace of Russian exports and possible restrictions as internal wheat prices soar. Rouble-denominated prices for Russian milling wheat have hit an all-time high, while those in US dollar terms are reported to be the highest since July 2014. Growers are holding back sales given shrinking stocks and continually rising prices.

Russian export wheat prices increased around US$4 last week, closing at a four year high. Russia is now largely uncompetitive in the world wheat market. This was reflected in last week’s Egyptian (GASC) wheat tender, where Russian prices were too high to compete. This was the second successive tender where Russia was unsuccessful. All this will surely keep Russian wheat exports well below the USDA number.

GASC purchased a total of 300,000 metric tonnes (MT) of wheat in their snap tender last Friday. The US sold 120,000MT of soft red winter wheat, the French also sold 120,0000MT, and the remaining 60,000 was traded by Ukrainian exporters.

The US was the lowest free on board (FOB) offer by around US$10, and despite the US$10 freight disadvantage, the US number landed in Egypt was still slightly cheaper than both the French and Ukrainian offers. The average cost and freight (C&F) price was approximately US$2 lower than the late January tender.

The Chinese will be back at work this week after their traditional Chinese New Year festivities. There are 12 Chinese zodiac animals used to represent years, and 2019 is the year of the Pig. The Lunar New Year, as it is also known, is celebrated by more than 20 per cent of the world’s population, with countries such as North and South Korea and Vietnam commemorating it as well.

In China, you will also hear the New Year referred to as ‘chunjie’, or the Spring Festival. It may still be winter, but the holiday marks the end of the coldest days and the approaching spring, which officially commences in March. From an agricultural viewpoint, it is a time to pray to the gods for a good winter crop harvest and summer crop planting season.

With the return to work comes a new round of trade talks between the US and China. They begin in Beijing on Monday, after last week’s negotiations in Washington concluded without a deal. Reports suggest that a lot more work needs to be done before a formal agreement is reached. Plenty of talk from both sides but who really knows what is going on?

Despite the rhetoric, the two sides are desperately trying to thrash out a deal ahead of the March 1 deadline. This is when the US tariffs on over US$200 billion worth of Chinese imports are scheduled to increase from 10 per cent to 25 per cent.

Early in the trade negotiation process, China stated that it would purchase 5MMT of US soybeans as a goodwill gesture while the negotiations were in progress. After a spate of buying in late January and the first four days of February, it appears that purchases well and truly reached the target ahead of the Spring Festival vacation period. With the USDA still catching up on the sales data, there are reports that the Chinese acquisitions could be as high as 10MMT since the talks began.

Moving to the northern hemisphere winter crop where warmer weather and rain across many parts of the Balkans and western Europe has reduced the protective snow cover. The weather forecasts are kind in coming weeks but any return to cold winter conditions could have serious winterkill implications in the absence of adequate protection.

In the Black Sea region, unseasonal mild temperatures have also melted the protective snow cover, particularly through the southern areas of Ukraine and Russia. There have been no reports of crop losses and local Ukraine estimates have stated that between 96% and 99% of winter grains in Ukraine are in a “viable state”. I guess this means they aren’t dead.

A large part of the US winter wheat area received heavy rainfall, and subsequent minimum night time temperatures have been close to the theoretical winterkill thresholds. This follows the extremely low temperatures through many of the Midwest states in late January. Up to 20 per cent of wheat land had limited or no snow cover. If there has been some damage, it will not become evident until the crop breaks dormancy in early spring and recommences its growth phase.

One number that did surprise last week was the area sown to winter wheat in the US. The USDA rolled out a planted area of 31.1 million acres. This is a 110 year low and is 4.3 per cent lower than last year’s area of 32.5 million acres.

Unseasonable weather conditions seem the be a global norm these days, and Australia is no exception. While the prolonged dry continues in southeastern Australia, many parts of Northern Queensland are the complete antithesis. Unprecedented flooding has come to areas that have been in drought for up to eight years. The resultant livestock losses have been huge and remind us of the harsh and unrelenting environment in which we live and work.

Unfortunately, the flooding will be no help to the ailing Murray Darling basin system on which so many Australians depend.

Peter McMeekin is a consultant to Grain Brokers Australia. Call 1300 946 544 to discuss your grain marketing needs.

The big news in Agricultural markets last week was the release of a plethora of data by the United States Department of Agriculture (USDA). Most of the reports had been delayed due to the partial shutdown of US government agencies.

The biggest of these reports was the World Agricultural Supply and Demand Estimates (WASDE) which incorporated two months of data. The January report could not be collated as USDA employees were furloughed throughout the record 35-day shutdown.

Surprisingly, there weren’t any significant surprises. The USDA trimmed world wheat ending stocks from 268.1 million metric tonnes (MMT) to 267.5MMT. Nothing there to scare the market. They left the United States (US) and European Union (EU) wheat exports unchanged at 27.2MMT and 22MMT respectively, but they did decrease Australian wheat exports to 10MMT. This is now roughly in line with most domestic trade estimates.

Interestingly, the USDA increased Russian wheat exports by 0.5MMT to 37MMT. There has been much speculation around the unsustainable pace of Russian exports and possible restrictions as internal wheat prices soar. Rouble-denominated prices for Russian milling wheat have hit an all-time high, while those in US dollar terms are reported to be the highest since July 2014. Growers are holding back sales given shrinking stocks and continually rising prices.

Russian export wheat prices increased around US$4 last week, closing at a four year high. Russia is now largely uncompetitive in the world wheat market. This was reflected in last week’s Egyptian (GASC) wheat tender, where Russian prices were too high to compete. This was the second successive tender where Russia was unsuccessful. All this will surely keep Russian wheat exports well below the USDA number.

GASC purchased a total of 300,000 metric tonnes (MT) of wheat in their snap tender last Friday. The US sold 120,000MT of soft red winter wheat, the French also sold 120,0000MT, and the remaining 60,000 was traded by Ukrainian exporters.

The US was the lowest free on board (FOB) offer by around US$10, and despite the US$10 freight disadvantage, the US number landed in Egypt was still slightly cheaper than both the French and Ukrainian offers. The average cost and freight (C&F) price was approximately US$2 lower than the late January tender.

The Chinese will be back at work this week after their traditional Chinese New Year festivities. There are 12 Chinese zodiac animals used to represent years, and 2019 is the year of the Pig. The Lunar New Year, as it is also known, is celebrated by more than 20 per cent of the world’s population, with countries such as North and South Korea and Vietnam commemorating it as well.

In China, you will also hear the New Year referred to as ‘chunjie’, or the Spring Festival. It may still be winter, but the holiday marks the end of the coldest days and the approaching spring, which officially commences in March. From an agricultural viewpoint, it is a time to pray to the gods for a good winter crop harvest and summer crop planting season.

With the return to work comes a new round of trade talks between the US and China. They begin in Beijing on Monday, after last week’s negotiations in Washington concluded without a deal. Reports suggest that a lot more work needs to be done before a formal agreement is reached. Plenty of talk from both sides but who really knows what is going on?

Despite the rhetoric, the two sides are desperately trying to thrash out a deal ahead of the March 1 deadline. This is when the US tariffs on over US$200 billion worth of Chinese imports are scheduled to increase from 10 per cent to 25 per cent.

Early in the trade negotiation process, China stated that it would purchase 5MMT of US soybeans as a goodwill gesture while the negotiations were in progress. After a spate of buying in late January and the first four days of February, it appears that purchases well and truly reached the target ahead of the Spring Festival vacation period. With the USDA still catching up on the sales data, there are reports that the Chinese acquisitions could be as high as 10MMT since the talks began.

Moving to the northern hemisphere winter crop where warmer weather and rain across many parts of the Balkans and western Europe has reduced the protective snow cover. The weather forecasts are kind in coming weeks but any return to cold winter conditions could have serious winterkill implications in the absence of adequate protection.

In the Black Sea region, unseasonal mild temperatures have also melted the protective snow cover, particularly through the southern areas of Ukraine and Russia. There have been no reports of crop losses and local Ukraine estimates have stated that between 96% and 99% of winter grains in Ukraine are in a “viable state”. I guess this means they aren’t dead.

A large part of the US winter wheat area received heavy rainfall, and subsequent minimum night time temperatures have been close to the theoretical winterkill thresholds. This follows the extremely low temperatures through many of the Midwest states in late January. Up to 20 per cent of wheat land had limited or no snow cover. If there has been some damage, it will not become evident until the crop breaks dormancy in early spring and recommences its growth phase.

One number that did surprise last week was the area sown to winter wheat in the US. The USDA rolled out a planted area of 31.1 million acres. This is a 110 year low and is 4.3 per cent lower than last year’s area of 32.5 million acres.

Unseasonable weather conditions seem the be a global norm these days, and Australia is no exception. While the prolonged dry continues in southeastern Australia, many parts of Northern Queensland are the complete antithesis. Unprecedented flooding has come to areas that have been in drought for up to eight years. The resultant livestock losses have been huge and remind us of the harsh and unrelenting environment in which we live and work.

Unfortunately, the flooding will be no help to the ailing Murray Darling basin system on which so many Australians depend.

Peter McMeekin is a consultant to Grain Brokers Australia. Call 1300 946 544 to discuss your grain marketing needs.

It’s off to work we go…

The partial United States (US) government shutdown finally came to an end last week, and over 800,000 non-essential government employees returned to work. This means that the United States Department of Agriculture (USDA) is back up and running and staff are frantically collating all the reports that were due over the last 35 days as well as those due in the near future.

There will be a lot of information to hit the market in a short period. Around 62 reports that measure US farm production, foreign purchases of US commodities, the size of domestic stockpiles and US plantings of winter wheat were all delayed by the shutdown and they will be published in coming weeks.

However, the January World Agricultural Supply and Demand Estimates (WASDE) report is not being collated. Material originally intended for the January WASDE will be combined into the February edition which is due for release this Friday.

The other significant news last week was the return to the market of Egypt’s state grain buyer, the General Authority for Supply Commodities (GASC). This was the first tender since GASC secured a new credit facility, updating its payment terms in a bid to drum up greater selling interest and to lower costs at its tenders.

The tender results reveal that GASC purchased 360,000 metric tonnes (MT) of wheat, and none was from Russia. This is a complete turnaround from the January tender where it all went to Russian exporters and is the first major sign of a slowdown in the pace of Russian wheat exports.

Russian offers were more than US$255/MT free on board (FOB) and were simply too expensive compared to Romanian offers at just under US$251/MT FOB and French at almost US$248/MT FOB. GASC booked 180,000 (3 cargoes) from each origin for the March 11 to 20 delivery window.

This is the first sale of French wheat into the GASC tenders since July 2017. The average delivered price came in at US$262.77 cost and freight (CFR), a fall of US$2.17 on the January tender price. US wheat was offered at $US243 FOB but couldn’t quite compete on a CFR basis due to the unfavourable freight spreads compared to France and Romania.

However, one of the first USDA reports to hit the wires was the US weekly sales report for the week ending December 20. It revealed that two cargoes of US hard red winter (HRW) wheat had been sold to private Egyptian buyers. This is undoubtedly a good sign for the competitiveness of US wheat into the Mediterranean, African and Middle Eastern destinations and maybe a precursor for more such news as the delayed USDA reports are released in coming weeks.

Another factor favouring the US presently is the fall in international sea freight rates. This is reflected in the dramatic fall in the Baltic Dry Index (BDI) over the last month. The BDI is a shipping and trade index created by the London-based Baltic Exchange and was first published in January 1985.

It measures changes in the cost of transporting various goods around the world and gives investors and the trade an insight into supply and demand trends in the global dry bulk shipping market.

The index is calculated using charter rates for the full range of ship sizes – from Handysize (ships that can carry 15,000 to 35,000 deadweight tonnes) to Capesize (ships that can carry more than 100,000 deadweight tonnes). The figure for each ship size is based on an average of rates on a series of routes representative for each size.

The BDI is traditionally a good indicator of global economic health and worldwide demand for commodities and raw materials, such as iron ore, coal, steel cement and grains. The fact that the BDI focuses on raw materials is crucial because the demand for raw materials provides a glimpse into the future.

The index has lost more than 50 per cent of its value since the beginning of the year and is now at its lowest level in almost 2 years (see chart). January is historically slow for dry bulk markets, particularly in the Pacific as the far east prepares for Chinese New Year. However, this year the Atlantic rates have also fallen significantly.

The short term sentiment has been intensified by two factors. Firstly, the lack of soybean exports from the US to China as a result of Don’s Party (US-China trade war). And secondly, the tragic dam break at Vale’s Corrego do Feijao iron ore mine in southeastern Brazil. This is a huge mine, and the disaster has sparked concerns that it could lead to a substantial decrease in iron ore production and exports from Brazil which will impact the capsize sector of the shipping market.

One thing is certain, the decrease in sea freight rates is increasing the competitiveness of the US into important markets such as the Mediterranean, African and Middle Eastern regions. These are markets that have been dominated by Russia so far this season. The US needs to find demand for wheat. The challenge is the amount of open old crop demand in those markets is shrinking every week as new crop Russian and Ukrainian wheat will be available in July.

Peter McMeekin is a consultant to Grain Brokers Australia. Call 1300 946 544 to discuss your grain marketing needs.

It’s hot! Damn hot! Real hot!

Extreme heat wave conditions have been experienced across many parts of south eastern Australia over the past week with temperature records tumbling in many regions. South Australia appears to have been the worst affected with seventeen official temperature records broken across the state last Thursday.

Adelaide posted a new record of 46.6 °C (115.9 °F) compared to 46.1 °C (115.0 °F) set on January 12, 1939, more than 80 years ago. In Port Augusta, the thermometer peaked at a scorching 49.5 °C (121.1 °F) which was terribly close to the highest official temperature ever recorded in Australia. This is 50.7 °C (123.3 °F), and it was logged at Oodnadatta (also in South Australia) on January 2, 1960. Incidentally, the official highest ever recorded temperature on earth is 56.7°C (134°F), which was measured on 10 July 1913 at Greenland Ranch, Death Valley, California, USA.

The sweltering temperatures extended east into most parts of Victoria and inland regions of New South Wales but not as many records were broken in those states. The neighbouring regions of the Mallee in northern Victoria and the Riverina in south western New South Wales were the hardest hit.

In Queensland, the temperatures were above average but certainly not as extreme as those experienced further south. However, it is the extreme dry that is the biggest challenge for sunshine state grain growers at the moment. Unlike the southern parts of the continent where summer drought is normal, Queensland has a summer dominant rainfall pattern.

The combination of hotter than normal temperatures and well below average summer rainfall is starting to have an impact on the state’s sorghum production. This year’s harvest is going to be a drawn-out affair as seeding in southern Queensland began in early September and planters were still active in late December on some parts of the inner Downs.

Harvest of the crops that were sown in early spring has commenced. Initial quality reports are mixed with screenings issues starting to surface, particularly on the Western Downs. It is far too early to make a call on crop quality and the influence on production, but the unseasonable weather pattern is definitely going to have an impact, particularly if it continues.

If that impact manifests itself in a higher than usual percentage of sorghum 2, then the market has a challenge. It has to try and find a home for the downgraded product. Grower selling has reportedly slowed to a trickle due to the quality uncertainty. They are frantically trying to get sorghum 2 options on their sales to cover the downgrade risk.

However, most stock feed consumers have traditionally been very reluctant to buy sorghum 2. Some take it, but many don’t. If they do, it is only in relatively small quantities and at a significant discount. The focus for many these days has turned to a consistent ration aimed at maximising daily weight gain as opposed to chasing the cheapest grains available.

The Darling Downs market closed last week pretty close to where it started. Stock feed quality wheat was trading at around $450 delivered. Feed barley was around $50 cheaper at $400 delivered, and sorghum was a further $40 discount at $360 delivered. Discounts being applied to sorghum 2 reportedly range from $20 to as high as $35.

All market participants will be keeping a keen eye on the quality trend as harvest ramps up. If test weights are lower than usual and downgrading becomes an issue, then the current discount structure will have to change.

At the current price spread to white grains, domestic sorghum demand could be as high as 1.6 million metric tonnes (MMT). However, with much of Central Queensland still to plant (window closing quickly) and northern New South Wales production well below average, total production is probably going to be less than 2MMT. It could easily be as low as 1.8MMT already.

If there are further production issues the sorghum balance sheet begins to tighten. And that is without and any demand from China. The market will have to react. Firstly, if downgrading increases to such an extent that supply of sorghum 2 outstrips demand, then the sorghum 2 discount will widen as a reflection of the oversupply.

Secondly, if production decreases, and/or China enter the market, to such an extent that supply has to be rationed then the sorghum 1 discount to wheat and barley will be pressured to narrow. This, in turn, will encourage consumers to decrease their sorghum demand by increasing white grain inclusion in their ration at the expense of sorghum.

I guess the next question is will that have an impact on white grain prices delivered to the Queensland consumer? The quick answer is unlikely, unless there is movement in international values or a politically motivated change in demand for Australian wheat or barley.

The prices quoted above are a reflection of full execution from Western Australia. There is an exportable surplus of both wheat and barley in that state, and both grains are seeing export interest at current values. However, a decrease in domestic sorghum production on the east coast will mean that exports of white grains from Western Australia to the east coast will have to increase to fill the void. This will be at the expense of wheat and barley available for international sales.

Trade eyes will be firmly fixed on sorghum production and quality as the harvest ramps up over the next month. If the hotter and drier than normal conditions continue then the northern feed grains market is in for some increased volatility.

The latest Bureau of Meteorology three month (February to April) outlook doesn’t provide much solace. The chances of a warmer three months are higher than 80% over large parts of western and eastern Australia.

It reminds me of the 1987 American war comedy Good Morning Vietnam. When US Armed Forces radio DJ Adrian Cronauer (played by Robin Williams) asks a soldier on the front line “What’s the weather like out there?” the response was an emphatic “It’s hot! Damn hot! Real hot!”

Peter McMeekin is a consultant to Grain Brokers Australia. Call 1300 946 544 to discuss your grain marketing needs

Sorghum harvest commences, but production threatened …

As the last of the Australian winter crop harvest winds down in Victoria, South Australia and Western Australia, the early sorghum harvest has rolled into action across southern Queensland and isolated pockets of northern New South Wales.

There has been much conjecture around the size of this season’s sorghum crop after seed supplies reportedly ran out back in October. The early planted area in southern Queensland was quite significant, but plenty of seed obviously sat in the shed. The pre-Christmas rains initiated a flurry of planting activity across the holiday period with planters even seen operating on Christmas day.

Fortunes have been mixed throughout the growing season. Most of the early sown crops in northern New South Wales have struggled through without much in crop rainfall, and some have perished as a result. While there are some good areas, many early yield reports have not been flattering. At this stage, with much of the Liverpool Plains and other areas further north yet to be sown (and unlikely to be sown), the New South Wales crop will struggle to exceed 500,000 metric tonnes (MT). This is well below average.

Southern Queensland crops have generally fared better. Whilst the spring rainfall has been lower than average in most districts the crop has managed quite well. Apart from the irrigated crops, those sown into long fallow ground certainly look the best. Nevertheless, there were isolated instances where paddocks failed and were sprayed out. Some of these were resown when later rains arrived.

Overall the inner Darling Downs crops (east of Dalby and Cecil Plains) are in good condition. The same can be said for the areas north of Dalby and west as far as Condamine and Miles. In general, those crops that are at, or close, to harvest will be above average in yield. Evapotranspiration is at its peak at this time of the year so those paddocks that are still in the grain fill stage will require more rain to finish and maintain above average yield potential.

The size of the late sown crop may surprise to the upside if the growing season is a little sympathetic. This has the potential to compensate, in a small way, for the lower production in northern New South Wales as the drought continues in many areas of the state. The lack of seed availability has forced some growers to reduce seeding rates in order to plant the intended area. At this stage, the southern Queensland crop could still be as high as 1.2 million metric tonnes, but regular rain is required to get that through to harvest and in the bin.

The planting window is now well and truly open in Central Queensland, but the required rains have not arrived in many districts. Around one-third of the predetermined area has been planted and much of that is into a marginal moisture profile. The ideal sowing window for the region runs through to at least mid-February, so there is still time. However, substantial soaking rains are required across the entire region to boost the sown area and get the balance of the crop in the ground.

In a big year, Central Queensland can produce more than 500,000MT of sorghum, but most estimates would currently be south of 350,000MT. Unfortunately, the hot, dry weather is forecast to continue through to the end of January so the final production number could easily be much less. Due to its distance from key domestic markets, a significant proportion of Australia’s sorghum exports are traditionally loaded out of the Central Queensland ports of Gladstone and Mackay.

The market reacted to the availability of new crop sorghum with the delivered Darling Downs market trading down to $350 at the end of last week, a fall of around $10 over the week. The delivered Brisbane and delivered Newcastle markets were also weaker last week, falling about $8 to finish at $364 and $375 respectively.

The domestic market may have been down, but the appreciation in the Aussie dollar meant that export values actually increased week on week. China has reportedly reduced their bids for Australian sorghum, and they now sit at a substantial discount to domestic values.

This could be a reflection of reports that China has been increasing their interest in United States (US) sorghum. There are even rumours circulating that some business may have been done. With the United States Department of Agriculture (USDA) on a Trump enforced siesta, anything could have happened, and the market would be none the wiser.

US sorghum is trading at around US$185 free on board (FOB) out of the Gulf of Mexico against Brisbane FOB at around US$295. At that spread, it will be challenging for Australia to find substantial export demand. However, with queries on production in northern New South Wales and Central Queensland, the exportable surplus may not be significant.

In overseas news, Egypt (GASC) issued a wheat tender last week, and they ended up booking 415,000MT. Despite all the talk of dwindling supplies, logistics issues, rising domestic prices and phytosanitary restrictions, Russia was again the seller. A total of 295,000MT traded in the February 20-28 slot and a further 120,000 traded in the March 1-10 slot.

Values were around US$2 higher than the December tender. This dashed hopes of an early pick-up in European and US exports in the second half of the season, and the market was sold down accordingly after the tender results were released.

Last week’s US-China trade talks concluded with no official deal, but China promised to buy “a substantial amount” of agricultural, energy and manufactured goods and services from the US. There does not appear to have been any follow through with no evidence or reports of sales to close the week. The government shutdown is certainly not helping the transparency situation. Higher level talks are now scheduled for later in the month to hopefully hammer out a deal.

It seems that Don’s Party is quickly becoming a game of Deal or No Deal.

Peter McMeekin is a consultant to Grain Brokers Australia. Call 1300 946 544 to discuss your grain marketing needs.

Global Crops Harvest Update

The Australian winter crop harvest is all but complete and much of the northern hemisphere winter crop is now sound asleep under a protective blanket of snow. As is the case each new year, the focus of global grain production turns firmly to the weather and progress of the huge summer crop in South America.

In Brazil the month of December has been drier than usual, and the below average precipitation is forecast to continue through to at least the 10^th January. Scouts are suggesting that as much as 25 per cent of the soybean crop area is experiencing some degree of moisture stress.

Historically, this would not have been such a big problem as the pod fill stage was typically in January. But this season is different. Early planting conditions were excellent, and many farmers took advantage by planting early. They have also increased the proportion of short season varieties in their rotation this season.

Consequently, bean set, and pod fill have been much earlier than normal making the recent dryness an issue for the earlier maturing regions. The crop is so early in some parts of central Mato Grosso that harvest commenced before Christmas.

Up to now most of the decrease in production has been confined to the southern states of Parana, Rio Grande do Sul and Mato Grosso do Sul. But there is now concern that dryness in Mato Grosso could see a cut to soybean yields in that state as well. Mato Grosso is the premier state for soybean production in Brazil and is responsible for around a quarter of the country’s annual production.

An early soybean harvest in Brazil means new crop beans will be available for export earlier than normal. The Chinese may have made some token purchases from the United States (US) in recent weeks, but they did have to pay ‘overs’. Will they continue that strategy, or will their primary interest turn to Brazil? The higher US market has seen countries such as Bangladesh, and even Mexico, book early new crop shipments out of Brazil lower than US offers.

The dry weather is also having an impact on Brazilian corn production. Ample land and a favourable climate with a long growing season make Brazil ideal for growing corn. Technological advances in soil management and improved hybrid corn varieties have stimulated an explosion in production that has seen it more than double since the turn of the century.

In much of the country, that enables two harvests per year. The second-crop corn is also known as the safrinha crop. This is a Portuguese word meaning “little harvest”. Historically, this was an appropriate name but the safrinha crop is now larger than the first, or full-season, corn crop in Brazil.

The corn area is not as far ahead of normal development as the soybean crop but there are concerns that production losses, particularly in Parana and Rio Grande do Sul, will make the carry into the safrinha harvest very tight. Price weakness has also seen farmer selling dry up into year’s end.

In contrast to Brazil, the December story for many parts of Argentina was all about too much rain. This was certainly a problem for the last of the winter crop harvest which has been delayed and suffered quality downgrades as a result. With less than 15 per cent of the wheat harvest to be completed production estimates remain around 19 million metric tonne (MMT) according to the Buenos Aires Grain Exchange (BAGE). That compares to the Rosario Grain Exchange estimate of 18.7MMT. Average wheat yields are reported to be just under 3 metric tonne per hectare.

Whilst some summer crop replanting has been required, the wet weather has been beneficial for most of the Argentine soybean and corn area. The BAGE reported last week that the Argentine soybean crop was 83 per cent planted, compare to 82 per cent a year ago. Around 85 per cent was reported to have favourable soil moisture conditions.

The BAGE estimated that the Argentine corn crop was 73 per cent planted as of last week and that it was progressing in line with the long term average. The wet December has seen an increase in the recently harvested wheat area being double cropped into corn. A continuation of this trend and the favourable conditions could see an upward revision of corn production estimates, but it is still too early to call.

Australian sorghum production has consolidated at around the 2.2MMT mark following the rains across parts of southern Queensland and, to a lesser degree, northern New South Wales, just prior to Christmas. It is going to be a long drawn out sorghum season as the recent rains will see planting continue well into the New Year and we are already seeing harvest commence in the early sown regions.

Sorghum values have continued to decline relative to wheat in recent weeks with the spread getting out to as much as AU$115 leading up to the festive season. That is certainly plenty of incentive for domestic consumers to increase sorghum inclusion rates (at the expense of wheat) in the stockfeed rations.

This in turn has the potential to push domestic demand beyond 1.7MMT. With no certainty around the aforementioned production estimate, it could get very interesting if China steps up to buy Australian sorghum for the specialised baijiu alcohol market.

Stay tuned for more grain market insights in 2019. Happy New Year.

Peter McMeekin is a consultant to Grain Brokers Australia. Call 1300 946 544 to discuss your grain marketing needs.