Indian wheat crop faltering…

24 December 2018

Speculation is increasing that this season’s Indian wheat production could be much lower than last year, as less than average rainfall and higher than average temperatures threaten yields in the key winter crop regions.

After rice, wheat is the most important food-grain in India. It is the staple food of millions of Indians, particularly in the northern and north-western states of the country. India is the second largest producer of wheat in the world, after China, and in the last two years has accounted for more than 13 per cent of the world’s total production of wheat.

The area of arable land in India is just under 160 million hectares. This is more than 60 per cent of the country’s total land area and is the second largest in the world behind the United States (US). According to government sources, Indian farmers had planted 15.4 million hectares of wheat up to December 14. This is down slightly from last year’s total of 15.7 million hectares and represents almost 10 per cent of the arable land area.

The northern states of Madhya Pradesh and Uttar Pradesh are the country’s top two wheat producers. They account for more than 45 per cent of India’s total output. In the four month period from June to September this year, these two states received only 10 per cent of their long-term average rainfall. This is normally the peak monsoon period and rain in these months is critical for the succeeding winter crop production season.

Based on the monsoon, the Indian cropping cycle is classified into two distinct seasons – Kharif and Rabi. The terms come from the Arabic language where Kharif literally means autumn and Rabi means spring and refer to the harvest period for each of the seasons.

The Kharif cropping season runs from June to October each year and this is when summer crops such as rice, maize, cotton and sorghum are grown. These crops are planted with the onset of the south-west monsoon and finish when the rainy season is over.

On the other hand, the Rabi cropping season runs from October to April, when India grow their winter crops such as wheat, barley and chickpeas. The crops are sown when the monsoon ends and harvested before the beginning of the summer season.

India harvested a record 99.70 million metric tonnes (MMT) of wheat in the 2017/18 crop year. This is an increase of 1.2 per cent on the previous record set in 2016/17. However, it is substantially higher than the preceding two drought-affected years when production of only 87MMT resulted in substantial imports, particularly from Australia.

Wheat prices have reportedly risen by more than 15 per cent since the beginning of this financial year. A substantial depreciation in the value of the Indian rupee against the United States dollar has certainly contributed to this increase.

There was also some government influence in the lead up to the general election. Higher domestic prices were designed to appease disgruntled farmers in northern India where the price of key farm inputs, such as fuel and fertiliser, increase at a faster rate than the returns from farm production. But if prices go too high the government risk alienating the city folk who are forced to pay higher prices for their food.

However, fall in Indian wheat output could push domestic wheat prices even higher and force the Indian government to reduce import taxes so that local production can be supplemented with imports. Higher imports from India will, in turn, provide support for global wheat prices.

At the beginning of November reserve wheat stocks held by the government reportedly stood at just over 33MMT, up by almost 40 per cent in the last twelve months. The recent price increase may prompt the government to release some of these stocks onto the market to manage the rising price situation.

Meanwhile, after weeks of speculation, there is finally confirmed evidence of a sustained resumption of agricultural commodity trade between China and the US. The United States Department of Agriculture (USDA) reported mid-month that China had purchased 1.5mmt of soybeans.

Well, they returned to the trough again last week with a further 1.2mmt of soybean purchases. Whilst the shopping may not have finished for 2018, the total purchases to date still fall well short of trade expectations and US farmer hopes. The market reaction told the story with Chicago soybean futures down following the news.

China is the world’s largest consumer of soybeans accounting for 60 per cent of global trade each year. In 2017 they purchased 31.7mmt of US soybeans, almost 60 per cent of total US soybean exports. The story is quite different this year. Trade tensions escalated following the imposition of tariffs by the US government on a multitude of imported Chinese goods.

The big question now is ‘what will these purchases do for the delicate trade negotiations’? Stay tuned for more Don’s Party action in 2019!

Finally, as this will be the final market report for the year, the team at Grain Brokers Australia would like to wish all readers the very best for the festive season and a New Year filled with joy and prosperity.

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

Santa overwhelmed with orders for rain…

The southern hemisphere’s second biggest wheat producer is Argentina. Heavy rain across a large portion of the country’s northern wheat production region in the past week bought harvest to a halt and started to raise quality concerns for the area yet to be reaped. The forecast for more rain over the next week has added to the market’s anxiety.

The extreme weather comes on the back of frosts in the later maturing central and southern wheat growing regions that will also have quality and quantity ramifications as the harvest moves south. The province of Buenos Aires was the hardest hit by the latest frost which arrived right in the middle of the critical flowering period.

Further west, hail storms hit the wheat crops in the southern parts Cordoba and the northern reaches La Pampa as the crop was moving to the end of the grain fill stage. Again, this is expected to manifest itself in lower yields and poorer quality in the affected areas.

As a result, the Rosario Grain Exchange has reduced its production estimate to 18.7 million metric tonnes (mmt). This is a 3.6 per cent reduction on their early November estimate of 19.4mmt. The exchange reported that the pace of the wheat harvest was slower than normal at around 52 per cent completed compared to 58 per cent at the same time last year.

According to the Buenos Aires Grain Exchange, the average wheat yield is running at 2.71 metric tonnes per hectare and there was just over 9.5mmt in the bin as at Thursday last week. Even though recent weather events have decreased final production expectations, it is still expected to be around 7 per cent higher than last season.

Like Australia, harvest usually brings a fall in prices as supply increases sharply. However, the market has moved in the opposite direction on the back of lower production and strong export demand, primarily at the expense of Australia. Values for 12 per cent protein wheat have reportedly risen around 5 per cent in the last week, trading on Thursday at US$223 Free on Board (FOB) for January loading up river. That market was subsequently offered at US$228 FOB.

Up river refers to the Paraná River ports west (or up river) of Buenos Aires. The Paraná River is the second longest river in South America at 4,880 kilometres in length and runs through Brazil, Paraguay, and Argentina. It is an extremely important trade pathway for both Argentina and the landlocked country of Paraguay. The volume of water that flows into the Atlantic Ocean via the Río de la Plata roughly equals that of the Mississippi River.

In the meantime, Egypt (GASC) unexpectedly dropped into the market last week and picked up another 180,000 metric tonnes (three cargos) of wheat for early February 2019 shipment. Russia sold two cargoes and Romania the other, but the big surprise was the price which was around US$6 higher than their purchases only a week earlier.

The higher price paid by GASC this week appears to be a reflection of declining Russian supply and less aggressive offers as the local farmers are reportedly holding onto their remaining stocks in the expectation of better prices. Russian 12.5 per cent protein wheat reportedly closed the week offered at around US237 FOB for panamax capable ports.

The talk of Russian export restrictions reared its ugly head again this week. It seems that every time the government arranges to meet exporters (another meeting scheduled for December 21) the rumour mill goes into overdrive. Maybe the threat of restrictions, solid domestic demand and the increased grower resolve will be enough to do the job without government intervention. Only time will tell!

The United States Department of Agriculture (USDA) still has Russia in for 36.5mmt of wheat exports. But they are the only ones that believe it. The current export pace supports that number. However, lower production (70mmt compared to 85mmt last year) and increasing internal prices, going into their winter, certainly suggest it is not possible.

Talk in Australian markets over the past week was dominated by the forecast of widespread rainfall throughout the summer cropping regions of northern New South Wales and Queensland. The rain arrived on time and some localised recordings, particularly on the inner Downs, were better than expected. Nonetheless, in general, the falls to date have disappointed compared to the lofty forecasts. I guess that has been a consistent theme throughout 2018.

Sorghum values moved lower across the week on the back of the optimistic weather forecasts with bids dropping below AU$350 delivered Darling Downs before rising slightly to close the week. However, wheat values have remained firm and with sorghum quoted at a discount of at least AU$80, the sellers were simply not engaging the market. With Western Australian wheat (the major stockfeed alternative) reportedly finding robust export demand, who could blame them?

The huge spread between sorghum and wheat values delivered into the key Darling Downs and Brisbane consumption markets appears to be reflecting a new crop sorghum production number of well over 2mmt. Based on reported seed sales, that is probably conservative. Based on reality, there is one key requirement before this becomes conceivable. More rain!

The precipitation over the last four days has been fantastic and welcomed. But more widespread falls are required across northern New South Wales and southern Queensland to stem the rate of sorghum abandonment, give the surviving crop a good drink, and ensure that the unplanted areas are sown as soon as possible.

And Central Queensland requires more rainfall across almost the entire region so that growers can plant their sorghum in the ideal New Year seeding window to maximize yield potential.

I think I know what most summer crop growers down under have ordered for Christmas.

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

All dressed up with nowhere to go…

A deal has supposedly been done, Chicago Board of Trade (CBOT) soybean futures moved 2.5 per cent higher last week in anticipation of some sales, but the market is still waiting for clarity, and action, around the trade truce between the United States (US) and China.

Early last week the White House stated that there would be an immediate resumption to agricultural trade following the handshake agreement at the G20 summit in Argentina earlier in the month. Not much has been said since, but The Don took to Twitter on Friday saying that the “China talks are going well”. What does that mean?

There were rumours emanating from China late in the week that Beijing had approved the purchase of 5 million metric tonnes (MMT) of US soybeans. In a supposed gesture of good faith, it is believed that state-owned companies Sinograin and COFCO had been instructed to buy 3MMT and 2MMT respectively.

Whilst such purchases would certainly be welcomed by the US farmer, they would hardly put a dent in the huge US stockpile. Even though CBOT soybean futures have risen in all but one trading session in the last week, the prospects of a record Brazilian crop will more than likely slow any further gains until significant US sales are confirmed.

On the wheat front, Egypt reported that they have purchased 350 thousand metric tonnes (KMT) in the latest General Authority For Supply Commodities (GASC) tender. Russia continues to dominate with a total of 290KMT for shipment in the last ten days of January 2019. The remainder (one panamax cargo) went to their Black Sea adversary, Ukraine.

The average purchase price was just under US$253 cost and freight (C&F), which is very similar to the November tender price. However, it is not price that seems to be the biggest issue for the Egyptian government at the moment. They have not issued letters of credit for sixteen wheat cargoes purchased in recent tenders. The issue apparently effects around 945KMT, some of which arrived at Egyptian ports in late November.

Such issues are not new for Egypt but the interesting difference this time is Egypt’s net foreign reserves were US$44.513 billion at the end of November. This is much higher than last time and is more than enough to cover the cargoes in question. However, the major concern for the trade is a statement from GASC saying that Cairo’s ministry of finance had told them that nothing will happen until January. There are plenty more cargoes scheduled to arrive between now and then.

It seems that the finance issue is not confined to Egypt. Zimbabwe’s biggest flour mill was forced to close last week due to a lack of working capital and fellow African countries, such as Tunisia, have been experiencing extreme payment problems in recent times. Nonetheless, the GASC issue is certainly the market’s major credit concern for the moment.

Global barley news is still dominated by the anti-dumping action instigated by China against Australia last month. Under the World Trade Organisation (WTO) rules the earliest that China can impose tariffs, bans or other penalties on Australian barley is the 20^th January next year. However, it is believed that technicalities behind the action mean that it may be as late as the end of February (or even early March) before any possible trade restriction can actually take effect.

This has seen a mad scramble to ship existing business early so that it arrives before any constraint commences. No doubt this was the reason behind the flurry of activity on the Western Australian shipping stem in late November. As much as 1.2mmt of forward malting and feed barley sales to China are believed to be on books of Australian exporters.

Despite the government action, the Chinese consumer needs this barley to carry on their regular business. Consequently, they are pushing exporters to ship as soon as possible. Traders are shuffling their export program. Wheat cargoes are being delayed so that barley can take the shipping slots. In some instances, this means two handy size cargoes are being booked instead of one panamax. No doubt there are additional costs as a result.

Word is many of the Chinese consumers are doing all in their power to assist the process. Buyers are switching cargos and letters of credit, opening letters of credit early and even bearing some of the additional costs in order to facilitate the immediate execution of their purchases.

In the meantime, the size and quality of the Australian barley crop is improving as harvest progresses, particularly in Western Australia. Only a few weeks ago many were scoffing at the suggestion of 4mmt in the west. Some in the trade are now quietly saying it could be more than 4.5mmt. This would make it bigger than 2016/17.

Heavier, plumper grain has also seen malting barley selection rates in Western Australia continue to increase as the barley harvest moves into the southern Kwinana and Albany zones. With almost 3.7mmt of barley received, it is now running at 38 per cent. This compares to 32 per cent a couple of weeks ago. The Albany zone is by far the best performing zone with a selection rate of almost 49 per cent. I guess the biggest question here is how much of that is in the Malt2 bin?

With China out of the market, and Japan covered until at least February, malting barley premiums in Western Australia have been squeezed into as low as AU$10 over the last week. This has certainly surprised many and is the lowest spread the market has seen this season.

Unfortunately, it is basic supply and demand economics at play. Production is higher than expected in the key export states, but our key customer is out of the game. It is simply too risky for exporters to make further sales and the Chinese consumer is not looking to buy for fear of having to pay a tariff if the anti-dumping dispute is not resolved.

The result is a bigger barley crop with no home. Better quality but no party invitations. All dressed up with nowhere to go.

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

Don’s party adjourned Azov the weekend …

Tensions continue to simmer in the Black Sea region after Russia seized three Ukrainian naval vessels attempting to enter the Sea of Azov on the 25^th November. At this stage disruptions to the movement of grain have been minimal, but any escalation of the standoff could have much wider ramifications.

The incident is a continuation of the issues that escalated after Russia annexed the Crimean Peninsula in 2014. Prior to this, Crimea existed as a semi-autonomous part of Ukraine, with political ties to Kyiv (Kiev) but strong cultural bonds to Moscow.

The sea of Azov, the shallowest sea in the world, is a small body of water whose only access to the open seas is the Kerch Strait which connects it to the Black Sea. This narrow passage is only 4 kilometres wide and is now spanned by a recently completed, and highly controversial, bridge linking Crimea to the Russian mainland.

The sea is supplied by numerous rivers, the biggest of which are the Don and Kuban, which drain vast areas of southeastern Russia. As a result, there is an almost constant outflow of water into the Black Sea and salinity is low.

Under a treaty signed in 2003, the Sea of Azov is shared by Russia and Ukraine. Following the annexation of Crimea, the Kremlin effectively gained control over both sides of the Kerch bottleneck, despite the aggressive action not being recognised by the global community.

Ukraine’s two major ports on the Sea of Azov are Mariupol and Berdyansk, and according to a government spokesman, they only make up about 5 per cent of the country’s grain exports. Around 2mmt of Ukraine grain exports were via the Kerch Strait last year. That said, it is likely that global trade will simply reduce their exposure to the current tensions by refusing supplies from the Azov Sea ports.

However, the issue here is not the minor disruptions to grain movements via the Kerch Strait. It is the possibility of an escalation in the tensions jeopardising grain exports from the greater Black Sea region, in particular, Ukraine.

As of 27th November, Ukraine’s total 2018 grain harvest had reached a record 68.2 million metric tonnes (MMT). The corn harvest is reportedly 94 per cent complete with 33MMT in the bin. As a result, exports are expected to reach an all-time high of 47MMT in the July ’18 to June ’19 marketing year.

Kyiv has temporarily imposed martial law in parts of Ukraine as a result of the crisis. However, according to the country’s acting agriculture minister, the martial law was not currently affecting grain shipments from their Azov Sea ports and they could be diverted to the country’s Black Sea ports if necessary. Nevertheless, this would increase the pressure on an already strained rail and road logistics network.

There is some international concern that under the terms of martial law, Ukraine could commandeer trains from commercial users. This is reportedly prompting some international banks to reduce their exposure to Ukraine by threatening to cut commercial financing.

Reports that Russia is building troops on its eastern border with Ukraine and deploying more ground to air missiles on the Crimean Peninsula will certainly not ease the strain on the already tense relationship. There is also the possibility that the European Union will add to the friction to the situation by increasing sanctions against the former Bolshevik state.

Whilst Putin’s actions would seem to be Russia’s way of demonstrating dominance over Crimea and the surrounding waters, neither country can really afford an all-out conflict. But then again, when has affordability, financial or political, ever got in the way of a good fight?

Meanwhile, Don’s Party (US-China trade war) is on hold after Xi Jinping and Donald Trump reportedly declared a trade truce following their bilateral meeting at the G20 summit in Argentina over the weekend. It was the first time the two had met since the world’s two largest economies had imposed tariffs on each other’s imports.

Apparently ‘The Don’ has agreed to delay the threatened imposition of 25 per cent tariffs on Chinese imports for a period of 90 days (up from the current 10 per cent), to allow time for negotiations on longstanding trade disputes. Not surprisingly Trump took to Twitter and used one of his favourite words, ‘amazing’, to describe the meeting between the two leaders.

According to a White House statement, China has agreed to resume the purchase of US agricultural products. This is a big boost to the US Midwest soybean farmer, many of whom were Trump supporters at the last election. China is traditionally the biggest destination for US soybeans, but since the trade tensions escalated under the Trump administration, exports have been reduced to a trickle.

To start the week, soybean, corn and wheat futures all opened higher on the Chicago Mercantile Exchange reflecting the positive sentiment emanating from the G20 discussions. Nevertheless, actions from both parties will be the best market barometer over the next few months. China had been extremely quiet in the bean market leading into the summit. If the Chinese come shopping the US will certainly be willing sellers as stocks are plentiful following a huge harvest.

The possibility of a record Brazilian harvest being available to the global export market around March next year will only increase their resolve. South American crop scouts are saying that it is the best start to the Brazilian summer cropping season for many years and are expecting soybean production could be as high as 122mmt.

The longer-term effect on the Aussie market will be interesting, particularly for sorghum. In recent years Australia has been a big supplier into the Chinese alcohol (Baijiu) market. There is definitely no production certainty at the moment, but a big area has been sown and if that culminates in a big harvest then Australia will need to find export demand.

Should China and the US solve their differences over the next three months then US sorghum suddenly becomes a cheaper alternative when Australia is ready to export. This will be quite bearish for Aussie values as sorghum is struggling to find significant feedlot demand at the current discount to domestic cereals prices.

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

Barley Bites Back…

27th November, 2018

Weather delays may have been playing havoc with the Western Australian harvest thus far, nonetheless, grain receivals have skyrocketed to exceed 2.6 million metric tonne (mmt) for the week ending last Thursday. This brings total harvest deliveries to just under 5mmt (on par with the same time last year), or around 31 per cent of the total expected production for the state.

The Geraldton zone is by far the most advanced with around 58 per cent of anticipated production now in the bin. The Kwinana zone is sitting at approximately 31 per cent completed followed by the Esperance zone at about 23 per cent and the Albany zone, who are only just getting started, with roughly 12 per cent of anticipated production already delivered.

On the wheat quality front, three trends have been noticeable since the harvest commenced. Firstly, the proportion of the wheat crop being binned as Australian Hard (AH) has been gradually decreasing and is now sitting at around 8 per cent of the 1.6 mmt deliveries to last Thursday.

Secondly, the Australian Premium White (APW) share has also been slowly decreasing and is now representing just over 32 per cent of the wheat harvested. Thirdly, the decrease in AH and APW receivals is being reflected in an almost equal increase in the Australian Standard White (ASW) portion of the total Western Australian wheat crop which is now level pegging with APW at slightly more than 32 per cent of deliveries.

The Western Australian canola harvest has passed the halfway point with just under 900,000 metric tonnes delivered by close of business last Thursday. This represents around 60 per cent of anticipated production. Most noticeable in the numbers has been the decreasing proportion of GM canola being delivered into the system as the headers move south.

However, this is not unexpected as the concentration of GM canola plantings is certainly higher in the Geraldton zone and the northern reaches of the Kwinana zone. GM canola deliveries are currently running at around 38 per cent of receivals and will probably end up at around 25 per cent assuming the current trend continues.

One pleasing trend is the increasing malting barley selection rate as the harvest progresses in WA. While I expect that this includes both Malt1 and Malt2 grades, the proportion of receivals classified as malting barley has increased to around 32 per cent last week after being as low as 23 per cent about ten days earlier.

I expect that this reflects two things. Sowing of a lower proportional area to malting barley varieties in the Geraldton zone (where the barley harvest is almost complete) and improving barley quality as the harvest moves south into the Kwinana, Albany and Esperance zones.

Barley has been hogging the headlines this week with China launching an anti-dumping investigation against Australia regarding barley sales into the Chinese market. China is currently the biggest destination for Australian barley exports, taking in excess of 5mmt from the record 2016/17 harvest.

Dumping is the act of charging a lower price in a foreign market than is being charged for the same product in the exporters domestic market. It is consequently considered an unfair trade practice giving the exporter a competitive advantage into the destination market.

This is the first time China has initiated such action against Australia. However, its sophistication in the use of such measures, primarily in retaliation, is proving a nightmare for the European Union (EU) and the United States (US), as ‘The Don’ is discovering.

Is it simply a shot across our bow or are they deadly serious?

While not perfect, Australia takes pride in its pursuit of a free and open global trading environment. The domestic grain market has been deregulated for a number of years now and Australia basically sells its barley to the highest bidder, be that a domestic or an international customer.

In a year when Australia’s exportable surplus of barley has been cut to as low as 3mmt due to severe drought in the eastern states, dumping into the Chinese market at the expense of the hungry domestic consumer is not going to happen.

If the investigation is not withdrawn it will most likely take at least a year to conclude. However, under the World Trade Organization (WTO) rules, Beijing can impose duties after only 60 days. They could effectively restrict Australian barley imports and buy their requirements from other global suppliers if they so desired.

One thing is for certain, this is not a game in which Australia wants to participate. We need to avoid getting dragged into sanction fights such as we are presently seeing between the US and China.

No doubt the grain industry will to work cooperatively with the Chinese and Australian governments to seek a positive outcome for all market participants.

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

Iraq drifting to the dark side…

By Peter McMeekin

Talk that Iraq is looking at the possibility of importing Russian wheat is not great news for Aussie producers. Iraq may not be our biggest wheat customer, nonetheless, they are a substantial and vital buyer of Australian high protein wheat, averaging around 620 thousand metric tonne (kmt) over the last ten marketing years.

Iraq’s new trade minister, Mohammed Hashim al-Aani, has reportedly said that they will send a delegation to Russia in December to assess the quality and suitability of Russian wheat for domestic use as well as assessing their logistics capabilities. The majority of Iraq’s imported wheat is used for bread production, a diet staple consumed by about 75 per cent of the population with most meals.

Whilst shipping from Russia’s Black Sea ports traditionally has a freight advantage, quality is considered to be the biggest hurdle facing Russian exporters compared to traditional suppliers such as Australia, Canada and the United States (US). Of primary concern is the nature of the gluten content of Russian wheat and its suitability for Iraq’s milling industry.

The latest estimates place Iraq’s population at just under 40 million. About 35-40 per cent of Iraqi citizens live below the poverty line and are reliant on a monthly subsidy card system to supply subsidised bread and other essential foods. The Iraqi government wants to allow Russia to participate in the tenders to supply this massive rationing program, presumably, in the hope of buying suitable quality wheat but at a lower price compared to traditional suppliers.

Mohammed Hashim al-Aani also stated that he was looking to secure larger state funding for the rationing program with the aim of maintaining at least a three-month reserve of grain. This reserve would include purchases from local farmers which he expected to total around 2mmt this year.

Wheat consumption in Iraq is approximately 5–6 million metric tonne (mmt) per year. It usually imports around half of its annual requirements and, along with Saudi Arabia, is currently one of the few markets in the region that do not import Russian wheat. Domestic wheat production has been struggling to meet the increase in demand, primarily from the livestock sector, resulting in imports of almost 3mmt in the 2017 calendar year.

The Tigris and Euphrates rivers are the primary sources of water for Iraqi farmers producing wheat, barley and rice. This area of present-day Iraq was once known as Mesopotamia and was part of a huge region called the Fertile Crescent. Stretching from Iraq through modern day Syria, Cyprus, Lebanon, Israel, Jordan, Palestine and into Egypt, agriculture and early human civilisations flourished due to inundations from the surrounding river systems. It is regarded as the birthplace of agriculture, urbanisation, trade, science, history, writing and organized religion, and was first populated around 10,000 BC.

Erratic rainfall and construction of dams upstream in Iran and Turkey have reduced river flows in the Tigris and Euphrates by at least 50 per cent in recent decades. The lower flows have decreased critical electricity production and also increased the salinity of the water, rendering it unsuitable for agriculture in some parts.

Around one in five Iraqis are farmers. Less water means less land can be farmed, resulting in less production and lower farm income. This has forced people to find alternative employment or migrate to the larger cities where services are struggling to cope with the increased pressure and unemployment is on the rise.

Like eastern Australia, this season’s Iraqi wheat crop was hit by severe drought. According to Iraq’s Central Bureau of Statistics, this cut the country’s soft wheat output by 27 per cent to only 2.2mmt, its lowest since 2009. This means that Iraq’s import requirements in the 2018/19 marketing year are likely to be higher than in recent years.

In the five marketing years commencing in 2008/09, Iraq purchased an average of 900kmt per year from Australia, with the biggest being 1.65 mmt in 2012/13. In the five subsequent years, the average was much lower, with the 2015/16 season seeing only 52kmt of Australian wheat make its way to Iraq. The recently concluded 2017/18 marketing year saw Iraq import around 700kmt of Australian wheat, predominantly from Western Australia.

Nobody is questioning Russia’s long-term ability to meet some, or all, of Iraq’s wheat demand, so long as they can meet the quality parameters. SovEcon agriculture consultancy recently raised their current season wheat production estimate by 1.3 per cent to 70.7mmt. They said that the Siberian farmers had managed to harvest more crop than expected before the snow cover bought a halt to proceedings. SovEcon also increased their wheat planting forecast for next season to 18.3 million hectares, an increase of 3 per cent on their previous estimate.

Meanwhile, the harvest is ramping up in Western Australia and ramping down in many parts of eastern Australia. In Queensland, it seems like harvest started yesterday and finished today. Receivals into the GrainCorp system are less than 150kmt and unlikely to increase significantly. Most of the grain is either stored on farm or has bypassed the bulk handler system, and the trade, and gone directly to the hungry domestic consumer on the Darling Downs.

The story is similar in northern New South Wales where harvest came and has almost gone in the blink of an eye. Whilst the crop prospects in southern New South Wales are a little better, this year’s harvest peak will also come and go very quickly, and without a lot of fuss, much like Wagga Wagga’s famous 5 o’clock wave as it rolls down the Murrumbidgee.

On the flip side, yield reports from the early Western Australian harvest have been better than expected, with the Geraldton zone having a cracker. The eastern state’s consumer is praying that this continues and gives them a modicum of price relief until the sorghum crop is harvested. The problem here is that Western Australian wheat exporters are finding international demand at present values. At current price spreads, this will most likely lead to an increase in domestic barley demand, thereby freeing up wheat for traditional international markets such as Indonesia, and hopefully, Iraq.

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

Grain Brokers Australia Weekly Market Report

13^th November, 2018

Lest we forget…

Outside of the US midterm elections, two events stole the spotlight in global grains markets over the past week. Firstly, the results of the most recent Saudi Arabian barley tender, and secondly, the World Agricultural Supply and Demand Estimates (WADSE) released by the United States Department of Agriculture (USDA).

Early last week the Saudi Arabian Grains Organisation (SAGO) announced that it had purchased 1.02 million metric tonnes of barley for January and February delivery. The average price was US$266.83 per metric tonne cost and freight (CFR), with all but one cargo going to Glencore. This was up just over US$6 on the previous tender but was still viewed as aggressive by the EU trade with values US$8-10 lower than most expectations.

SAGO reported that offers were received from most of the major origins including European Union (EU), North America (excluding Canada), South America, Australia and a number of Black Sea states. The only exporter not in the game at the moment is Australia. Assuming a freight of US$26 to Jeddah then that puts Aussie replacement around US$20 out of the money. The Black Sea and EU offers are pretty close into Jeddah, but the cheapest origin appears to be Argentina.

Interestingly, the spread between Jeddah and Arabian Gulf delivery has narrowed to just US$3 suggesting that a significant share of the execution will be from Argentina. Open export licenses for Argentine barley for the 2018/19 season currently stand at 1.13 MMT. This is around half of the estimated exportable surplus, but it will not all go out in this tender.

The majority of the barley production area is in the south of the country, so harvest is not expected to commence until late November, weather permitting, with the peak harvest period being December. Whilst December shipment will be possible, it is more likely that Russia, Ukraine and possibly EU origins will fill the early Saudi delivery periods with Argentina chiming in for six to eight of the late January and February 60,000 metric tonne slots.

Saudi Arabia is expected to import around 8.5MMT of feed barley in the current marketing year. In the 2017/18 season, Russia overtook Ukraine as the largest supplier of feed barley to the Kingdom. They supplied 29 per cent and 23 per cent respectively, with Germany (13 per cent) and Romania (10 per cent) rounding out the top four. That means that almost two-thirds of their requirements came from the Black Sea region.

The highlight of last week’s WADSE report were the dramatic changes to corn stocks in China. A day before the report was released the China National Grain & Oils Information Centre (CNGOIC) revised the countries corn production data for the previous decade. The overhaul was a result of last year’s agricultural census, the first in China for ten years. It highlights the amount of land in the northeast of China that has been bought into agricultural production in recent years and was not previously registered with the government for such purposes.

CNGOIC added a whopping 294MMT to their corn production numbers over the decade, more than 170MMT of that in the past four seasons. Last season’s production was adjusted from the previously reported 215.9MMT to 259MMT, an increase of 20 per cent. This was bought about by an increase in planted area from 35.5 million hectares to 42.4 million hectares.

There was obviously some frantic activity in the USDA building after the China update was released. In the end, they adopted the revised China production numbers (for now). The USDA increased China’s 2018/19 ending stocks by 149MMT to 207.5MMT. And this is after China has auctioned more than 100MMT for their strategic corn reserves this year. As a consequence, world ending stocks increased by 148.16MMT to 307.51MMT. That is almost double the October estimate. How does that happen? Only in China, I guess!

Obviously, domestic consumption in China has also been underestimated, or so the USDA believes, as the increase in ending stocks only account for about half of the aforementioned production adjustment since 2009. However, from a global trade viewpoint, the true indicator of world ending stocks is the one that excludes China and that remained relatively unchanged at 100MMT. That is despite the larger than expected decrease in estimated United States (US) corn yields from 180.8 bushels per acre (11.34 metric tonne per hectare) to 178.9 bushels per acre (11.22 metric tonne per hectare).

The USDA also revised China’s wheat production estimates following the data adjustment from the government. The 2018/19 projections were raised 4.5MMT to 132.5MMT and ending stocks for the same season were forecast to be 143.6 MMT, 7.5MMT higher due to increased supplies in prior years.

WADSE decreased the Australia wheat crop forecast by 1MMT to 17.5MMT. The export number was reduced by 1.5MMT to 11.5MMT. No surprise to see that both these numbers are still well above local consensus. They fudged the books a little by increasing 2018/19 carry in stocks to 5.7MMT so that the carryout number could remain stable at around 3MMT.

I would like to finish this week’s report by forgetting grain markets for a moment. Last Sunday was Remembrance Day, exactly one hundred years since the guns fell silent over Europe, marking an end to the First World War. To that point in time, it was the bloodiest and deadliest war the world had ever seen. It was coined “the war to end all wars”. Unfortunately, we now know that not to be true.

In 1914 the Australian population was less than five million. Almost 420,000 Australian’s enlisted for service. That was almost 10 per cent of the population. Many of us have forefathers who fought at Gallipoli, in Europe or the Middle East. Freedom is not a privilege, it is earnt, and too many Australians paid the ultimate sacrifice so that we could be free.

“They shall grow not old, as we that are left grow old; Age shall not weary them, nor the years condemn. At the going down of the sun and in the morning, we will remember them.”

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