New supply and demand estimate for global grain
Dramatic rise in China’s corn stocks
OUTSIDE of the US midterm elections, two events stole the spotlight in global grains markets in the past week. Firstly, the results of the most recent Saudi Arabian barley tender and, secondly, the World Agricultural Supply and Demand Estimates released by the United States Department of Agriculture.
Early last week, the Saudi Arabian Grains Organisation announced 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 more than 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, 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 then a freight of US$26 to Jeddah, 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.
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. While 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 about 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 almost two-thirds of their requirements came from the Black Sea region.
The highlight of last week’s WADSE report was the dramatic change to corn stocks in China. A day before the report was released the China National Grain and Oils Information Centre revised the country’s corn production data for the previous decade. The overhaul was a result of last year’s agricultural census, the first in China for 10 years. It highlights the amount of land in the northeast of China that has been brought into agricultural production in recent years and was not previously registered with the government for such purposes.
CNGOIC added a whopping 294MMT to its corn production numbers during 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 brought 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, it 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 its 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 US corn yields from 11.34 metric tonne per hectare to 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. 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 carry-out number could remain stable at around 3MMT.