Global grain market update
WE HAVE all heard of bull markets and bear markets.
Now we have ‘tweet’ markets after a post on Twitter by ‘The Don’ sent United States futures markets sharply higher last Thursday and Friday (US time). The rally was based on the hope of progress in the trade negotiations with China.
President Donald Trump said he had spoken with his Chinese counterpart, President Xi Jinping, and stated the trade discussions were “moving along nicely” and that meetings were being scheduled during the G-20 summit due to take place in Argentina later this month.
Soybeans have been the commodity most affected by ‘Don’s Party’ since it began earlier this year. As news of a possible resolution to the trade impasse surfaced on Thursday, the bean sellers disappeared and short covering sent the futures market more than 3 per cent higher. It hit a two-week high on Friday before late selling pushed the bourse lower into the close, but still up for the session and substantially up for the week.
Wheat had its own story with mounting concern over US winter wheat acres, either because it’s simply too wet to plant or because the rain-delayed bean harvest is pushing the wheat seeding program past final plant dates for crop insurance.
The wheat harvest in Argentina is progressing quite slowly with around 4.5 per cent of the total area harvested as of November 1. While yield reports are improving, the average yield is currently running at 1.6 metric tonne per hectare (mt/ha). The Buenos Aires Grain Exchange (BAGE) pared its wheat production estimate last week by 0.3 million metric tonne to 19.4MMT. This compares to 18.5MMT last year.
The production downgrade was reportedly due to frost and hail damage. There were more frosts last week that could further damage crops in the later maturing provinces in the south of the country. Additional reductions to production numbers are distinctly possible as a result.
Argentinian wheat prices are reported to be quite firm in the nearby with exports focused on Brazil. Once significant new crop tonnage is available for export, prices are expected to better reflect export parity values, which are about US$30 lower. Exports are currently forecast at 14.5MMT for the 2018/19 season. Brazil will take approximately 6MMT, leaving about 8.5MMT that needs to find a home internationally.
Meanwhile, the Russians are at it again, saying it may temporarily suspend wheat loading at five facilities in Rostov, and could do the same for the Krasnodar region, supposedly due to quality problems. However, the government is clearly concerned about domestic supply and prices, so it is more likely intended to slow the pace of exports without officially imposing restrictions.
There are signs that price is starting to swing exports away from Russia, with sales increasingly negotiated as ‘optional origin’. In the event Russian supplies tighten, this gives the exporter the option of sourcing their grain from other origins such as the EU, US or Argentina. This was supported by US export sales, which are showing signs of improving on the back of a lower US dollar.
In normal years Australia would also be on that list, but inelastic demand should account for the majority of our meagre exportable wheat surplus during the next 12 months. The same goes for barley, and canola exports will be negligible after domestic demand is taken into account.
The final Australian export numbers are in for the 2017/18 marketing season (October to September). Wheat exports in September were 865 thousand metric tonne (KMT), bringing the total for the 12-month period to 13.8MMT. The wheat emphasis was on quality, with Iraq being the biggest destination in September, accounting for almost 310KMT, while Indonesia took only one panamax cargo for the month. September barley exports were almost 90KMT, bringing the marketing year total to just above 6.1MMT.
GLOBAL GRAIN: Wet weather is causing growing concerns for US wheat plantings.